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Financing Growth Question

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A leading retailer finds itself in a financial bind. It doesn't have sufficient cash flow from operations to finance its growth, and it is close to violating the maximum debt-to-assets ratio allowed by its covenants. The Vice-President for Marketing suggests: "We can raise cash for our growth by selling the existing stores and leasing them back. This source of financing is cheap, since it avoids violating either the debt-to-assets or interest coverage ratios in our covenants."

Do you agree with his analysis? Why or why not? As the firm's banker, how would you view this arrangement?

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Financing Growth Question

A leading retailer finds itself in a financial bind. It doesn't have sufficient cash flow from operations to finance its growth, and it is close to violating the maximum debt-to-assets ratio allowed by its ...

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This file contains an APA formatted MS Word file containing the answers to the following questions:

A leading retailer finds itself in a financial bind. It doesn't have sufficient cash flow from operations to finance its growth, and it is close to violating the maximum debt-to-assets ratio allowed by its covenants. The Vice-President for Marketing suggests: "We can raise cash for our growth by selling the existing stores and leasing them back. This source of financing is cheap, since it avoids violating either the debt-to-assets or interest coverage ratios in our covenants."

Do you agree with his analysis? Why or why not? As the firm's banker, how would you view this arrangement?(short answer or 1 paragraph)

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