Wgu Jet2 Financial Analysis Task 3

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Competition Bikes Inc. Summary Report JET2 Financial Analysis, Task 3 May 30, 2014 Introduction 3 A1. Capital Structure 3 A1a. Recommendation 5 A2. Capital Budget 7 A3. Working Capital 9 A4. Merge or Acquire 11 References 14 Introduction: Competition Bikes is considering an expansion to Canada and is trying to determine whether to merge with or acquire the Canadian Biking Inc. facility. Canadian Biking is a smaller company, but has very similar product and would fit well into the strategic plan for Competition Bikes’ product mix and distribution. Part of the consideration in the decision on whether to merge with or acquire Canadian Biking is the source and management of the working capital for the operation. The purpose of this report is to provide an analysis on the company’s proposed expansion. A1. Capital Structure: Capital structure refers to the strategy a company uses to raise capital funds and it includes equity capital and debt capital. Equity capital includes money that was originally invested into the company in exchange for shares of stock and retained earnings, which is profit from the previous years that has been retained by the company to fund growth. Debt capital is the borrowed money, typically long-term, that is used to invest in the company to finance growth (Investopedia, 2014). Competition Bikes has determined it will need $600,000 to fund the Canadian expansion if the decision is made to move forward with the expansion. There are five alternative capital sources that have been identified and that are available to optimize the company’s capital structure after obtaining the funds necessary for expansion. These alternative capital sources use a combination of bonds, preferred stock, and common stock for years 9 through 13: * 100% of 12% bonds * 50% preferred and 50% common stock * 20% of 12%

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