Please help answer this question using theattached cohen IS-BS MODEL/FLOW DIAGRAM.

Question:

During a convention cocktail party you overhear a group of healthcare financial officers discussing financing policy. Reflexively, you punch up a copy of the Cohen IS-BS MODEL/FLOW DIAGRAM, ever-ready on your iPhone.

• One finance officer wearing a black suit says that control is primary so debt should always be maximized.
• Another finance officer in a green sweater declares that risk is paramount and must be minimized.
• A third finance officer in a tracksuit insists that maximizing income is the only way to go.

Decide whether you agree with black suit, green sweater, or tracksuit. Write an elevator speech (short and clear) citing and defending your view.

Case Leahy Bread Company (LBC) in Cohen Finance Workbook, page 111( a 'caselette') SEE THE IS/BS MODEL & FLOW DIAGRAM TABS- YOU ARE NOW WORKING ON THE RED-CO Learning Objectives 1 Learn the debt versus equity analysis as depicted in the Flow Diagram 2 Interpret an EBIT chart highlighting the indifference level of EBIT 3 Interpret the debt capacity analysis Consider the numerous, sometimes conflicting elements in the financing decision as summarized by the FRICTO acronym - income, risk, control marketability, flexibility, and timing. 4 Make the debt vs. equity decision Reading Questions 1 Read Cohen Finance Workbook Chapter 7 through top half of page 121. 2 Focus on the Leahy Bread Company analysis to learn how the DEBT vs. EQUITY FINANCING template works. The Debt vs Equity Financing tab on the S6 Assignment Template is the same template worked out for Leahy in the book.. All data in the DEBT vs. EQUITY FINANCING template is entered for you in cells B3.B12 and row 65. You are asked to interpret the template; there are no data entries to make. 1 Explain how the EBIT Chart works (inputs determining the outputs-the two lines on the chart and the indifference point) in YOUR OWN WORDS. 2 Page 112 of CFW shows LBCs forecast. Discuss the range of likely EBITs and relate them to the indifference EBIT - in your opinion, will future EBIT be lower than or higher than indifference EBIT? 3 Explain the meaning of the debt capacity calculation at row 62. 4 Recommend either debt or equity for the $392,675 financing and explain your reasoning. Frame your answer using the FRICTO framework, p 119 in CFW, citing specifics from the analysis. Group work is encouraged...but...when you write your answers in this template, the work must be your own independent work. Doing otherwise violates academic integrity rules. THERE IS NO SINGLE CORRECT ANSWER. THE PURPOSE OF THE ASSIGNMENT IS TO LEARN THE PROCESS OF FINANCING WITH DEBT AND EQUITY. PERFECTION IS NOT EXPECTED. THIS IS WORK-IN-PROCESS; NOT FINISHED PRODUCT...I.E., A LEARNING EXPERIENCE. BUT, YOU MUST MAKE A CLEAR RECOMMENDATION BASED ON THE RESULTS OF THE ANALYSIS. OLORED ANALYSIS INCOME STATEMENT Revenue Cost of sales Gross profit Other operating income Other operating expenses Total cost and expenses Operating profit (EBIT) Interest, finance costs Profit before tax Income tax Net profit after tax Dividends Reinvested in the business BALANCE SHEET ASSETS LIABILITIES AND EQUITY Current assets Current liabilities Cash Trade payables Investments Other accruals Trade receivables Tax liabilities Inventories Short-term loans, leases Non-current assets Non-current liabilities Property, plant & equipment Loans, debt, leases due after 1 year Investment property Retirement benefit obligation Goodwill Deferred tax liabilities Total non-current liabilities WORKING CAPITAL spontaneous change with revenue ?what levels of ca, cl, s-t loans? CAPITAL BUDGETING ?what projects to accept? FINANCING ?what is the debt capacity? COST OF DEBT K-WACC Stockholder's equity (Net worth) Preferred stock Common stock Additional paid-in-capital Retained earnings OPERATING LEVERAGE FINANCIAL LEVERAGE Total assets Total liabilities & equity COST OF EQUITY VALUATION CASH FLOW COST OF CAPITAL