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Senior Accountant Analysis

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Running Head: SENIOR ACCOUNTANT ANALYSIS 1
Senior Accountant Analysis:
The Case of Sunstruck Sunglasses
Student's Name
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THE CASE OF SUNTRUCK SUNGLASSES 2
Senior Accountant Analysis: The Case of Sunstruck Sunglasses
Best Financing Option
The company's best option is the $100,000 long-term loan at 7%, with an additional
$50,000 funds from the company's incomes. Although there are interests and the firm will reduce
dividends payable to the stakeholders, the interests will be 2/3 of what the company could pay if
it took the $150,000 debt option. Moreover, the option does not dilute the stake for stakeholders.
Besides, the company can afford $50,000 for self-funding as it had a net income of $102,255 in
the previous financial year. Considering the financial statements, in the last financial year, the
company's long term debts totaled to $479,500. The balance sheet also shows that its assets exceed
the loans as it has assets worth $613,500, which means that the company's assets can cover an
additional loan, but the loan should not exceed $134,000 ($613,500-$479,500). Loans should not
exceed the company's assets as the assets cover as collateral. A loan of $100,000 is within the
limit, but $150,000 pushes the company's debt beyond its assets and is thus not feasible (Covas, &
Den Haan, 2011).
The cost of the equity capital option is the dilution of ownership. The current owners will
only be owning 70% of the company they currently own entirely. The advantage is that there will
be no interest to repay on equity capital. However, the dilution of 30% for $150,000 equity is a
considerable cost to stakeholders and should be avoided. The $150,000 debt option does not dilute
its stake, but it has a significant weakness: The interest rate of 7% for ten years is high. The law
mandates companies to pay all due interests in full before sharing out dividends to the owners. It
implies that the stakeholders may experience a slump in the number of dividends for the next ten
years (Covas, & Den Haan, 2011).

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Running Head: SENIOR ACCOUNTANT ANALYSIS Senior Accountant Analysis: The Case of Sunstruck Sunglasses Student's Name Professor Course Date 1 THE CASE OF SUNTRUCK SUNGLASSES 2 Senior Accountant Analysis: The Case of Sunstruck Sunglasses Best Financing Option The company's best option is the $100,000 long-term loan at 7%, with an additional $50,000 funds from the company's incomes. Although there are interests and the firm will reduce dividends payable to the stakeholders, the interests will be 2/3 of what the company could pay if it took the $150,000 debt option. Moreover, the option does not dilute the stake for stakeholders. Besides, the company can afford $50,000 for self-funding as it had a net income of $102,255 in the previous financial year. Considering the financial statements, in the last financial year, the company's long term debts totaled to $479,500. The balance sheet also shows that its assets exceed the loans as it has assets worth $613,500, which means that the company's assets can cover an additional loan, but the loan should not exceed $134,000 ($613,500-$479,500). Loans should not exceed the company's assets as the assets cover as collateral. A loan of $100,000 is within the limit, but $150,000 pushes the company's debt beyond its assets and is thus not feasible (Covas, & Den Haan, 2011). The cost of the equity capital option is the dilution of ownership. The current owners will only be owning 70% of the company they currently own entirely. The advanta ...
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