Mathematics and Economics Essay
TO DO a. Discuss the pros and cons of option 1, and prioritize your thoughts. What are the most positive aspects of this option, and what are the biggest drawbacks? b. Do the same for option 2. c. Which option do you think Sara should recommend to the board and why?
Question 1 Answer
In order to expand a business, it is necessary for the owners to source for financial resources. Therefore the available resources that can be tapped are divided into two; acquisition of debt and obtaining equity finance. Debt financing will involve obtaining a loan which is repaid plus an interest while equity financing may involve selling a firm’s interests like floating of shares. If Merit decides to use JPMorgan Chase bank to borrow the $4billion in loan and an additional $2 billion, there are advantages and disadvantages accrued to it.
Mathematics and Economics Essay
Question 2 Answer
Under option 2 Merit is considering making an initial public offer by floating shares in the market. Through such measures, the company’s major benefit will be, it will not be required to repay the money, indeed it might recover through profits realized out of the investments. In case high profile investors venture into the shares, the firm will be guaranteed of higher business credibility.
Mathematics and Economics Essay
Question 3 Answer
Though the firm is not used to equity financing Sara should recommend it to the firm to avoid situations of running bankrupt. With debt financing the firm is not assured of making full repayment, of which JP Morgan and its affiliate banks might recall the debts to be paid fully before time.
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By admin in Essays on November 3, 2016
