The following is a summarized balance sheet of Falcon Corporation at December 31, 2015. All amounts are in $000s.

Current assets ............................................................................................. $ 1,000

Property, plant and equipment ........................................................................ 15,000

Total assets ............................................................................................... $ 16,000

Current liabilities ........................................................................................... $ 650

Long term debt ............................................................................................ 9,500

Total liabilities ........................................................................................... 10,150

Shareholders' equity

Common shares ............................................................................................ 4,000

Retained earnings ............................................................................................ 1,850

Total shareholders' equity .................................................................................. 5,850

Total liabilities and equity ................................................................................. $ 16,000

Falcon requires additional financing of $5,000,000 to finance an expansion of its business. The two choices are:

Alternative 1: Issue a 20-year, $5,000,000 5% bond payable at face value.

Alternative 2: Issue 250,000 common shares at $20 each.

Net income currently averages $480,000 annually. Projected net income after expansion is expected to be $520,000 if the bonds are issued, or $850,000 if the shares are issued. In Falcons industry, a safe debt to total assets ratio is considered to be between 50% to 60%. Falcons board of directors is risk adverse.

Please help meCalculate the debt to total assets ratio and return on equity. Calculate each of these ratios under the two proposed financing methods.

Make a recommendation to Falcon on the better financing alternative and explain your choice.