Assignment #2 – Business 100
NAME: BRITTANY WHITFIELD
Background information needed to answer Question #1:
Review Shaun’s criteria below to determine the best financing option to expand his business:
SHAUN’S CRITERIA
Hi Team,
I wanted to provide you some guidelines as you determine how we’ll finance our
expansion. Please give this careful consideration, as we need to get this right.
1. I estimate we’ll need $150,000 to increase capacity in order to stock the five additional pop-
up stands
2. We’ll need to make sure we have additional funds available to increase our marketing
efforts to stimulate demand
3. Cash flow is going to be tight, so I’d like to minimize interest payments
4. I’d like to maintain or increase our profit margins
5. Since I don’t have a lot of experience with big discount
retailers, I’d like to add a thought partner with experience in this channel
6. If we’re successful over the next two years, we’ll likely seek additional capital to expand into
more stores, so I’d like to do all we can now to enhance our credibility
We need to move on this quickly, so I’d like an answer by the end of the week.
-Shaun
FINANCING OPTIONS
As we have learned, there are pros and cons to all financing methods which of the three
financing methods would be the best fit based on Shaun’s criteria above?
Option 1: Equity
Raise $150,000 from a venture capital firm in exchange for 30% of the company
Option 2: Debt
Secure a loan of $150,000 at a 10% annual interest rate, to be repaid over 7 years
Option 3: Debt + Self-Financing
Secure a loan of $100,000 at a 7% annual interest rate, to be repaid over 7 years,
and self- finance the remaining $50,000
QUESTION 1:
Based on your analysis of the owner’s wishes (Shaun’s criteria) and the three financing
options available, which financing option would be the best option?
Option 1: Equity
Option 2: Debt
Option 3: Debt & Self Financing
Include your answer your response below and also explain why you selected that type of
financing based on Shaun’s criteria and what you know about that financing option.
I would recommend option 1. Equity as the best financing option in this case. With the equity funding Shaun
