A Neighborhood hardware store is planning to add an equipment rental service to its business. It needs $30,000 to $40,000 to buy the rental equipment and expects rental sales of $3,000 to $3,500 per month. It rents its building with ten years remaining on its lease and has had stable total sales over the past several years.

This exercise provides an example of how the aspects of equity and debt discussed in the lecture relate to a business situation. Please answer the following questions when preparing your response. The following points should be covered, more can be added. What is the hardware store's capacity to support equity or debt financing? What mixture of debt and equity is appropriate to use? What are the likely sources?

Week 4 Local, State, and Government funding

Viability study is an investigation into a business idea that tries to determine how profitable the business idea is.

Feasibility study is an assessment of how practical or doable a proposed plan is. It tries to find out whether it is possible to complete a project, successfully.

Community viability, which asks does the project have sufficient community support

2) Locational/market viability, here you are identifying the resources needed for the project and their availability, the potential customers foe the product or service and the strengths and weaknesses of your product to the competition.

3) Commercial viability weighs the estimated revenues of the product/service to the costs

4) Implementation viability identifies who in the community has to ability to undertake the task.

Market for their goods and services Market research helps you get a better grasp of business viability because it forces you to look at existing competition, supply and demand for the market you want to enter, current buying trends and average price points for your proposed product or service.

Transportation access to get their good or services to customers and receive inputs.

Information and technology to efficiently design, produce, deliver and service products

Labor and its embedded skills for production, administration, management, and service aspects of the business.

Management and entrepreneurial capacity to design and coordinate the process

Materials and energy what is used in production

Facilities and equipment what is needed to operate all aspects of the business

Financial capital what is needed to purchase all of these inputs

SWOT analysis stands for Strengths, Weaknesses, Opportunities, and Threats.

Strengths: What are the strongest aspects of the product/business that make it stand out from the competition?

Weaknesses: What are the areas in which your product will struggle to compete with others?

Opportunities: What are the established resources you have that create a unique opportunity for product success?

Threats: What are the key threats that could limit your products ability to sell or succeed in the market?

Capital in finance and accounting, capital generally refers to financial wealth in the form of money or other assets owned by a person or organization

There is no one way rule about whether to use equity or debt financing or a hybrid of both since these uses can vary depending on the product or service

Equity - where you are raising money from a third-party investor and you are selling them a piece of your business in exchange for that capital.

Debt - means borrowing money to help invest in your growth. It is a contract between a lender and a borrower by which funds are provided and then repaid to the lender (debt holder) according to a defined interest rate and principal repayment schedule.

Debt differs from equity in two ways

1. there are specific terms for how the investor (lender) is to be repaid

2. issuing debt does not grant any governance rights to debt holders.

Debt financing has a variety of different

Credit card is a line of credit where you are borrowing a certain of money that you are expected to pay usually within a month or you are charged a high interest rate

A term loan is more like a mortgage where you are borrowing a full amount of capital up front and you are repaying that loan in set payments throughout the life of the loan.

A line of credit is typically a larger amount of capital that you have access to that you can draw down from as you need it.

Invoice or receivables financing exists typically when you have a working capital gap, when you are selling into a larger company

Invoice financing fronts capital for that expense at discount from the future potential revenue you will receive.

A merchant cash advance is a specific type of loan product tailored to businesses that take a lot of credit cards - the most expensive financing offered

Firm growth occurs in distinct development stages in which both the availability and use of debt and equity financing varies.

Seed and start-up stages, businesses are characterized by limited information and they have a high uncertainty of future earnings

As firms reach the growth stage, they start establishing a sales and profit history

When firms reach the maturity stage they have greater access to debt capital because they have substantial assets and a predictable cash flow