Plz solve using 2020 values for the following questions:
The company intends to raise additional capital to finance an expansion. The expected cost is $20M Canadian dollars. The board is uncertain whether it should issue additional shares or new debt, given the current capital structure. The current lending rate is 10% (assumed). Advise the board on the impact of the two financing options on the companys current capital structure. In your analysis, show calculations and analysis of the following:
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The revised number of outstanding shares and the impact this share issue may have on the existing shareholders;
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The impact of the additional share issuance on the earnings per share;
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The day 1 journal entry to record the share issuance option;
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The day 1 journal entry to record the debt option; and
September 30 September 30 2021 2020 2021 2020 Unaudited (Canadian dollars in millions except per share figures) Operating revenues Passenger Note 11 Cargo Note 11 Other Note 4 Total revenues $ 2,457 $ 1,636 366 3,907 634 1,005 507 216 34 757 101 465 207 3,669 2,103 5,006 175 475 1,135 1,735 841 198 472 592 312 400 153 166 423 45 Operating expenses Aircraft fuel Wages, salaries and benefits Regional airlines expense, excluding fuel Depreciation and amortization Aircraft maintenance Airport and navigation fees Sales and distribution costs Ground package costs Catering and onboard services Communications and information technology Special items Other Total operating expenses Operating loss 911 1,617 700 1,217 430 373 142 29 97 74 30 1,414 496 438 226 236 146 292 23 5 52 94 85 Note 3 (103) 241 2,467 (364) 26 66 (192) 194 1,542 (785) 271 (157) 588 6,215 (2,546) 44 776 7,779 (2,773) 88 (136) 17 (197) 4 32 (196) (74) 54 (538) Non-operating income (expense) Foreign exchange gain (loss) Interest income Interest expense Interest capitalized Net financing expense relating to employee benefits Gain (loss) on financial instruments Loss on debt settlements and modifications (381) 106 (474) 20 Note 5 6 13 (1) (6) (10) (26) 114 46 (28) Note 10 Note 5 (110) (114) (129) (20) (818) Other (6) (315) (6) (22) Total non-onerating eynense (36) (805) CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS Three months ended September 30 Nine months ended September 30 2021 2020 2021 2020 (640) $ (685) $ (3,109) $ (3,486) Unaudited (Canadian dollars in millions) Comprehensive income (loss) Net loss for the period Other comprehensive income (loss), net of tax expense: Items that will not be reclassified to net income Remeasurements on employee benefit liabilities Remeasurements on equity investments Total comprehensive loss Note 6 220 365 950 444 1 (15) (435) $ (12) (332) $ (88) (3,130) $ (2,158) $ CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Share capital Contributed Accumulated surplus OCI Retained earnings (deficit) $ 3,507 (3,486) Total shareholders' equity $ 4,400 (3,486) $ 785 $ 83 $ 25 444 444 Unaudited (Canadian dollars in millions) January 1, 2020 Net loss Remeasurements on employee benefit liabilities Remeasurements on equity investments Total comprehensive loss Share-based compensation Shares issued, net (Note 7) Shares purchased and cancelled under issuer bid September 30, 2020 (88) (88) (3,042) (88) (3,130) 14 558 14 558 (8) 1,335 (119) 346 (127) 1,715 $ $ 97 $ (63) $ $ $ 2,150 $ 98 07 $ (39) $ January 1, 2021 Net loss $ (494) (3,109) 1,715 (3,109) Remeasurements on emnlovee capital surplus OCI shareholders equity $ earnings (deficit) $ 3,507 (3,486) 785 $ 83 $ $ 25 $ 4,400 (3,486) 444 444 Unaudited (Canadian dollars in millions) January 1, 2020 Net loss Remeasurements on employee benefit liabilities Remeasurements on equity investments Total comprehensive loss Share-based compensation Shares issued, net (Note 7) Shares purchased and cancelled under issuer bid September 30, 2020 (88) (88) (3,042) (88) (3,130) 14 14 558 558 (119) (8) 1,335 (127) 1,715 $ $ $ 97 $ (63) $ 346 $ $ 2,150 $ 98 $ $ (39) $ $ (494) (3,109) 1,715 (3,109) - - 950 950 January 1, 2021 Net loss Remeasurements on employee benefit liabilities Remeasurements on equity investments Total comprehensive loss Share-based compensation Shares issued, net (Note 7) September 30, 2021 1 1 1 (2,159) 10 (2,158) 10 578 584 (6) $ 2,734 $ 102 $ (38) $ (2,653) $ 145 The accompanying notes are an integral part of the condensed consolidated financial statements. 3 CONSOLIDATED STATEMENTS OF CASH FLOW Three months ended September 30 Nine months ended September 30 2021 2020 2021 2020 (640) $ (685) $ (3,109) $ (3,486) Note 6 (58) (45) 400 (140) 423 (112) 1,414 (264) 1,217 (255) 398 93 361 64 49 222 Note 10 (46) 114 28 (114) 110 Note 5 129 7 9 (126) (173) 413 Note 3 Unaudited (Canadian dollars in millions) Cash flows from (used for) Operating Net loss for the period Adjustments to reconcile to net cash from operations Deferred income tax Depreciation and amortization Foreign exchange (gain) loss Employee benefit funding less than expense (Gain) loss on financial instruments Loss on debt settlements and modifications Change in maintenance provisions Changes in non-cash working capital balances Special items Other Net cash flows from (used in) operating activities Financing Proceeds from borrowings Reduction of long-term debt and lease liabilities Shares purchased for cancellation Issue of shares Financing fees Net cash flows from (used in) financing activities Investing Investments, short-term and long-term Additions to property, equipment and intangible assets Proceeds from sale of assets Proceeds from sale and leaseback of assets Other (13) (6) (78) 286 (3) 20 (286) (362) 327 (12) (1,557) 73 269 (1,996) Note 5 6,760 (2,953) 1,114 (1,433) 8,027 (4,234) Note 5 Note 7 Note 7 Note 5 6,008 (2,211) (132) 554 (75) 4,144 (196) 3,611 (13) (332) 554 (203) 4,144 (1,299) (368) 51 (72) (149) (282) (867) (695) 16 5 2 6 11 20 4 15 41 (1,423) (644) (602) (892) 53 16 5 Net cash flows used in investing activities Effect of exchange rate changes on cash and cash equivalents Increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period 2,510 2,710 5,220 $ (37) (1,299) 5,089 3,790 1,562 3,658 5,220 1,700 2,090 3,790 $ $ $ Note 5 $ 136 $ 121 $ 419 $ 365 Cash payments of interest Cash payments (recoveries) of income taxes $ (42) $ (88) $ $ 3 The accompanying notes are an integral part of the condensed consolidated financial statements. 4 September 30 September 30 2021 2020 2021 2020 Unaudited (Canadian dollars in millions except per share figures) Operating revenues Passenger Note 11 Cargo Note 11 Other Note 4 Total revenues $ 2,457 $ 1,636 366 3,907 634 1,005 507 216 34 757 101 465 207 3,669 2,103 5,006 175 475 1,135 1,735 841 198 472 592 312 400 153 166 423 45 Operating expenses Aircraft fuel Wages, salaries and benefits Regional airlines expense, excluding fuel Depreciation and amortization Aircraft maintenance Airport and navigation fees Sales and distribution costs Ground package costs Catering and onboard services Communications and information technology Special items Other Total operating expenses Operating loss 911 1,617 700 1,217 430 373 142 29 97 74 30 1,414 496 438 226 236 146 292 23 5 52 94 85 Note 3 (103) 241 2,467 (364) 26 66 (192) 194 1,542 (785) 271 (157) 588 6,215 (2,546) 44 776 7,779 (2,773) 88 (136) 17 (197) 4 32 (196) (74) 54 (538) Non-operating income (expense) Foreign exchange gain (loss) Interest income Interest expense Interest capitalized Net financing expense relating to employee benefits Gain (loss) on financial instruments Loss on debt settlements and modifications (381) 106 (474) 20 Note 5 6 13 (1) (6) (10) (26) 114 46 (28) Note 10 Note 5 (110) (114) (129) (20) (818) Other (6) (315) (6) (22) Total non-onerating eynense (36) (805) CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS Three months ended September 30 Nine months ended September 30 2021 2020 2021 2020 (640) $ (685) $ (3,109) $ (3,486) Unaudited (Canadian dollars in millions) Comprehensive income (loss) Net loss for the period Other comprehensive income (loss), net of tax expense: Items that will not be reclassified to net income Remeasurements on employee benefit liabilities Remeasurements on equity investments Total comprehensive loss Note 6 220 365 950 444 1 (15) (435) $ (12) (332) $ (88) (3,130) $ (2,158) $ CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Share capital Contributed Accumulated surplus OCI Retained earnings (deficit) $ 3,507 (3,486) Total shareholders' equity $ 4,400 (3,486) $ 785 $ 83 $ 25 444 444 Unaudited (Canadian dollars in millions) January 1, 2020 Net loss Remeasurements on employee benefit liabilities Remeasurements on equity investments Total comprehensive loss Share-based compensation Shares issued, net (Note 7) Shares purchased and cancelled under issuer bid September 30, 2020 (88) (88) (3,042) (88) (3,130) 14 558 14 558 (8) 1,335 (119) 346 (127) 1,715 $ $ 97 $ (63) $ $ $ 2,150 $ 98 07 $ (39) $ January 1, 2021 Net loss $ (494) (3,109) 1,715 (3,109) Remeasurements on emnlovee capital surplus OCI shareholders equity $ earnings (deficit) $ 3,507 (3,486) 785 $ 83 $ $ 25 $ 4,400 (3,486) 444 444 Unaudited (Canadian dollars in millions) January 1, 2020 Net loss Remeasurements on employee benefit liabilities Remeasurements on equity investments Total comprehensive loss Share-based compensation Shares issued, net (Note 7) Shares purchased and cancelled under issuer bid September 30, 2020 (88) (88) (3,042) (88) (3,130) 14 14 558 558 (119) (8) 1,335 (127) 1,715 $ $ $ 97 $ (63) $ 346 $ $ 2,150 $ 98 $ $ (39) $ $ (494) (3,109) 1,715 (3,109) - - 950 950 January 1, 2021 Net loss Remeasurements on employee benefit liabilities Remeasurements on equity investments Total comprehensive loss Share-based compensation Shares issued, net (Note 7) September 30, 2021 1 1 1 (2,159) 10 (2,158) 10 578 584 (6) $ 2,734 $ 102 $ (38) $ (2,653) $ 145 The accompanying notes are an integral part of the condensed consolidated financial statements. 3 CONSOLIDATED STATEMENTS OF CASH FLOW Three months ended September 30 Nine months ended September 30 2021 2020 2021 2020 (640) $ (685) $ (3,109) $ (3,486) Note 6 (58) (45) 400 (140) 423 (112) 1,414 (264) 1,217 (255) 398 93 361 64 49 222 Note 10 (46) 114 28 (114) 110 Note 5 129 7 9 (126) (173) 413 Note 3 Unaudited (Canadian dollars in millions) Cash flows from (used for) Operating Net loss for the period Adjustments to reconcile to net cash from operations Deferred income tax Depreciation and amortization Foreign exchange (gain) loss Employee benefit funding less than expense (Gain) loss on financial instruments Loss on debt settlements and modifications Change in maintenance provisions Changes in non-cash working capital balances Special items Other Net cash flows from (used in) operating activities Financing Proceeds from borrowings Reduction of long-term debt and lease liabilities Shares purchased for cancellation Issue of shares Financing fees Net cash flows from (used in) financing activities Investing Investments, short-term and long-term Additions to property, equipment and intangible assets Proceeds from sale of assets Proceeds from sale and leaseback of assets Other (13) (6) (78) 286 (3) 20 (286) (362) 327 (12) (1,557) 73 269 (1,996) Note 5 6,760 (2,953) 1,114 (1,433) 8,027 (4,234) Note 5 Note 7 Note 7 Note 5 6,008 (2,211) (132) 554 (75) 4,144 (196) 3,611 (13) (332) 554 (203) 4,144 (1,299) (368) 51 (72) (149) (282) (867) (695) 16 5 2 6 11 20 4 15 41 (1,423) (644) (602) (892) 53 16 5 Net cash flows used in investing activities Effect of exchange rate changes on cash and cash equivalents Increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period 2,510 2,710 5,220 $ (37) (1,299) 5,089 3,790 1,562 3,658 5,220 1,700 2,090 3,790 $ $ $ Note 5 $ 136 $ 121 $ 419 $ 365 Cash payments of interest Cash payments (recoveries) of income taxes $ (42) $ (88) $ $ 3 The accompanying notes are an integral part of the condensed consolidated financial statements. 4
