John Brown owns a business and wants to expand. He can either borrow money or sell additional equity. Currently he is the sole owner of the business. Complete the information below for two different scenarios: In Scenario A, Johns company borrows $200,000 and in Scenario B, the company sells an additional $200,000 in common stock at $1 per share. Complete the columns below for Scenarios A & B. Which option would you advise John to take (more debt or sell equity) and why? Assume that revenues and expenses (other than those related to debt) do not change. (Money raised from either debt or equity will be reinvested in the business but you do not have to show the increase in assets or any potential increase in revenues).

Abbreviated Balance Sheet Information
	Currently	Scenario A	Scenario B
Liabilities
Debt	$75,000
Stockholders Equity
Common Stock (currently 200,000 shares/ $1 each)	$200,000
Retained Earnings	$ 50,000
Total Equity	$250,000
Abbreviated Income Statement
Revenues	$125,000
Expenses (not including interest and taxes)	60,000
Inc. before interest and taxes	65,000
Interest expense (at 3% on debt amt. above)	2,250
PreTax Income	62,750
Taxes (rate of 25%)	15,687.50
Net Income	$ 47,062.50
ROE	.188
Debt to Equity Ratio	.30