Question

Jason worked in a deli for 5 years before starting his own sandwich delivery store. The business has been quite successful for 2 years. The quality of the service and the sandwiches has caused an increase in demand for his products. Jason now thinks he needs to buy more cars to deliver the sandwiches. He is trying to determine the most appropriate way of financing the acquisition of two cars. a. What methods of financing should Jason consider? b. What information will Jason need to help make his decision? c. How might the financing decisions change if Jason also decided to open other stores at a new location?

Answer 1

Answer)a) Jason could consider taking a loan from the bank and finance both the cars.

b) Jason could also bottstrap his cars taking the revenue out from the business and buying the cars.

c) Jason could also have the car in EMIs by giving a downpayment and paying monthly installments.

d) Jason can bring in a new partner by sacrificing his Equity and the investment which the new partner bring, that money can be used to bring the cars.

Answer-b) Jason would have to know what the business is making on a monthly basis and whether the revenue is fixed or variable because if the revenue is fixed , he can easily pay the EMIs or loan installments and if the revenue is variable ,Jason can either bring his own money or from the business to buy the cars or bring a new partner to get more capital.

Answer-c) If Jason decides to open other stores at a new location, then he may have money problems as the new stores will require a lot of capital. Then after some time , as demand increases ,when he has a steady income from the sources he can go for car loan.