Merit Enterprises Essay

491 WordsFeb 15, 20152 Pages
Merit Enterprise Corp.’s CEO was pushing for a dramatic expansion of Merit’s production capacity. Executing the CEO’s plans would require $4 billion in capital in addition to $2 billion in excess cash that the firm had built up (Gitman & Zutter, 2012). According to Gitman&Zutter (2012), in addition to ongoing involvement in financial analysis and planning, the financial manager’s primary activities are making investment and financing decisions. Investment decisions determine what types of assets the firm holds. Financing decisions determine how the firm raises money to pay for the assets in which it invests (p. 19). Sarah Lehn, chief financial officer of Merit Enterprise Corp., had identified two option for the board to consider. There are several advantages and disadvantages to both. Option 1 is to approach JPMorgan Chase and ask for a $4 billion loan. Since JP Morgan Chase and Merit Enterprise Corp have a well established relationship, that will most likely make an application process easier and Merit might be able to negotiate a low interest rate. The process of obtain a loan might be much faster than raising money by going public. One of the advantages of this option is that Merit Enterprise Corp. would remain a private company. The main advantage of staying private is the fact that private companies are not required to disclose details about their operations. They also do not have to answer to shareholders. On of the disadvantages of executing this option is the fact that the banks will most likely lay down restrictive covenants which will impose restrictions on further form of funding. This may become a problem if Merit is maxed out on receiving financing and would need any additional capital for any other projects. There might be a lot of interference from the bankers in the form of periodic assessments and financial disclosures such as periodic cash flow

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