Exercise 1 - Debt Financing versus Equity Financing Donkey Ltd's equity is as follows: Share capital $5 000 000 Retained earnings and reserves 2 000 000 Equity $7 000 000 Donkey Lid plans to expand its operations by establishing a branch in Thailand. The new branch will cost $3.5 million. Expected profit before tax and interest when the new branch is operational is $2.2 million. The tax rate is 30%. Donkey Ltd is considering two financing alternatives: 1. Borrow $3.5 million at 8% interest. 2. Issue 100 000 $35 shares. Required Which funding alternative yields the higher return on equity? What other factors should be considered