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Answer the questions

Explanation & Answer

I finished the question. it is a little long, but I tried to include all my ideas.
Assuming Sara Lehn, chief financial officer of Merit Enterprise Corp., was reviewing her
presentation one last time before her upcoming meeting with the board of directors. Merit's
business had been brisk for the last 2 years, and the company's CEO was pushing for a
dramatic expansion of Merit's production capacity. Executing the CEO's plans would require $4
billion in the capital in addition to $2 billion in excess cash that the firm had built up. Sara's
immediate task was to brief the board on options for raising the needed $4 billion.
Unlike most companies its size, Merit had maintained its status as a private company,
financing its growth by reinvesting profits and, when necessary, borrowing from banks.
Whether Merit could follow that same strategy to raise the $4 billion necessary to expand at the
pace envisioned by the firm's CEO was uncertain, although it seemed unlikely to Sara. She
had identified the following two options for the board to consider.
Option 1: Merit could approach JPMorgan Chase, a bank that had served Merit well for many
years with seasonal credit lines as well as medium-term loans. Lehn believed that JPMorgan
was unlikely to make a $4 billion loan to Merit on its own, but it could probably gather a group
of banks together to make a loan of this magnitude. However, the banks would undoubtedly
demand that Merit limit further borrowing and provide JPMorgan with periodic financial
disclosures so that it could monitor Merit's financial condition as Merit expanded its operations.
Option 2: Merit could convert to public ownership, issuing stock to the public in the primary
market. With Merit's excellent financial performance in recent years, Sara thought that its stock
could command a high price in the ...
