The company intends to raise additional capital to finance an expansion. The expected cost is $20M Canadian dollars. The board is uncertain whether it should issue additional shares or new debt, given the current capital structure. The current lending rate is 10% (assumed). Advise the board on the impact of the two financing options on the company's current capital structure. In your analysis, show calculations and analysis of the following:

1. The revised number of outstanding shares and the impact this share issue may have on the existing shareholders;

2. The impact of the additional share issuance on the earnings per share;

3. The day 1 journal entry to record the share issuance option;

4. The day 1 journal entry to record the debt option; and

5. 

6. ?

7. 

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Unaudited (Canadian dollars in millions except per share figures) Operating revenues Passenger Cargo Other Total revenues Operating expenses Aircraft fuel Wages, salaries and benefits Regional airlines expense, excluding fuel Depreciation and amortization Aircraft maintenance Airport and navigation fees Sales and distribution costs Ground package costs Catering and onboard services Communications and information technology Special items Other Total operating expenses Operating loss Non-operating income (expense) Foreign exchange gain (loss) Interest income Interest expense Interest capitalized Net financing expense relating to employee benefits Gain (loss) on financial instruments Loss on debt settlements and modifications Other Total non-operating expense Note 11 Note 11 Note 4 Note 3 Note 5 Note 10 Note 5 September 30 2021 1,636 366 101 2,103 472 592 312 400 153 166 74 23 52 85 (103) 241 2,467 (364) (136) 17 (197) 4 (1) 114 (110) (6) (315) $ 2020 507 216 34 757 175 475 198 423 45 97 30 5 26 66 (192) 194 1,542 (785) 88 32 (196) 6 (6) 46 (6) (36) September 30 2021 2,457 $ 1,005 207 3,669 911 1,617 700 1,217 430 373 142 29 94 271 (157) 588 6,215 (2,546) (74) 54 (538) 13 (10) (114) (129) (20) (818) 2020 3,907 634 465 5,006 1,135 1,735 841 1,414 496 438 226 236 146 292 44 776 7,779 (2,773) (381) 106 (474) 20 (26) (28) (22) (805) Unaudited (Canadian dollars in millions except per share figures) Operating revenues Passenger Cargo Other Total revenues Operating expenses Aircraft fuel Wages, salaries and benefits Regional airlines expense, excluding fuel Depreciation and amortization Aircraft maintenance Airport and navigation fees Sales and distribution costs Ground package costs Catering and onboard services Communications and information technology Special items Other Total operating expenses Operating loss Non-operating income (expense) Foreign exchange gain (loss) Interest income Interest expense Interest capitalized Net financing expense relating to employee benefits Gain (loss) on financial instruments Loss on debt settlements and modifications Other Total non-operating expense Note 11 Note 11 Note 4 Note 3 Note 5 Note 10 Note 5 September 30 2021 1,636 366 101 2,103 472 592 312 400 153 166 74 23 52 85 (103) 241 2,467 (364) (136) 17 (197) 4 (1) 114 (110) (6) (315) $ 2020 507 216 34 757 175 475 198 423 45 97 30 5 26 66 (192) 194 1,542 (785) 88 32 (196) 6 (6) 46 (6) (36) September 30 2021 2,457 $ 1,005 207 3,669 911 1,617 700 1,217 430 373 142 29 94 271 (157) 588 6,215 (2,546) (74) 54 (538) 13 (10) (114) (129) (20) (818) 2020 3,907 634 465 5,006 1,135 1,735 841 1,414 496 438 226 236 146 292 44 776 7,779 (2,773) (381) 106 (474) 20 (26) (28) (22) (805)

Answer rating: 100% (QA)

To advise the board on the impact of the two financing options issuing additional shares or new debt on the companys current capital structure lets analyze each option separately 1 Issuing Additional ... View the full answer