Explore BrainMass
Share

# Financial Statements under Two Financing Alternatives

This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

Calculate and complete the boxes noted with "?". Make a recommendation of one of the two options. Why do you believe the selected option is preferred over the other? Would their be additional information that you might with to have to support your decision? If so, what? Which alternative carries a higher risk. Review colleagues postings and comment on their choices.

(See attached file for full problem description)

#### Solution Preview

Activity 2

Assume you are about to start a new company. Let's call it Super Health, Inc. The business requires \$200,000 in assets to get into operation, and there are only two financing alternatives available to you are 1) all equity (all common stock) and 2) 50 percent equity and 50 percent debt.
Following is the business's projected financial statements under the two financing alternatives. The business will require \$100,000 in current assets and \$100,000 in fixed assets to begin operations.
Since the asset requirement depends upon on the nature and size of the business rather than on how the business will be financed, the assets side of the balance sheet is unaffected by the financing schemes. However, the capital, or claims side, is influenced by the type of financing.
Under the all equity alternative, you will put up the entire \$200,000 needed to purchase the assets. If 50 percent debt financing is used, you will contribute only \$100,000 of your own funds and the remaining \$100,000 will be obtained from creditors, say, a bank loan at 10 percent interest rate. Your task is to complete all of the ? spaces and make a recommendation regarding which financing alternative to select and why for DQ #2?
Super Health, Inc: projected Financial Statements under Two Financing Alternatives
Stock Stock/Debt
Balance Sheet
Current Assets \$100,000 \$100,000
Fixed ...

#### Solution Summary

This discusses the projected Financial Statements under Two Financing Alternatives

\$2.19