Curley’s Fried Chicken Kitchen operates two southern cooking restaurants in St. Louis, Missouri, and has the following financial structure:

Accounts payable ........$ 100,000

Short-term debt ........ 400,000

Current liabilities ........$ 500,000

Long-term debt ........$2,000,000

Owner’s equity ........ 1,500,000

Total ............$4,000,000

The firm is considering an expansion that would involve raising an additional $2 million.

a. What are the firm’s debt ratio and interest-bearing debt ratio in its present capital structure?

b. If the firm wants to have a debt ratio of 50 percent, how much equity does the firm need to raise in order to finance the expansion?