10-1 Issuance of Debt and its Effect on the Debt-to-Equity Ratio Last year, Arbor Corporation reported the following: Balance Sheet Total Assets Total Liabilities Total Shareholders' Equity S950,000 600.000 S350,000 This year, Artor is considering whether to issue more debt to fund a $100,000 project ar to issue additional shares of common stock. Bath aptions will bring in exactly $100,000. Artior's current debt contracts contain a debt covenant that requires it to maintain a debt-to- equity ratio of 2.00 or less Required: 1. Calculate Arbor's current debt-to-equity ratio. (Round your answer to 2 decimal places.) 2. Calculate Arbor's debt-to-equity ratio assuming it funds the project using additional debt. (Round your answer to 2 decimal places.) 3. Calculate Arbor's debt-to-equity ratio assuming it funds the project by issuing common stock. (Round your answer to 2 decimal places.) 4. In 2-3 sentences, explain whether Arbor should fund its new project using debt or equity? P10-3 Comparing Bonds Issued at Par, at a Discount, and at a Premium On January 1 of this year, Bamett Corporation sold bonds with a face value of $502,000 and a coupon rate of 6 percent. The bonds mature in 12 years and pay interest annually on December 31. Barnett uses the effective-interest amortization method. Ignore any tax effects. Each case is independent of the ather cases. Refer to the Present Value and Future Valun tables in Appendix E in the textbook to find the appropriate factors. Round your answers to the nearest whole dollar. 1. Complete the following table. The interest rates provided are the annual market rate of interest on the date the bonds were issued. Show your work for computing the issue (sales) price on January 1 for each of the cases. Casc ASS) Case Case a Cash received sunce b Interest cense recorded in Year1 Cash paid for i lin Year 1 Caah pil il fundin For example, CASE A (Market interest rate = 6%) Cash received at issuance: Present value: $502.000 x 0.49597 - $ 30,120* * 6.38364 = Issue price = $249.479 262,521 $502,000 *$602,000