Tampa Consolidated has total assets of $100 million and needs $50 million for a major...
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Tampa Consolidated has total assets of $100 million and needs $50 million for a major expansion. Management estimates that the expansion. Management estimates that the expansion will increase net operating income by $9 million a share, and investors are aware of this profitability. Tampas existing balance sheet and income statement appear below. The interest rate on new debt will be 10%. What type(s) of financing do you recommend?
Net operating income
15,000
Interest
2,000
Earnings before tax
13,000
Total assets
100,000
A/P
20,000
LT Debt
20,000
Equity
60,000
Year1
Year2
Year3
Year4
Year5
Debt to total assets
0.33
0.37
0.41
0.43
0.45
Times interest earned
8.53
7.74
7.64
7.85
5.31
Weighted avg. costs of capital
14.38
13.49
13.27
13.27
15.51
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