trade credit:

customer can purchase good without using cash and then pay supplier at later date;
b2b trade to finance short-term growth
only to business with good credit record and repayment ability
useful to get capital for financing growth opportunities
supplier of credit has interest in success of company that is being financed
repayment terms can be more flexible than under a bank loan
useful for businesses that do not have many other financing options such as equity or
when debt markets are inactive used by small businesses
convertible debenture: only for listed
debentures are unsecured, compared to conv. bonds
junior to other debtholders
conversion is dilutive
provides tax shield good for firm with high tax rates
more expensive than normal bonds but cheaper than equity debt has to be paid
back but these can be converted
allow investors to share in in unexpected earnings good for risky financing
debentures paid out before common equity in bankruptcy
convertible cannot be separated from debenture
keep reserve borrowing power as firm has less debt on BS after it is converted
often used when focus lies on debt
o does not bring in new capital debt is replaced on BS with common stock
factoring:
purchase of a firms receivables
factor is source of funding that pays the firm the value of the invoice deducted by
commission and fees
get capital quickly based on future income due to a receivable/business invoice
depends on creditworthiness of invoiced party
fees are relatively expensive but valuable in industries where receivables take
long to be converted into cash flows
valuable for rapidly growing firms that immediately need cash
warrants:
longer maturities than calls
dilutive hurts existing shareholders
can be separately traded
higher flotation costs
usually used for big issues and focus lies on equity
sensible to mispriced equity as firm raises equity twice by price of the option plus
greater strike price that will yield equity for company upon exercise
trigger new equity only when the firm is successful as holders only exercise it in that
case can be risky when project is risky and debt has to be repaid

Cigar Inc
not small, listed, financial strain, needs
450k for investment

leasing
under financial strain debt would be
too expensive

Power&Light
utility -> steady CFs, safe, long-term
debt/PS/CS, raise 37m

preferred stock similar to debt

no investment horizon given
reserve borrowing capacity
reduces agency conflict (FCF
problem)

Canning
products sold at 60-day credit terms, PPE
financed by mortgage otherwise no LR
debt, sales increase rapidly, raise 550k

trade credit
customers are many small retail
stores, factoring would be expensive
and risky for a bank to collect
trade credit does not involve a bank
need cash immediately
mismatch of receivables and payables
flexible repayment terms
but factoring also acceptable, but
slightly more expensive

Greenpickle
listed, dispersed ownership, grew faster
than industry, high debt ratio, vertical
integration will reduce risk and requires
large amounts of debt (20m)

common stock rights

no dilutive effects
lower flotation costs with rights issue
debt not possible due to high debt
ratio

Mining
listed, first cash needed to assess land,
then if successful to develop land, debt
ratio slightly below industry average,
needs 12 plus 12m

warrants holders can share in

growth, stage wise issuance of conv
debs
risky no normal debt will be issued
leaves some debt outstanding but
leverage is not high

Dance Hall
very small business, uncertain and risky
investment, no expertise but relatively
safe stream of income, only small amount
to be raised 35k

friends/relatives depends on
friends and relatives; flexible
bank loan

Aircraft
steady growth in past and future
prospects, listed, market has bad
expectations but firm has internal
information of strength stock
underpriced, 5m needed

conv debs
no equity issue as information
asymmetry equity not attractive to
issue as stock underpriced focus
should lie on debt
can set conversion price as high as
desired
keep reserve borrowing power
no warrants because they do not need
cash twice
uncertainty hybrid is better

Ships
higher debt ratio than industry, listed but
no free float and concentrated ownership,
investment opportunities in future, 4m
needed

PS similar to debt but cannot take

on more debt and ownership is not
diluted
would be 30% of company issued as
PS too much?
common stock issue would dilute too
much but there will be need for
additional capital in future nonetheless
debt definitely not possible as debt
ratio exceeds industry average already

Pencil
stable CFs, listed, high amount of assets,
liabilities and LR debt small compared to
assets, low debt ratio, need for capital for
investment, 33m

common stock or rights

long term bonds for LR investment
as leverage ratio is very low tax
shield advantage of debt; positive
singal