In this chapter you learned about equity financing and in

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In this chapter, you learned about equity financing and in Chapter 10 you learned about debt
financing. You are evaluating the financial statements of a private company that is considering
purchasing equipment. You have prepared projected year-end financial statements using three
different alternatives: (1) borrow $50,000 at the beginning of the year with repayment terms of
$10,000 per year and interest at 6% per year; (2) issue 500 common shares for $100 per share
($50,000 in total) at the beginning of the year; and (3) issue 500 $6 noncumulative preferred
shares for $100 per share ($50,000 in total) at the beginning of the year.Selected information
related to each of these three alternatives follows:Instructions(a) Using the information provided
above, calculate the debt to total assets, return on common shareholders' equity, and earnings
per share ratios for each alternative at the end of year.(b) Based upon your calculations in part
(a), which alternative(s) provides for the least amount of debt? Why?(c) Which alternative
provides for the highest return on common shareholders' equity? The highest earnings per
share?(d) If you were a shareholder at the beginning of the year, which alternative would you
choose? Why?View Solution:
In this chapter you learned about equity financing and in

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