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Falcon requires additional financing of $5,000,000 to finance an expansion of its business. The two choices are: Alternative Issue a 20 -year, $5,000,0005% bond payable
Falcon requires additional financing of $5,000,000 to finance an expansion of its business. The two choices are: Alternative Issue a 20 -year, $5,000,0005% bond payable at face value. 1: Alternative Issue 250,000 common shares at $20 each. 2: In Falcon's industry, a safe debt to total assets ratio is considered to be between 50% and 60%. Falcon's board of directors is risk adverse. Assume that the financing is made at the beginning of the year. Instructions a) Calculate the debt to total assets ratio under the two proposed financing methods. b) Make a recommendation to Falcon on the better financing alternative and explain your choice. The decision on the classification of a lease between an operating lease and capital lease depends on the economic reality of the transaction rather than the legal form of the lease agreement. Select one: True False
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