Business, 07.01.2021 01:00 Jasten

Consider the following business funding options and determine the total repayment required: (Option A- $200,000 business loan from XYZ bank. 10- year loan term for about 10% interest. 120 equal monthly payments of $2,643.)

Total Repayment: $ ?

Option B: $200,000 bond issuance to investors. 10 year bond maturity at 10% interest. $20,000 semi-annual interest payments for 10 years, then full repayment of $200,000 at 10- year maturity.

Total Repayment: $ ?

Option C: $200,000 stock issuance to investors. Investors will own 40% of the company. Total repayment: $ ??

Which is the best option for the following situations? Why is it the best option?

1. You have a new company with inconsistent profits and this will be the case for years to come.

A Option:

B. Why?

2. You have an established, profitable business and you are expanding into a new market and city.

A. Option:

B. Why?

3. You have a profitable business, but you are going to make a risky transition to a new product over the next few years and you may not be profitable over that time.

A. Option:

B. Why?

4. You have a new business with profits that are expected to go slowly but steadily for years to come.

A. Option:

B. Why?

Worth 33 points!!

Answers: 1

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