Require

1. Using the projected figures and estimates provided, calculate LG Ltds leverage ratio and interest coverage ratio assuming the company issues 8% cumulative preference shares.

2. Using the projected figures and estimates provided, calculate LG Ltds leverage ratio and interest coverage ratio assuming the company issues 10% non-cumulative preference shares.

3. Drawing on the agency theory, explain which financing arrangement would be preferred by management. Where relevant, refer to your analysis of financial statement implication

LG Ltd needs to raise $500,000 to finance the acquisition of a new tour bus. It approached an investment The issue of 8%, cumulative preference shares for $500,000 with a fixed redemption date 5 year b) The issue of 10%, non-cumulative, preference shares of $500,000, redeemable at the option of bank that proposed the following alternatives: a) from the date of issue; or e issuer The preference share issue is planned for 2019. The accountant prepared an abridged projected statement of financial position for LG Ltd as at 30 June 2019, based on the company's master budget The projected statement of financial position excludes the effects of the proposed preference share issue or the investment in the horse. Projected Statement of Financial Position as at 30 June 2019 Assets Assets mount (S). 2,500,000. Liabilities and Equity Liabilities Amount (S) 1,500,000. Equity 1,000,000 2,500,000 2,500,000. Additional information (excluding the effects of the proposed preference share issue or investment the new tour bus) LG Ltd estimates profit before interest and tax (EBIT) for the year ended 30 June 2019 as $420,000. This estimate is based on this year's performance, adjusted for the effects of the additional tour bus. . Interest expense in relation to a bank loan included in 'Liabilities' amounts to $100.000 ncludes a debt covenant which specifies a maximum leverage ratio (total liabilities . The company has investigated alternative sources of funding and found that most lenders require . Management receives a bonus of 2% of profit before tax, Provided the return on investment The bank loan i to total assets) of 60% it to have maintained an interest coverage ratio (EBITto Interest expense) graeter than 3.0.* (EBIT to Total assets) exceeds 12%