Outback Sporting Goods is embarking on a massive expansion. Assume plans call for opening 20 new stores
Question:
Outback Sporting Goods is embarking on a massive expansion. Assume plans call for opening 20 new stores during the next two years. Each store is scheduled to be 50% larger than the company's existing locations, offering more items of inventory, and with more elaborate displays. Management estimates that company operations will provide $1 million of the cash needed for expansion. Outback must raise the remaining $6 million from outsiders. The board of directors is considering obtaining the $6 million either through borrowing or by issuing common shares.
Requirement
Write a memo to Outback's management discussing the advantages and disadvantages of borrowing and of issuing common shares to raise the needed cash. Which method of raising the funds would you recommend?
Step by Step Answer:
Financial Accounting
ISBN: 978-0133472264
5th Canadian edition
Authors: Charles Horngren, William Thomas, Walter Harrison, Greg Berberich, Catherine Seguin