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Instructions Calculate the debt to total assets ratio under the two proposed financing methods. a) b) Make a recommendation to Falcon on the better financing alternative and explain your choice.

Instructions Calculate the debt to total assets ratio under the two proposed financing methods. a) b) Make a recommendation to Falcon on the better financing alternative and explain your choice.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Total liabilities and equity Falcon requires additional financing of $5,000,000 to finance an expansion of its business. The two choices are: Alternative Issue a 20-year, $5,000,000 5% bond payable at face value. 1: Alternative 16,000 Issue 250,000 common shares at $20 each. 2: In Falcon's industry, a safe debt to total assets ratio is considered to be between 50% and 60%. Falcon's board of directors is risk adverse. Assume that the financing is made at the beginning of the year. Instructions Calculate the debt to total assets ratio under the two proposed financing methods. a) b) Make a recommendation to Falcon on the better financing alternative and explain your choice.
Transcribed Image Text:Total liabilities and equity Falcon requires additional financing of $5,000,000 to finance an expansion of its business. The two choices are: Alternative Issue a 20-year, $5,000,000 5% bond payable at face value. 1: Alternative 16,000 Issue 250,000 common shares at $20 each. 2: In Falcon's industry, a safe debt to total assets ratio is considered to be between 50% and 60%. Falcon's board of directors is risk adverse. Assume that the financing is made at the beginning of the year. Instructions Calculate the debt to total assets ratio under the two proposed financing methods. a) b) Make a recommendation to Falcon on the better financing alternative and explain your choice.
The following is a summarized balance sheet of Falcon Corporation at December 31, 2021. All amounts are in $000's. Current assets Property, plant, and equipment Total assets Current liabilities Long-term debt Total liabilities Shareholders' equity Common shares Retained earnings Total shareholders' equity Total liabilities and equity $ 1,000 15,000 650 9,500 4,000 1.850 5.850 16,000 10.150 $ 16.000
Transcribed Image Text:The following is a summarized balance sheet of Falcon Corporation at December 31, 2021. All amounts are in $000's. Current assets Property, plant, and equipment Total assets Current liabilities Long-term debt Total liabilities Shareholders' equity Common shares Retained earnings Total shareholders' equity Total liabilities and equity $ 1,000 15,000 650 9,500 4,000 1.850 5.850 16,000 10.150 $ 16.000
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