Question

Many factors influence how businesses are funded. Think about the factors involved in each of the situations below. Solve the problems by applying the concepts in Chapter 18. Where can your firm find financing?

1. Your company needs a new copy machine quickly. The high volume, multi-featured model you want costs $3,000, but your small business doesn’t have that much cash on hand right now and doesn’t want to borrow at this time.
2. Your firm has a large payment that needs to be made by next week. The company doesn’t have the cash available at this time. You already have large outstanding loans, so you don’t want to go to the bank. Your stockholders don’t want you to sell more stock because it would dilute their control. You can’t sell bonds by next week. Your inventory is small; but, your accounts receivable are large. Your firm sells everything on a 30-day open account, and most of your customers pay on time.
3. You own a dry cleaning store near an apartment complex. The store attracts a growing number of young patrons who find it convenient to drop off their garments on the way back and forth to work. In fact, business is doing so well, your tiny store is starting to feel cramped. Your next-door neighbor, a donut shop, has just offered to sell you their business and real estate for $100,000. You believe that the location and expansion potential are great, but you don’t have the cash at the moment.

Answer 1

1) To have finance for machine of $3000, we can issue Bonds for short period at a reasonable interest rate and pay off later.

2) To make payments of your large outstanding, you can discount the huge accounts receivables which the firm is holding with the bank or some finance company and can have cash to make payments.

3) As the prospective business is having a real estate which can be mortgage to have finance or can raise finance through signing bonds. You can have some partner to finance the business.