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You founded your own company three years ago with your own savings and loans from family and friends. As your business grows, you need more
You founded your own company three years ago with your own savings and loans from family and friends. As your business grows, you need more capital. You have the following options, given the size and net income of your company: - Selling stock in your company to bring on new coowners of your company where the required rate of return is 9%. - Borrowing money by selling 5 -year notes paying a 6% coupon rate - Taking out a 5 -year 6% loan from the bank. Answer the Following Questions: 1. What combination (percentages) of the above three sources will you use to raise capital for your company? Would it be wise to raise all of your capital from one source? In which method might there be limits? 2. Based on your choice and on the rates above, what is your weighted cost of capital (before tax)? 3. Which set of investors/creditors do you believe would be the most focused on short-term results? 4. Regarding the 6% rate for the notes equals the 6% rate for the loan, are they any differences between the two borrowing methods that you should consider
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