Equity investors will look at ROCE to determine whether a company is effectively employing its capital. Having an ROCE in line with that of its competitors will help Barra Airways get a good price for its equity, should it choose to use equity as a source of financing. Barra Airways has an interest coverage ratio (ICR) of 18; this means Barra Airways is not burdened with large interest payments on existing debt. Therefore, the use of debt appears to be an attractive source of financing. This is because Barra Airways' existing interest burden is low, meaning an increase would have a small effect on the company's net profit. However, EasyJet has an ICR of 30.88, significantly higher than that of Barra Airways [5]. Lenders may look at this data and conclude that Barra Airways is a riskier company to lend to than others in the same industry; this will result in a higher interest rate on any debt you incur. To reach a decision on which method of raising finance would be appropriate for Barra Airlines, it is necessary to undertake an analysis of the advantages and disadvantages of both the debt method and the equity method. Using equity as a funding source would mean that Barra Airways would increase the level of shareholder accountability it currently has. Barra Airways may find that its freedom to conduct business freely will be hindered in the future if it issues more equity capital. Lawsuits brought by shareholders against companies have increased significantly since 1996 [7]. If this trend continues in the future, then the likelihood of Barra Airways experiencing shareholder activism is significant. A key advantage of equity financing is that the company will not have to repay debt. This is advantageous… middle of paper… Airways with the burden of increased reimbursements without the assistance of increased revenue. My recommendation is that Barra Airways go ahead with the project. I believe this is the case because the project is expected to have a high NPV coupled with strong cash flows. The financing method I recommend for Barra Airways is to issue more equity capital. This is mainly due to the confidence the market currently has in low-cost airlines. This will not only achieve the best value for the company, but will also maximize the value of the project for shareholders. The secondary reason behind the decision to use equity as a source of project financing is to protect the company from future debt repayments. If cash flows prove unreliable, the company may find itself paying a higher-than-expected percentage of operating profit to pay off its debts.