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The GCI Corporation is planning a $4,000,000 expansion this year. The expansion can be financed by issuing either common stock or bonds. The new common stock can be sold for $60 per share. The bonds can be issued with a 12 percent coupon rate. The firm's existing shares of preferred stock pay dividends of $2.00 per share. The company's corporate income tax rate is 46 percent. The company's balance sheet prior to expansion is as follows:
GCI Corporation
Current Assets
$2,000,000
Fixed Assets
8,000,000
Total Assets
$10,000,000
Current Liabilities
$1,500,000
Bonds:
(8%, $1,000 par value)
1,000,000
(10%, $1,000 par value)
4,000,000
Preferred Stock:
($100 par value)
$500,000
Common Stock:
($2 par value)
700,000
Retained Earnings
2,300,000
Total Liabilities and Equity
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