FINANCING

QUESTION 1: FINANCING
Background Information Needed to Answer Question #1:
Review Shaun's criteria below to determine the best financing option to expand his business.
SHAUN’S CRITERIA
Hi Team,
I wanted to provide you some guidelines as you determine how we’ll finance our expansion. Please give this careful consideration, as we need to get this right.

1. I estimate we’ll need $150,000 to increase capacity in order to stock the five additional pop-up stands.
2. We’ll need to make sure we have additional funds available to increase our marketing efforts to stimulate demand.
3. Cash flow is going to be tight, so I’d like to minimize interest payments.
4. I’d like to maintain or increase our profit margins.
5. Since I don’t have a lot of experience with big discount retailers, I’d like to add a thought partner with experience in this channel.
6. If we’re successful over the next two years, we’ll likely seek additional capital to expand into more stores, so I’d like to do all we can now to enhance our credibility.
7. We need to move on this quickly, so I’d like an answer by the end of the week.
   -Shaun
   FINANCING OPTIONS
   As we have learned, there are pros and cons to all financing methods. Which of the three financing methods would be the best fit based on Shaun's criteria above?
   Option 1: Equity
   Raise $150,000 from a venture capital firm in exchange for 30% of the company.
   Option 2: Debt
   Secure a loan of $150,000 at a 10% annual interest rate, to be repaid over 7 years.
   Option 3: Debt + Self-Financing
   Secure a loan of $100,000 at a 7% annual interest rate, to be repaid over 7 years, and self-finance the remaining $50,000.