Competition Bikes Inc. Case Study
There are two options for financing the working capital of a business as mentioned earlier. These are debt financing and equity financing. Debt financing means the borrowing of money from outside sources such as banks with the promise of paying back at a later date. (Palermo, 2014)The money borrowed earns interest as agreed between the lender and the borrower. Equity financing, on the other hand, involves the selling of shares to investors as a means of raising capital for the business. (Palermo, 2014) Competition Bikes Inc., therefore, has two options to finance its operations. As found earlier under the best alternative to financing working capital, Competition Bikes has one best option of raising the money. This is the use of 50% preferred
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is faced with the dilemma of either leasing or buying of facilities. Considering it is a new market they are entering, there are factors that need to be considered before a decision is arrived. The advantages and disadvantages of both leasing and purchasing ought to be well considered and studied. Using the datasheet provided for leasing versus purchasing, it is easier for Competition Bikes to arrive at a final decision. The projected period for this is five years. The facts from the datasheet show that if Competition Bikes Inc. decides to purchase the facilities over leasing, a down-payment of $50,000 have to be made. (UKEssays, 2013) Though both offer a net present value of 6%. Considering the present value of money, it is logical that the $50,000 down-payment required for purchase can be used in generating more revenue for the company spread over the expansion period. If the company, however, decides to lease, there is an option of buying the facility for $50,000 at the end of the five years if they feel that they want to keep operating in the facility. This looks like the best option though monthly payments by Competition Bikes will increase due to lease payments. From the datasheet, if the company decides to purchase the facility, it will have spent $399,774 inclusive of the down payment over the five-year period. If, however, the company decides to lease, it will have spent $283,752 inclusive of the cash
is faced with the dilemma of either leasing or buying of facilities. Considering it is a new market they are entering, there are factors that need to be considered before a decision is arrived. The advantages and disadvantages of both leasing and purchasing ought to be well considered and studied. Using the datasheet provided for leasing versus purchasing, it is easier for Competition Bikes to arrive at a final decision. The projected period for this is five years. The facts from the datasheet show that if Competition Bikes Inc. decides to purchase the facilities over leasing, a down-payment of $50,000 have to be made. (UKEssays, 2013) Though both offer a net present value of 6%. Considering the present value of money, it is logical that the $50,000 down-payment required for purchase can be used in generating more revenue for the company spread over the expansion period. If the company, however, decides to lease, there is an option of buying the facility for $50,000 at the end of the five years if they feel that they want to keep operating in the facility. This looks like the best option though monthly payments by Competition Bikes will increase due to lease payments. From the datasheet, if the company decides to purchase the facility, it will have spent $399,774 inclusive of the down payment over the five-year period. If, however, the company decides to lease, it will have spent $283,752 inclusive of the cash