A. Discuss the pros and cons of option 1, and prioritize your thoughts. What are the most positive aspects of this options, and what are the biggest drawbacks?

B. Do the same for option 2

C. Which option do you think Sara should recommend to the board and why?

The first option Sara Lehn considers when asked to raise the $4 billion needed for the dramatic expansion planned by the CEO, is borrowing the money from JPMorgan Chase, a bank they have previously made business with. One problem could be that this time the amount is much bigger comparing to the seasonal credit lines and medium term loans made before. One important drawback of borrowing from banks is the covenant that banks impose on companies to which they lent money. Covenants are rules placed on debt that are designed to stabilize corporate performance and reduce the risk a bank is exposed when giving a large amount of money to a company. Examples of covenants may be: cannot issue any more debt until the loan is completely paid off; cannot participate in any share offerings until the loan is paid off, etc. covenants can be very straightforward and sometimes difficult to deal with.