A company needs to raise 10 million to expand its
A company needs to raise $10 million to expand its operations. It is considering two options:
(1) Issuing bonds
(2) Issuing common stock. Currently, the company's balance sheet shows the following (in millions):
Required
a. Calculate the company's debt to assets ratio prior to raising the $10 million and comment on the riskiness of the company's existing capital structure.
b. Recalculate the company's debt to assets ratio under the two options the company is considering and comment on how this changes the riskiness of the company's capital structure.
c. Can one of the options be considered the "correct" option?
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