XYZ Corporation is a medium-sized manufacturing company that has been experiencing financial challenges in recent years. In an effort to improve its financial position, the management is considering various strategic financial decisions. These decisions include capital budgeting for a new production facility, evaluating debt financing options, and assessing the impact of these decisions on the company's financial statements.

Strategic Financial Decisions:

Capital Budgeting for a New Production Facility:

XYZ Corporation is contemplating a significant investment in a new production facility to expand its manufacturing capabilities. The project involves substantial upfront costs but is expected to generate increased revenue and cost savings over the long term.

The management needs to evaluate the feasibility of the project using various capital budgeting techniques, such as Net Present Value (NPV), Internal Rate of Return (IRR), and Payback Period.

Debt Financing Options:

To fund the new production facility and address existing financial obligations, XYZ Corporation is exploring debt financing options. The management is considering issuing bonds or obtaining a bank loan.

The decision involves assessing the cost of debt, impact on the company's debt-to-equity ratio, and the overall financial risk associated with each financing option.

Financial Statement Impact:

The strategic financial decisions made by XYZ Corporation will have a direct impact on its financial statements. The management needs to analyze how these decisions will affect key financial metrics such as profitability, liquidity, and solvency.

This analysis involves projecting the impact on the income statement, balance sheet, and cash flow statement to ensure that the company's financial health is maintained or improved.

Question: Considering the strategic financial decisions faced by XYZ Corporation, discuss the factors that should be considered when evaluating the feasibility of the capital budgeting project for the new production facility. Additionally, analyze how the choice of debt financing options may influence the company's overall financial risk. Finally, outline the potential impact of these decisions on XYZ Corporation's financial statements, emphasizing the key metrics that should be closely monitored for effective financial management.