Question
The Courier Company of Corporation I currently has 1,000,000 common shares, the value of each share is 20 USD. At the same time, the company
The Courier Company of Corporation I currently has 1,000,000 common shares, the value of each share is 20 USD. At the same time, the company also has a debt of 10 million USD with an interest rate of 12%/year and 20,000 preferred shares with a fixed annual dividend of 10 USD/share. The company intends to expand production by raising $15 million from external sources. There are 3 mobilizing options being considered by the company: - Sale of 750,000 new common shares (100% equity financing) - Sale of 375,000 new shares of common stock plus issuance of $7.5 million in bonds with 12% interest (mixed financing) - Financing the expansion project with USD 15 million in new bonds with an interest rate of 12.5% (finance by debt) Request: Please evaluate the above 3 financing options and tell us which option should the company choose if only in terms of financial benefits of shareholders? Let's say the company's income tax rate is 20%, sales are $80 million, and EBIT is 8% of sales.
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