Mile Long Merchants (MLM) Limited runs two small supermarkets. MLM’s equity is owned entirely by members of the Long family.

The directors are keen to open an additional supermarket. The cost of doing this would be significant, perhaps equal to 30 per cent of the estimated current value of the business. MLM generates profit at a level that leads to it paying corporation tax. This is likely to continue.

The business has limited cash available because most of the surpluses of the past few years have been distributed to the shareholders.

As finance director, you have been asked to prepare a paper to brief the other directors on the key issues before the next board meeting, where the question of finance to fund the additional supermarket will be discussed. The agenda for the meeting states that the decision is between asking the business’s bankers to grant a term loan to cover the projected expenditure, on the one hand, and seeking the necessary funds from shareholders, through a rights issue, on the other.

Outline the main issues that you would include in your briefing paper.