I Assignment - Exploring Financing options: Debt versus Equity Darrell Homer wants to expand his business. Revenues have been a bit erratic over the last few years, but Darrell believes that COVID presents an opportunity to expand since some of his competitors have gone out of business. Darrell can either borrow money or sell additional equity. Currently Darrell owns 55% of the business and investors own the remainder. Complete the information below for two different scenarios and then answer the questions on the next page. In Scenario A, Darrell's company borrows an additional $200,000 at 6% interest. In Scenario B, the company sells (company raises money) an additional $200,000 in common stock, for which the new investors will receive 10% ownership in the business. 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 other assets or any potential increase in revenues). Abbreviated Balance Sheet Information Currently Scenario A More Debt Scenario B More Equity Liabilities (Debt) Stockholder's Equity $ 275,000 $1,750,000 Abbreviated Income Statement Revenues Expenses (before interest and taxes) Inc. before interest and taxes Interest expense (at 6% on total debt) PreTax Income Taxes rate of 35%) Net Income $1,425,000 860,000 565,000 16,500 548,500 191.975 $ 356.525 ROE Debt to Equity Ratio .239 157