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Totally Awesome is a major chain of ladies fashion stores. They are considering expanding the business by setting up another outlet in a new shopping centre. The estimated cost of this venture is $5,972,400. The expected profit (before interest and taxes) from this Below are listed some advantages of either debt financing or equity financing. For each advantage, identify if it relates to debt additional outlet is $1,040,100 per year. Totally Awesome has 183,800 common shares with total shareholders' equity of financing or equity financing, by selecting the appropriate word in the box to the right of the statement. $3,676,000. Debt or Equity Financing The board is considering two alternatives to finance the expansion: Creates the opportunity for financial leveraging. 1. Issue 213,300 common shares for $28 per share, or Earnning per share is often higher. 2. Issue $5,972,400 of 5% bonds payable. Interest expense is deductible for income tax purposes. Totally Awesome is subject to a 30% tax rate. No mandatory interest payments. Profit is higher. Complete the following table to illustrate the effects on earning per share and return on equity for the two alternatives. (Round Represents a less risky option. Earning per share and Return on equity to 2 decimal places, e.g. 52.75 or 52.75%.) Return on equity may be higher. Issues Issues Equity Bonds Shareholders' can keep full control of the company. Profit before interest and income tax There is no requirement to repay the investment. Less: interest expense Profit before income tax eTextbook and Media Income tax expense Profit Number of shares Shareholders' equity - Earnings per share $ Return on equity % V eTextbook and Media +