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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

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.

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

  • 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.

Balance Sheet items 2018 2017
CURRENT ASSETS
Cash 456,500 222,400 Cash increase - due to no dividends paid in 2018
Receivables 3,936,400 3,320,000
Inventory 89,800 100,200
Other assets 1,169,500 934,300
Total current assets 5,652,200 4,576,900 Current ratio 2017:
Current ratio 2018:
LONG TERM ASSETS
Note Receivable 380,600 280,700 Some additional debt acquired in 2018
Equipment (net of depreciation) 975,000 1,017,800
Total long term assets 1,355,600 1,298,500
TOTAL ASSETS 7,007,800 5,875,400
LIABILITIES AND STOCKHOLDERS' EQUITY Debt ratio 2017:
Debt ratio 2018:
CURRENT LIABILITIES
Accounts payable 2,783,100 2,805,700
Note payable (current maturities) 277,550 272,550
Other accrued liabilities 265,300 214,600
Total current liabilities 3,325,950 3,292,850
LONG TERM LIABILITIES
Notes payable (long term) 454,800 454,800
Long term accrued liabilities 389,550 320,250
Total long term liabilities 844,350 775,050
TOTAL LIABILITIES 4,170,300 4,067,900
STOCKHOLDERS' EQUITY
Common stock 450,000 450,000
Retained Earnings 2,387,500 1,357,500
Total stockholders' equity

2,837,500

1,807,500
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY 7,007,800 5,875,400

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