Last year. Arbor Corporation reported the following:

This year, Arbor is considering whether to issue more debt to fund a $100,000 project or to issue additional shares of common stock. Both options will bring in exactly $100,000. Arbor's current debt contracts contain a debt covenant that requires it to maintain a debt-to-equity ratio of 2.0 or less. Required: 1. Calculate Arbor's current debt-to-equity ratio. 2. Calculate Arbor's debt-toequity ratio assuming it funds the project using additional debt. 3. Calculate Arbor's debt-to-equity ratio assuming it funds the project by issuing common stock. 4. How do you recommend Arbor fund the project?

BALANCESHEET Total Assets Total Liabilities Total Shareholders' Equity $800,000 500,000 $300,000 BALANCESHEET Total Assets Total Liabilities Total Shareholders' Equity $800,000 500,000 $300,000