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combination of cash, debt, and preferred stock,

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Discussion Question #2

Your company is a retailer and needs fairly high capital costs to open new stores: lease costs, store build-out and inventory. The cost to open each store is calculated to be $650,000 per store and the President has just told several analysts' tracking the company, on a conference call, that the company will open 25 stores in the next year. After making this statement, the President comes to you, the financial wiz, to tell him how the company should finance the expansion. The company has $5 million in the bank. Which of the three common financing tools (debt, preferred stock or common stock), in conjunction with any use of cash, would you propose. This is not a math problem. From your reading and experience what options(s) would you favor and why?

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Solution Summary

Significant expansion is related to stock.

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If 25 stores represent a significant expansion, this may mean Wall Street may notice. The common stock may take off. In this ...

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