Question:

Which financing method should these companies use out of the following?

1)Leasing arrangement

2)Long-term bonds

3)Debt with warrants

4)Friends or relatives

5)Common stock: nonrights

6)Preferred stock (nonconvertible)

7)Common stock: rights offering

8)Convertible debentures

9)Factoring

Gate Aircraft Corporation: Golden Gate Aircraft is a medium-sized aircraft com- ed just outside San Francisco whose sales distribution is approximately 30 percent G. Golden pan y locat ense contracts and 70 percent for nonmilitary uses. The company has been growing for defense contracts and steadi call for ly in recent years, and projections based on current research-and-development prospects continued growth at a rate of 5 percent to 7 percent a year. Although recent reports of severa I brokerage firms suggest that the firm's rate of growth might be slowing down because he high price of fuel and the softness of the business aircraft market, Golden Gate's man- of t agement stock, which is traded on the Pacific Stock Exchange, is selling at 15 times earnings. This is slightly below the 17 times ratio of Standard& Poor's aircraft industry average. The com- pany has assets of $35 million and a debt ratio of 25 percent (the industry average is 23 per- cent). Golden Gate needs an additional $5 million over and above additions to retained earnings to support the projected level of growth during the next 12 months. believes, based on internal information, that no decline is in sight. The company's vert H. Schooner Yachts: Schooner Yachts is a closely held company that was founded in 1970 by Russ Breaker to build a top-quality line of sailboats. The company's debt ratio is 48 percent, compared to an average ratio of 36 percent for sailboat companies in general. The stock is owned in equal parts by ten individuals, none of whom is in a position to put additional unds into the business. Sales for the most recent year were $12 million, and earnings after taxes amounted to $720,000. Total assets, as of the latest balance sheet, were $9.6 million. ooner Yachts needs an additional $4 million to finance expansion during the current fis year. Given the worldwide growth in leisure-time activities and interest in sailing in par cal ticular, the icular, the firm c firm can anticipate additional outside capital needs in the years ahead