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FINANCIAL LEVERAGE FTY Corp realizes income of P100,000 before interest and income taxes and its balance sheet shows the following: Assets.....................................500,000 Liabilities................................200,000 Stockholders Equity........300,000 Outstanding

FINANCIAL LEVERAGE FTY Corp realizes income of P100,000 before interest and income taxes and its balance sheet shows the following: Assets.....................................500,000 Liabilities................................200,000 Stockholders Equity........300,000 Outstanding Shares.........2,000 per value 100 The company is reviewing an expansions proposal requiring additional capital of P250,000 so as to increase its operating income by P100,000. Two alternatives have been presented: a) Obtain a P350,000 loan with interest at 20% b) Issue additional 2,200 shares of capital stock at the market price of P200 per share. Income tax rate 35%

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