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6. The Howland Carpet Company has grown rapidly during the past 5 years. Recently,

6. The Howland Carpet Company has grown rapidly during the past 5 years. Recently,

6. The Howland Carpet Company has grown rapidly during the past 5 years. Recently, its commercial bank urged the company to consider increasing its permanent
financing. Its bank loan under a line of credit has risen to $250,000, carrying an 8% interest rate. Howland has been 30 to 60 days late in paying trade creditors.
Discussions with an investment banker have resulted in the decision to raise $500,000 at this time. Investment bankers have assure the firm that the following
alternatives are feasible. a. Show the new balance sheet under each alternative. For Alternative 2 and 3, show the balance sheet after conversion of the bonds or
exercise of the warrants. Assume that half of the funds raised will be used to pay off the bank loan and half to increase total assets. b. Show Mr. Howlands
control position under each alternative, assuming that he does not purchase additional shares. c. What is the effect on earning per share of each alternative,
assuming that profits before interest and taxes will be 20% of total assets? d. What will be the debt ratio under each alternative? e. Which of the three
alternatives would you recommend to Howland, and why?

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