QUESTION 1:
Firm financing is a very important aspect for the operations of any company and this is done prior to any business strategies are made. Most company commonly pursues to use equity financing and debt financing. In debt financing funds borrowed must be repaid with interest whereas equity financing funds is acquired by sale of shareholders interest of the company.
Some banks may require the firm to maintain a balance between debt and equity which is suitable in the industry and the state of the business is working (Melicher, Welshans, and Wel.., 2011). Jackson preferred the use debit financing by borrowing loans from bank to boast its business operations. Jackson Company was in pursuit of aggressive development plan thus prompting
…show more content…
It can be solved with a minimal commerce loan. Sometimes venturing on loan looks scary for Jackson company owners as this assists them when financing differences which might lead to high return investment. There are many reasons that leads to Jackson Company engage in the loan. These are namely Expansion where it can be applied during the booming season of business as it assists in ensuring the revenue doesn’t shrinks: (Drury, 2015). This growth has numerous costs ranging from increment of staffs, renovations of buildings, new property and advertising. Jackson Company strives to acquire ready cash for its coverage and sometimes takes the funds which maintain its daily …show more content…
Inventory being another reason it is hard for Jackson Company to use in the expenses management (Kinney, Raiborn, and Raiborn, 2010). The challenge arises where investment of the products are needed in the event of carrying them for your customers purchase and counterbalance its cost. The company takes a loan to equalize inventory charges as it also remains updated on customers and the trending needs without injuring its flow of cash. As a third reason Cash flow has become challenging for Jackson Company and it still poses a challenge when working with clients who do not pay for their services offered or having unsold stock that requires clearance(Kinney, Raiborn, and Raiborn, 2010). Jackson Company finds the situation tricky when involving the daily expenditures on rent, utilities, staff and inventory. The loan offers money in utilization of daily operations and assists the company survive during the low profits. By having cash flowing in, you can proceed in providing new customers in running revenue ensuring that the losses are catered
The consistent high spending of capital equipment is the first reason why one would recommend reducing the debt to equity ratio. A company with higher levels of debt is less flexible in being able to adjust to new market demands and conditions that require the company to make new products or respond to competition. Looking at the pecking order of financing, issuing new shares to fund capital investing is the last resort and a company that has high levels of debt, must move to the equity side to avoid the risk of bankruptcy. Defaulting on loans occur when increased costs or bad economic conditions lead the firm to have lower net income than the payments on loans. The risk of defaulting on loans and the direct and indirect cost related to defaulting lead firms to prefer lower levels of debt. The financial distress caused by additional leverage can lead to lower cash flows available to all investors, lower than if the firm was financed by equity only. Additionally, the high debt ratio that Du Pont incurred also led to them dropping from a AAA bond rating to a AA bond Rating. Although the likelihood of not being able to acquire loans would be minimal, there are increased interest costs with having a lower bond rating. The lower bond rating signals to investors that the firm is more likely to default than if it had a higher (AAA) bond rating.
When performing cash repurchasing it alters the firm’s assets composition, its mix of finance, revision of ownership fractions of every shareholder and distribution of cash by shareholders using different tax transaction. This also signifies the information concerning the value of the company to investors. Jackson Company stock repurchasing shows results that potentially poses implications for many issues when financing the corporate. This ranges from evaluating differences in a company’s cash taxability distribution, changing the company’s investment results or the decisions of financing, ways of disseminating data to investors and the variance among the owners of other security ranks and company stockholders. Jackson Company repurchasing poses different impacts in the industry market (Ojo, 2012). Most of its tax savings are created from giving out cash using share repurchases in line with paying dividends. In analyzing the above argument, when getting total hard cash in a fixed payout, company taxes are minimized leading to the increase of share value when repurchasing supply are surrogated for the distribution of dividend. This implication emerges where the cost of the stock in the Jackson Company increases due to the unexpected announcement of imminent share
Our team at Walton Sands are leaders in property management along the Emerald Coast. We have years of experience managing properties in the area. It is our knowledge and experience that sets us apart and enables us to offer comprehensive property management services, including the following:
This process makes the investor partner in the share of the profits. Equity is the permanent investment by the party in the organization that is not to be repaid on the later stages by the company to the investor. The equity must have the business entity and it can be in the form of the business units as in the limited liability company or in the preferred stock corporation. The company can use this option by issuing the different types of stocks in the market to generate the funds and also issue the preferred stock with the common stock as when the dividend is released then preferred stock are entertain first of
There are various types of investment choices that you can invest in. I want to go over these with you. There are three types of investing: ownership, cash, and lending.
There is no optimal debt-equity relationship. It varies depending on the companies’ line of business, the ...
Having cash available when you need it is crucial but you also have to know how and when the cash flows in and out of your business. You just don't "know" these things. There are skills involved to measure, monitor, and manage cash.
In “Bank Debt” alternative, a sum of $3.5 million will be injected to the company through bank loans. However, the company will have to pay an additional amount of $33,750 in interest and a principal payment of $300,000 to the bank annually over the course of 7 years. Net income will come to $489,187.50 and EPS will be 0.49.
Creditors expect equity as a safety margin, meaning that if the owner has a small fund for capital, the largest company risk will be the creditor responsibility
management should always strive to power downward to empower folks at all levels. A manager
A key benefit of equity financing is that the company will not be debt repayments. This is beneficial...
They lack capability for planning and budgeting their operations. Most surveys, reported that many SMEs lack access to finance. But when analyzing their situation, it was found that SMEs lack knowledge on costing and pricing. This saw a need to first build up strong financial literacy and business planning. With such capacity, it then becomes feasible for SMEs to access bank loans.
Corporate debt is a large topic. Within this topic there are many different advantages and disadvantages of corporate debt. One advantage of corporate debt is that it is a cheaper source of fund than equity up to a certain limit. Another advantage is it does not dilute the ownership of the company. Another advantage is that interest is tax deductible. It is an advantage that it increases the payout to equity stock holders when the company performs well. One last advantage is that it can be obtained for short term and long terms based on requirement. One disadvantage of corporate debt is that the payments of interest and principal must be made in time and the firm needs to have enough cash flow in time to manage that. Another disadvantage
The management of cash is essential to the survival of any organization. Managing an organization’s financial operation requires knowledge of the economy and ways to maximize revenue. For any organization to operate on a daily basis adequate cash flow is required. Without cash management the organization will be unable to function because there is no cash readily available in case of inconsistencies in the market. Cash is also needed to keep the cycle of the company’s operations going.
The capital structure of a firm is the way in which it decides to finance its operations from various funds, comprising debt, such as bonds and outstanding loans, and equity, including stock and retained earnings. In the long term, firms seek to find the optimal debt-equity ratio. This essay will explore the advantages and disadvantages of different capital structure mixes, and consider whether this has any relevance to firm value in theory and in reality.