$78$ Int$$grative Case $1$ Merit Enterprise Corp.

Sara Lehn, chief financial officer of Merit Enterprise Corp., was reviewing her presentation one last time before her upcoming meeting with the board of directors. Merit's business had been brisk for the past two years, and the company's CEO was pushing for a dramatic expansion of Merit's production capacity. Executing the CEO's plans would require $$4$ billion in new capital in addition to $$2$ billion in excess cash built up by the firm. Sara's immediate task was to brief the board on options for raising the needed $$4$ billion.

Unlike most companies its size, Merit had maintained its status as a private company, financing its growth by reinvesting profits and, when necessary, borrowing from banks. Whether Merit could follow that same strategy to raise the $$4$ billion necessary to expand at the pace envisioned by the firm's CEO was uncertain, although it seemed unlikely to Sara. She had identified the following two options for the board to consider.

Option $1$: Merit could approach JPMorgan Chase, a bank that had served Merit well for many years with seasonal credit lines as well as medium$-$term loans. Lehn believed that JPMorgan was unlikely to make a $$4$ billion loan to Merit on its own, but it could probably gather a group of banks together to make a loan of this magnitude. However, the banks would undoubtedly demand that Merit limit further borrowing and provide JPMorgan with periodic financial disclosures so