Two businesses must consider how to raise $10,000,000. Blackburn Inc. is in the midst of its most successful period since it began operations 48 years ago. For each of the past 10 years, net income and earnings per share have increased by 15 percent. The outlook for the future is equally bright, with new markets opening up and competitors unable to manufacture products of Blackburn Inc.'s quality.
Blackburn Inc. is planning a large-scale expansion and would like to purchase equipment. The bank is reluctant to lend any more funds to this company as the lending rules have become stricter.
Sage Consulting Limited has fallen on hard times. Net income has remained flat for five of the last six years, even falling by 10 percent from last year's level of profits. Top management has experienced unusual turnover, and the company lacks strong leadership. To become competitive again, Sage Consulting Limited desperately needs $10,000,000 for expansion.
Required
1. Propose a plan for each company to raise the needed cash. Which company should borrow? Which company should issue shares? Consider the advantages and disadvantages of raising money by borrowing and by issuing shares, and discuss them in your answer.
2. How will what you have learned in this chapter help you manage a business?