Assignment - Exploring Financing options 1. John Brown owns a business and wants to expand. He can either borrow money or sell additional equity. Currently he is the sole owner of the business. Complete the information below for two different scenarios: In Scenario A, John's company borrows $200,000 and in Scenario B, the company sells an additional $200,000 in common stock at $1 per share. Complete the columns below for Scenarios A & Which option would you advise John to take (more debt or sell equity) and why? Assume that revenues and expenses (other than those related to debt) do not change. (Money raised from either debt or equity will be reinvested in the business but you do not have to show the increase in assets or any potential increase in revenues). Abbreviated Balance Sheet Information Currently Scenario A Scenario B Liabilities Debt $75,000 Stockholder's Equity Common Stock (currently 200,000 $200,000 shares/ $1 each) Retained Earnings $ 50,000 Total Equity $250,000 Abbreviated Income Statement Revenues $125,000 Expenses (not including interest and 60,000 taxes) Inc. before interest and taxes 65,000 Interest expense (at 3% on debt amt. 2,250 above PreTax Income 62,750 Taxes (rate of 25%) 15,687.50 Net Income $ 47,062.50 ROE .188 Debt to Equity Ratio .30