Marketing studies have shown that consumers prefer upscale stores, and recent trends in industry sales have supported the research. To capitalize on this trend, Visual Images, Inc., is embarking on a massive expansion. Plans call for opening 50 new stores within the next 18 months. Each store is scheduled to be 30 percent larger than the company's existing stores, furnished more elaborately, and stocked with more expensive merchandise. Management estimates that company operations will provide \(\$ 10\) million of the cash needed for expansion. Visual Images must raise the remaining \(\$ 8.5\) million from outsiders. The board of directors is considering obtaining the \(\$ 8.5\) million either through borrowing or by issuing common stock.

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1. Discuss for company management the advantages and disadvantages of borrowing and of issuing common stock to raise the needed cash. Which method of raising the funds would you recommend?

2. How will what you learned in this problem help you manage a business?

Reporting liabilities on the balance sheet

(Obj. 6)