For this week's Discussion, provide an answer to the case study questions with a recommendation.

Case Study:

The Exceptional Service Grading Company requires a capital infusion of $500,000. It is currently a closely held corporation with less than 25 shareholders. Although the shareholders are not all related to each other, they all know each other, and they view the business as a family business. The financial statements should be familiar to you because you performed a basic financial analysis of the company in Unit 1 of this course.

• Obtain private debt financing
• Seek out a private investor(s) who would be willing to share ownership (private transfer of partial ownership)
• Seek out offers for a private buy-out (private transfer of entire ownership)
• Issue public debt (corporate bonds)
• Issue public common stock (public equity offering)

Briefly discuss each alternative and include implications to the companys capital structure and cost of capital, if any. Considering the size of the investment ($500,000 infusion), provide a conclusion on how it might impact the financial statement reviewed in Unit 1. No calculations are required.

Several alternatives are available to the company, consisting of the following:

Balance Sheet items 2018 2017 CURRENT ASSETS Cash Receivables Inventory Other assets 456,500 3,936,400 89,800 1,169,500 222,400 Cash increase - due to no dividends paid in 2018 3,320,000 100,200 934,300 Total current assets 5,652,200 4,576,900 Current ratio 2017 Current ratio 2018 1.39 1.70 LONG TERM ASSETS Note Receivable Equipment (net of depreciation) 380,600 975,000 280,700 Some additional debt acquired in 2018 1,017,800 Total long term assets 1,355,600 1,298,500 TOTAL ASSETS 7,007.800 5,875,400 Debt ratio 2017: Debt ratio 2018: 69.2% 59.5% LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable Note payable (current maturities) Other accrued liabilities 2,783,100 277,550 265,300 2,805,700 272,550 214,600 Total current liabilities 3,325,950 3,292,850 LONG TERM LIABILITIES Notes payable (long term) Long term accrued liabilities 454,800 389,550 454,800 320,250 Total long term liabilities 844,350 775,050 TOTAL LIABILITIES 4,170,300 4,067,900 STOCKHOLDERS' EQUITY Common stock Retained Earnings Total stockholders' equity 450,000 2,387,500 2,837,500 450,000 1,357,500 1,807,500 TOTAL LIABILITIES AND 5,875,400 STOCKHOLDERS EQUITY 7,007,800 Balance Sheet Income Statement Income Statement items 2018 2017 Answers/Comments Service Contract Revenues 9,200,000 6,595,400 Increase in contracts Service Contract Costs -6,503,100 -4,957,800 Gross Profit 2,696,900 1,637,600 Gross profit margin 2017: 24.83% Gross profit margin 2018: 29.31% -756,000 General and Administrative Expenses -896,000 Operating Income 1.800,900 881,600 Increase in profit - see above comment Gain on sale of equipment 59,900 7,700 Interest expense -69,500 -70,800 Other expense -9,600 -63,100 Income before taxes 1,781,700 755,400 Taxes -451,700 -300,900 Net Income 1,330,000 454,500 Increase in net income from 2017-2018 Retained Earnings, Beginning Balance 1,057,500 2,387,500 0 1,053,000 1,507,500 -150,000 No dividend paid in 2018 Less: Dividends paid Retained Earnings, Ending Balance 2,387,500 1,357,500 Balance Sheet Income Statement