Homework Answers
Answer:
1.Current Debt to Equity ratio = Total Liabilities / Total Equity = 500000/300000 = 1.67
2.Additional Debt = 600000 / 300000 = 2
3.Issuing Common Stock = 500000 / 400000 = 1.25
To maintain debt equity ratio at 2 Arbor can fund the project using additional debt or equity..depending on the company policies.Additional equity would be less risky but will increase shareholders thus decreasing earning per share.Additional debt would give tax benefit in terms of interest but again risk of debt payment stays.
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