For this week's Discussion, provide an answer to the case study questions with a recommendation.

Case Study:

The Exceptional Service Grading Company requires a capital infusion of $500,000. It is currently a closely held corporation with less than 25 shareholders. Although the shareholders are not all related to each other, they all know each other, and they view the business as a family business. The financial statements should be familiar to you because you performed a basic financial analysis of the company in Unit 1 of this course.

• Obtain private debt financing
• Seek out a private investor(s) who would be willing to share ownership (private transfer of partial ownership)
• Seek out offers for a private buy-out (private transfer of entire ownership)
• Issue public debt (corporate bonds)
• Issue public common stock (public equity offering)

Briefly discuss each alternative and include implications to the company’s capital structure and cost of capital, if any. Considering the size of the investment ($500,000 infusion), provide a conclusion on how it might impact the financial statement reviewed in Unit 1. No calculations are required.

Several alternatives are available to the company, consisting of the following:

  

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Balance Sheet items CURRENT ASSETS Cash Receivables Inventory Other assets Total current assets LONG TERM ASSETS Note Receivable Equipment (net of depreciation) Total long term assets TOTAL ASSETS LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable Note payable (current maturities) Other accrued liabilities Total current liabilities LONG TERM LIABILITIES Notes payable (long term) Long term accrued liabilities Total long term liabilities TOTAL LIABILITIES STOCKHOLDERS' EQUITY Common stock Retained Earnings Total stockholders' equity TOTAL LIABILITIES AND STOCKHOLDERS EQUITY 2018 456,500 3,936,400 89,800 1,169,500 5,652,200 380,600 975,000 1,355,600 7,007,800 2,783,100 277,550 265,300 3,325,950 454,800 389,550 844,350 4,170,300 450,000 2,387,500 2,837,500 7,007,800 2017 222,400 Cash increase - due to no dividends paid in 2018 3,320,000 100,200 934,300 4,576,900 Current ratio 2011 Current ratio 2018 280,700 Some additional debt acquired in 2018 1,017,800 1,298,500 5,875,400 2,805,700 272,550 214,600 3,292,850 454,800 320,250 775,050 4,067,900 450,000 1,357,500 1,807,500 Debt ratio 2017: Debt ratio 2018: 5,875,400 Balance Sheet Income Statement 1.39 1.70 + 69.2% 59.5% Balance Sheet items CURRENT ASSETS Cash Receivables Inventory Other assets Total current assets LONG TERM ASSETS Note Receivable Equipment (net of depreciation) Total long term assets TOTAL ASSETS LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable Note payable (current maturities) Other accrued liabilities Total current liabilities LONG TERM LIABILITIES Notes payable (long term) Long term accrued liabilities Total long term liabilities TOTAL LIABILITIES STOCKHOLDERS' EQUITY Common stock Retained Earnings Total stockholders' equity TOTAL LIABILITIES AND STOCKHOLDERS EQUITY 2018 456,500 3,936,400 89,800 1,169,500 5,652,200 380,600 975,000 1,355,600 7,007,800 2,783,100 277,550 265,300 3,325,950 454,800 389,550 844,350 4,170,300 450,000 2,387,500 2,837,500 7,007,800 2017 222,400 Cash increase - due to no dividends paid in 2018 3,320,000 100,200 934,300 4,576,900 Current ratio 2011 Current ratio 2018 280,700 Some additional debt acquired in 2018 1,017,800 1,298,500 5,875,400 2,805,700 272,550 214,600 3,292,850 454,800 320,250 775,050 4,067,900 450,000 1,357,500 1,807,500 Debt ratio 2017: Debt ratio 2018: 5,875,400 Balance Sheet Income Statement 1.39 1.70 + 69.2% 59.5%

Answer rating: 100% (QA)

Here is a discussion of the alternatives for The Exceptional Service Grading Companys capital infusion of 500000 along with implications for the compa... View the full answer