Reference no: EM132073563

A Company requires a capital infusion of $200,000. It is currently a closely held corporation with less than 50 shareholders. Although the shareholders are not all related to each other, they all know each other and they view the business as a family business. Please refer to the following financial statements:

- ASSETS 2014 - 2013

CURRENT ASSETS

Cash 456,500 - 222,400

Receivables 3,936,400 - 3,320,000

Inventory 89,800 - 100,200

Other assets 119,500 - 84,300

Total current assets 4,602,200 - 3,726,900

LONG TERM ASSETS

Note Receivable 380,600 - 280,700

Equipment (net of depreciation) 975,000 - 1,017,800

Total long term assets 1,355,600 - 1,298,500

TOTAL ASSETS 5,957,800 - 5,025,400

- LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES

Accounts payable 2,783,100 - 2,805,700

Note payable (current maturities) 177,550 - 172,550

Other accrued liabilities 165,300 - 114,600

Total current liabilities 3,125,950 - 3,092,850

LONG TERM LIABILITIES

Notes payable (long term) 354,800 - 354,800

Long term accrued liabilities 289,550 - 220,250

Total long term liabilities 644,350 - 575,050

TOTAL LIABILITIES 3,770,300 - 3,667,900

- STOCKHOLDERS' EQUITY

Common stock 300,000 - 300,000

Retained Earnings 1,887,500 - 1,057,500

Total stockholders' equity 2,187,500 - 1,357,500

TOTAL LIABILITIES AND STOCKHOLDERS EQUITY 5,957,800 - 5,025,400

Income Statement 2014 - 2013

Service Contract Revenues 9,700,000 - 6,295,400

Service Contract Costs (7,503,100) (4,957,800)

Gross Profit 2,196,900 - 1,337,600

General and Administrative Expenses (896,000) (756,000)

Operating Income 1,300,900 - 518,600

Gain on sale of equipment 59,900 - 7,700

Interest expense (69,500) (70,800)

Other expense (9,600) (63,100)

Income before taxes 1,281,700 - 455,400

Taxes (451,700) (300,900)

Net Income 830,000 - 154,500

Retained Earnings, Beginning Balance 1,057,500 - 1,053,000

1,887,500 - 1,207,500

Less: Dividends paid 0 - (150,000)

Retained Earnings, Ending Balance 1,887,500 - 1,057,500

A number of alternatives are available to the company. It can:

Obtain private debt financing

• Seek out a private investor(s) who would be willing to share ownership

• Seek out offers for a private buy-out

• Issue public debt (corporate bonds)

• Issue public common stock

From the cost of capital and capital structure point of view, what’s the impact and implications of each alternative? Considering the size of the investment ($200,000) how does this impact of this infusion of capital on the financial statements?