demonstrate ability to identify how firms raise funds through use of debt, equity, retained earnings

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Urnguy34

Business Finance

Description

For this part of the course project, you will demonstrate your ability to identify how firms raise funds through the use of debt, equity, and retained earnings.

Your client, SmartClean, Inc., is a cleaning service for office and industrial locations. SmartClean has been in business for 5 years and has shown steady revenue growth each year. The owner originally started the business using a business loan. The owner has $10,000 remaining on the loan after steadily making payments and has an excellent personal and business credit history.

The owner wishes to expand the SmartClean business into three new territories, needs an infusion of capital, and is looking for $50,000 in order to make the expansion.

The expected fixed costs for the current business and expansion is $75,000. SmartClean's average charge per job is $250.00. The variable costs per job is $35.00.

To complete this assignment, write a 5- PAGE APA formatted proposal that includes the following parts:

  • Summary of client needs
  • Advantages and disadvantages of debt financing
  • Advantages and disadvantages of equity financing
  • Recommendation for a financing strategy for SmartClean
  • Complete breakeven analysis (based on given price analysis and cost)

APA, CITED ,REFERENCE PAGE ,CORRECT GRAMMAR/SPELLING

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Running Head: EQUITY AND DEBT FINANCING

Equity and Debt Financing
Name
Institution
Date

1

EQUITY AND DEBT FINANCING

2

Summary of SmartClean Inc. Needs
SmartClean Inc. is a five-year-old cleaning service business which mainly offers its
cleaning services to offices and industrial locations. The company's profitability and performance
since initiation has been growing steadily. It is because of this growth that the company’s
management and owners have seen the need for expansion. The plan is to open three new
territories. This proposed expansion project will be financed partly by the company’s retained
earnings and another source of financing. Currently, the company needs to raise an extra $ 50,000
in order to start the expansion project.
SmartClean Inc. can either raise this money through equity or debt. However, the decision
to go for debt financing or equity financing is a tough one. Therefore there is need to fully analyze
and understand both options before deciding which option to choose. Both debt and equity
financing happen to have their own share of advantages and disadvantages and therefore whichever
option the business decides to choose should be one that maximizes the advantages.
This paper, therefore, presents an analysis of the pros and cons of debt and equity financing.
It also summarizes the way forward for SmartClean Inc. based on the financing method analysis
and the business current financial situation. Finally, the paper presents a break-even analysis of
the proposed method which is a very critical aspect of any project especially for profit making
companies like SmartClean.
Advantages and Disadvantages of Debt Financing
Debt financing involves raising funds for a business through borrowing. There are different
ways of financing a business operation through debt. A business can decide to go for a bank loan.
It can decide to...


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