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# Interest expenses

200,000 in assets to get into operation with only 2 financing alternatives 1.(all equity-all common stock) 2.50% equity and 50percent debt. you will put the entire 200,000 needed to purchase the assets if 50 percent debt financing is used u will contribute only 100,000 of your own funds and the remaining 100,000 will be obtained from the creditors say a bank loan at 10% interest rate Please fill all the ? spaces and explain your answer.

balance sheet sotck stock debt

current assets \$100,000 \$100,000
fixed assets \$100,000 \$100,000
total assets \$200,000 \$200,000
bank loan @10% cost 0 ?
common stock \$200,000 ?
income statement
revenues \$150,000 \$150,000
operating costs \$100,000 \$100,000
operating income \$50,000 \$50,000
interest expense 0 ?
taxable income (40%rate) ? ?
net income ? ?
return on investment ? ?

#### Solution Preview

1) Interest expenses= Loan * Interest rate

Hence interest for the stock debt option= 100000*10%
=\$10000

2) Taxable Income = Operating income -interest ...

#### Solution Summary

Response providing steps to compute the Interest expenses

\$2.19