Debt vs. Equity Financing
Your consulting team has been to hired evaluate the financing of a new project. The company wants to fund the project with either debt by borrowing the money or equity by selling additional common stock. The company does not want a combination of debt and equity financing, nor do they want any exotic financing such as convertibles, debentures, warrants or bonds. It’s simply debt versus equity. The company’s CFO (me) and Board of Directors (rest of class) will listen to your presentation and ask you questions concerning your recommendation. By the way, you are the consultant, so do not recommend hiring another consultant.
Assumptions and Considerations:
• Company: Each team will pick a company from the list posted on Blackboard. • The type of project will depend on the company you select so the project has to “make sense” in relation with the company’s current business plan • To determine the company’s current mission and financials, you will need to download information from the SEC’s Edgar site: www.sec.gov, or other sources. Information and links can also be found at Yahoo.com. You will need: • The latest 10-K (annual report) provides the general business plan and detailed financial data such as depreciation schedules and debt profile. • The latest 10-Q (quarterly report) for updated financial information. • The most recent 14Def (proxy statement). This information may be included in some 10-Ks for smaller companies and lists ownership, which could be a factor in the decision. Is the company controlled by insiders or do institutions own a majority of shares? • The latest stock price to determine cost per share.
• The latest ratio and growth analysis from on-line financial reporting services for the company and the industry. RMA’s Annual Statement Studies (in the UTSA library) has a large number of industry average financial ratios. Reuters www.reuters.com also has...