PART II - Now that you have base information determine how the $400,000 investment should ideally be structured (debt or equity or both). Are some possibilities more profitable than others? Weigh the...

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PART II - Now that you have base information determine how the $400,000 investment should ideally be structured (debt or equity or both). Are some possibilities more profitable than others? Weigh the positive and negative considerations. Create a field of inputs that allows you to model out various options. This means you will have to consider the flow through of your decision making across 5 years. You should consider the following in your modeling: 1. The investor expects a return on investment of 8% a year if he contributes it for ownership. How do dividends impact the financials? Whereas if it is structured as debt a 7% return is expected. 2. Luke and Liz would prefer to own the business and not have the investor making investment decisions, knowing this how could you change the investment? 3. Luke and Liz currently are earning nothing in the business, how can they receive some payment for their services? Is it reasonable? Or could you manipulate the model to maximize company profits as well as their salaries? How do salaries impact their income? 4. Consider what you have learned regarding debt and equity and the impacts on business financials (installment financing vs. long term financing, leasing vs. purchasing, long term debt vs. capital) as this may assist with positive cash flow. 5. Keep in mind the necessity of positive cash flow when determining how best to balance their books and recommend how the Company may best ensure they have the appropriate capital annually to move forward. 6. If assumptions are necessary, include those in your analysis (ranges may be used). Your deliverable should include - Executive snapshot (defined as a 1 page summary of your conclusions) that is unique and clear. Some areas to highlight are the use of debt or equity for investor, investor’s return, cash position for each year, potential earnings for Liz & Luke. If you considered some unique concepts in optimizing their financials this is the time to include. - Your budgeted financials are updated for inputs and assumptions. - 1 page narrative of your overall considerations and recommendations for Liz and Luke.
Answered Same DayMay 11, 2021

Solution

Sugandh Jain answered on May 12 2021
28 Votes

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The Investment is $ 400000
The structure is 60 Percent Debt and 40...

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