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Tampa Consolidated has total assets of $100 million and needs $50 million for a major...

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Accounting

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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