It is only July and we have run short of funds to pay our employees for...

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Finance

It is only July and we have run short of funds to payour employees for the remainder of this year. As a result, we needto seek creative ways to help the company weather the storm... getthrough this problem. However, after conducting a series ofbrainstorming sessions, we are really no further ahead than we werebefore, so we have decided to hire an outside consulting firm, i.e.YOU, to help us decide upon the best option to pursue. Therefore,our options would be to pursue either debt or equity financing, ora combination of both and were we to pursue debt financing, we canengage in either short-term or long-term financing. If we pursueequity financing, we can sell either common or preferred stock, orbonds.
1)         What are theadvantages (pros) and disadvantages (cons) associated withDEBT financing, i.e. loan... debt?
            a)Long-term
           - Advantages... at least 2!
           - Disadvantages... at least 2!
           b) Short-term
           - Advantages... at least 2!
           - Disadvantages... at least 2!
2)        What are the advantagesand disadvantages associated with EQUITYfinancing, i.e. stocks?
            a)Common stock
           - Advantages... at least 2!
           - Disadvantages... at least 2!
           b) Preferred stock
           - Advantages... at least 2!
           - Disadvantages... at least 2!
3)        Which course of actionare you recommending, i.e. specific type of long-term or short-termfinancing, and what is your reasoning for recommending this type ofapproach? (Note: Your reasoning should be based upon and supportedby the extensive research you had conducted… 25 points)
4)        What are some other…“alternative courses of action", other than those stated above, toobtain the needed funding discussed either in the text, orelsewhere?

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4.3 Ratings (532 Votes)

Long term Debt Financing Advantages 1 Debt is the least costly source of longterm financing 2 It provides you flexibility in your capital structure Disadvantages 1Debt usually has a fixed maturity date Therefore the financial officer must make provision for repayment of debt 2Interest on debt is a permanent burden to the company Company has to pay the interest to bondholders or creditors at fixed rate whether it earns a profit or not It is legally liable to pay interest on the debt Short term Debt Financing Advantages 1 The company can enjoy tax saving on interest on the debt 2 See Answer

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Transcribed Image Text

It is only July and we have run short of funds to payour employees for the remainder of this year. As a result, we needto seek creative ways to help the company weather the storm... getthrough this problem. However, after conducting a series ofbrainstorming sessions, we are really no further ahead than we werebefore, so we have decided to hire an outside consulting firm, i.e.YOU, to help us decide upon the best option to pursue. Therefore,our options would be to pursue either debt or equity financing, ora combination of both and were we to pursue debt financing, we canengage in either short-term or long-term financing. If we pursueequity financing, we can sell either common or preferred stock, orbonds. 1) What are theadvantages (pros) and disadvantages (cons) associated withDEBT financing, i.e. loan... debt? a)Long-term - Advantages... at least 2! - Disadvantages... at least 2! b) Short-term - Advantages... at least 2! - Disadvantages... at least 2!2) What are the advantagesand disadvantages associated with EQUITYfinancing, i.e. stocks? a)Common stock - Advantages... at least 2! - Disadvantages... at least 2! b) Preferred stock - Advantages... at least 2! - Disadvantages... at least 2!3) Which course of actionare you recommending, i.e. specific type of long-term or short-termfinancing, and what is your reasoning for recommending this type ofapproach? (Note: Your reasoning should be based upon and supportedby the extensive research you had conducted… 25 points)4) What are some other…“alternative courses of action", other than those stated above, toobtain the needed funding discussed either in the text, orelsewhere?