Financing Options
Exercises
- (AACSB) Analysis
The
most important number in most financial plans is projected revenue.
Why? For one thing, without a realistic estimate of your revenue, you
can't accurately calculate your costs. Say, for example, that you just
bought a condominium in Hawaii, which you plan to rent out to
vacationers. Because you live in snowy New England, however, you plan to
use it yourself from December 15 to January 15. You've also promised
your sister that she can have it for the month of July. Now, in Hawaii,
condo rents peak during the winter and summer seasons - December 15 to
April 15, and June 15 to August 31. They also vary from island to
island, according to age and quality, number of rooms, and location (on
the beach or away from it). The good news is that your relatively new
two-bedroom condo is on a glistening beach in Maui. The bad news is that
no one is fortunate enough to keep a condo rented for the entire time
that it's available. What information would you need to estimate your
rental revenues for the year?
- (AACSB) Analysis
You're
developing a financial plan for a retail business that you want to
launch this summer. You've determined that you need $500,000, including
$50,000 for a truck, $80,000 for furniture and equipment, and $100,000
for inventory. You'll use the rest to cover start-up and operating costs
during your first six months of operation. After considering the
possible sources of funds available to you, create a table that shows
how you'll obtain the $500,000 you need. It should include all the
following items:
- Sources of all funds
- Dollar amounts to be obtained through each source
- The maturity, annual interest rate, and security of any loan
The
total of your sources must equal $500,000. Finally, write a brief
report explaining the factors that you considered in arriving at your
combination of sources.
- (AACSB) Communication
For
the past three years, you've operated a company that manufactures and
sells customized surfboards. Sales are great, your employees work hard,
and your customers are happy. In lots of ways, things couldn't be
better. There is, however, one stubborn cloud hanging over this
otherwise sunny picture: you're constantly short of cash. You've ruled
out going to the bank because you'd probably be turned down, and you're
not big enough to go public. Perhaps the solution is private investors.
To see whether this option makes sense, research the pros and cons of
getting funding from a venture capitalist. Write a brief report
explaining why you have, or haven't, decided to seek private funding.