Assignment:
Background information:
Review Shaun's criteria below to determine the best financing option to expand his business:
SHAUN'S CRITERIA
Hi Team,
I wanted to provide you some guidelines as you determine how we'll finance our expansion. Please give this careful consideration, as we need to get this right.
1. I estimate we'll need $150,000 to increase capacity in order to stock the five additional pop-up stands
2. We'll need to make sure we have additional funds available to increase our marketing efforts to stimulate demand
3. Cash flow is going to be tight, so I'd like to minimize interest payments
4. I'd like to maintain or increase our profit margins
5. Since I don't have a lot of experience with big discount retailers, I'd like to add a thought partner with experience in this channel
6. If we're successful over the next two years, we'll likely seek additional capital to expand into more stores, so I'd like to do all we can now to enhance our credibility
We need to move on this quickly, so I'd like an answer by the end of the week.
-Shaun
FINANCING OPTIONS
As we have learned, there are pros and cons to all financing methods which of the three financing methods would be the best fit based on Shaun's criteria above?
Option 1: Equity
Raise $150,000 from a venture capital firm in exchange for 30% of the company
Option 2: Debt
Secure a loan of $150,000 at a 10% annual interest rate, to be repaid over 7 years
Option 3: Debt + Self-Financing
Secure a loan of $100,000 at a 7% annual interest rate, to be repaid over 7 years, and self- finance the remaining $50,000
Q1: Based on your analysis of the owner's wishes (Shaun's criteria) and the three financing options available, which financing option would be the best option?
Option 1: Equity
Option 2: Debt
Option 3: Debt & Self Financing
Include your answer your response below and also explain why you selected that type of financing based on Shaun's criteria and what you know about that financing option.
Q2: So, given what the Junior Accountant has done so far, what is the next step for the Junior Accountant to complete in the Accounting Cycle and why?
Q3: After reviewing the 3 Financial Statements, indicate which financial statement (pick one: income statement, balance sheet, or statement of cash flows) the Junior Accountant should provide the investor in order to show the debt information.
Income Statement
Balance Sheet
Statement of Cash Flows
Explain where on that financial statement you would find the debt information.
Attachment:- FINANCING OPTIONS.rar