Tracey White, owner of the buzz Coffee Shop chain, has decided to expand her ope

Tracey White, owner of the buzz Coffee Shop chain, has decided to expand her operations. Her 2006 financial statements follow. Tracey can buy two additional coffeehouses with either a 10 percent (annual interest) loan or the issuance of new common stock. She also expects these new shops to generate an additional $1 million in sales. Assuming a 40 percent tax rate and no other changes, should Tracey buy the two coffeehouses? Why or why not? Which financing option results in the better ROE? Buzz Coffee Shops, Inc. 2006 Financial Statements Balance Sheet Current assets $250,000 Fixed assets 750,000 Total assets $1,000,000 Current liabilities $300,000 Long-term debt 0 Total liabilities $300,000 Common equity $700,000 Total liabilities and $1,000,000 Stockholder’s equity Income Statement Sales $500,000 -Costs and expenses@40% 200,000 Earnings before interest and taxes (EBIT) $300,000 – Interest expense 0 Net profit before taxes $300,000 – Taxes @ 40% 120,000 Net income $180,000