Sources of Financing for Best Hardware
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Best Hardware is considering financing for two activities. The first activity deals with the expansion of the business' warehouse to house inventory as demand is growing. The second activity consists on purchasing inventory for increased demand expected during the summer (an usual occurrence). What sources of financing would you consider as financial manager of Best Hardware for each project? Could you use one type of financing for the two activities? Would you expect a variation in interest rates offered by lenders for different sources? Explain your rationale.
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This solution thoroughly addresses the following scenario for Best Hardware:
Best Hardware is considering financing for two activities. The first activity deals with the expansion of the business' warehouse to house inventory as demand is growing. The second activity consists on purchasing inventory for increased demand expected during the summer (an usual occurrence). What sources of financing would you consider as financial manager of Best Hardware for each project? Could you use one type of financing for the two activities? Would you expect a variation in interest rates offered by lenders for different sources? Explain your rationale.
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We would expect to see interest rates vary with each choice offered, to a certain extent. This would be based mostly on the terms of the credit extended. For the expansion of the warehouse, we would expect that the money needed for this project is a sizable amount since we are actually constructing a building/adding onto a warehouse. The owner would likely acquire capital through bank loans. By doing so, the owner can estimate close to the actual cost of the loan needed. This is assuming that the company has a decent credit rating and can show by their financial statements that they are worthy ...
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