Reference no: EM132586038

Problem 1: Choose between relying on debt or equity to finance the purchase of a new manufacturing facility for your business. Briefly discuss your reason for your choice and address any advantages, disadvantages and inherent risks, if any, associates with your financing choice.

Problem 2: Assume a business issued fifty $10,000, 4% bonds throughout the year. A few bonds were sold for $10,000, a few more bonds were sold for less than $10,000 and the remaining bonds were sold for more than $10,000. Explain the reason some bonds being issued at face amount while other bonds were issued at a premium and discount.

Problem 3: A merchandising business that sells to other businesses has been in operations for the past five years. Revenues have increase by 20% each year and it been profitable every year. Due to the continued growth in sales each year, the company keeps higher levels of inventory to avoid any lost sales opportunities. The company's suppliers offer credit terms of 1/20, n/ 60 but the company prefers to pay cash when making its purchases. The company also offers it business customers credit terms of 1/10, n/60. Around 75% of its customers pay within the 60 days and the other 25% pay in 90 days. Because the company has been profitable every, it has been paying a generous dividend to its shareholders each year. The company's CEO does not understand why the business is always short on cash yet it is profitable each year. Based on the information the CEO provided about the business, discuss to the possible reasons and solutions the cash flow problems.