Dorina Marciano BSA501
I. Identify the advantages and disadvantages of each option.
1. Generate funds internally from current business operations
Advantages
Internally generated funds could assure that
the company maintains minimal debt. There
would be no interest payments. There is
freedom given to the company on the control
of using their budget for the expansion.
2. Borrow money from the bank
Advantages
Funds to pay back the bank can be generated
from the operations. Payments are divided so
only low amounts would be needed to be paid
on a scheduled basis depending on the
arrangements with the bank.
3. Issuance of a commercial paper
Advantages
Short-term so it is highly liquid which would
mean that the company could use as
immediately as they need.
4. Issuance of bonds
Advantages
Bonds could be sold at a premium. The value
or bonds payable may be modified at a lower
cost. Issuing bonds may come with tax
benefits. Predictable as the bondholder has a
scheduled cash in for the bond.
01 Activity 1
Disadvantages
Time consuming and as stated in the case, it
would greatly impact the company’s liquidity.
It does not increase the company’s capital as
soon as needed.
Disadvantages
Would increase the company’s liabilities.
Many considerations from the bank before a
loan or lending money could be approved.
Disadvantages
Changes in the company may happen anytime
which means that debts could possibly incur
with issuance of commercial papers. This is
risky to the investors as it lacks stability of a
long-term commitment.
Disadvantages
Bonds could be purchased at a discount.
Interest payments must be taken in
consideration in bonds. Stakeholders’
perception may change as bonds are debts and
stakeholders may misunderstand that issuing
bonds may mean that the company is losing
or lacks cash.
 5. Offer additional authorized capital stock
Advantages Disadvantages
When stocks are purchased, it is assured that a Not everyone will be interested in investing or
high amount of cash would be offered based purchasing stocks from the company no
on the company’s Fair Market Value. matter how much reputable they are. Possible
transaction costs.

II. Which do you think is the best option to be taken by the company?

Based on my findings and understanding of the advantage and disadvantages of the

options considered by the company, I would lean towards the issuance of bonds. This
is because many people are greatly invested in purchasing bonds from companies
providing basic needs due to its sustainability. With this, the bondholders are assured
that the company’s expansion would be effective and that they will be able to pay back
the bondholders. Furthermore, and as previously stated, this would be highly effective
for the company as there is a schedule for the payments of bonds and interests. This
means that the company will have adequate time to build up the funds to pay for the
bonds from the business operations.