Comparing Debt and Equity Financing and Recommending How to Finance an Expansion Raising capital by selling bonds is cal
Posted: Sun Jul 03, 2022 3:52 pm
Comparing Debt and Equity Financing and Recommending Howto Finance an Expansion
Raising capital by selling bonds is called debt financing,whereas, raising capital by selling stock is called equityfinancing. Read the following scenario and answer the question.
St. Sharon’s Health Care has decided to expand its operations toowning and operating long-term health care facilities. Thefollowing conversation occurred between the chief executiveofficer, Ron Smithson, and the vice president of finance, MurphyLee.
Ron: Murphy, have you given anythought to how we’re going to finance the acquisition of St.Sharon’s Health Care?
Murphy: Well, we have two basicoptions, we either sell stock or sell bonds. The current equitymarket is a little soft and rumor is that the Federal Reserve Bankmay increase the interest rate later this month or next.
Ron: Yes, I’ve heard thattoo. The problem is, we don’t have time to wait, especially ona rumor. We need to make a decision by the end of this week ifwe want to be in position to complete the acquisition under thecurrent terms.
Murphy: The bond market is strongright now as investors are looking for a secure cash flow withminimal risk. I think our best choice is to issue bonds.
Ron: I have to agree and St. Sharon’sfinancial statements show it can take on debt. The only thingthat is worrisome is the cash flow issues from delayed insuranceand government reimbursement. But, that is the nature of theindustry, isn’t it?
Directions:
Part 1: Create a post by answering thequestions below. Use business writing, provide examples, andinclude visuals to be clear in your explanation.
(HINT: Remember, this is related to financing, notinvesting)
Raising capital by selling bonds is called debt financing,whereas, raising capital by selling stock is called equityfinancing. Read the following scenario and answer the question.
St. Sharon’s Health Care has decided to expand its operations toowning and operating long-term health care facilities. Thefollowing conversation occurred between the chief executiveofficer, Ron Smithson, and the vice president of finance, MurphyLee.
Ron: Murphy, have you given anythought to how we’re going to finance the acquisition of St.Sharon’s Health Care?
Murphy: Well, we have two basicoptions, we either sell stock or sell bonds. The current equitymarket is a little soft and rumor is that the Federal Reserve Bankmay increase the interest rate later this month or next.
Ron: Yes, I’ve heard thattoo. The problem is, we don’t have time to wait, especially ona rumor. We need to make a decision by the end of this week ifwe want to be in position to complete the acquisition under thecurrent terms.
Murphy: The bond market is strongright now as investors are looking for a secure cash flow withminimal risk. I think our best choice is to issue bonds.
Ron: I have to agree and St. Sharon’sfinancial statements show it can take on debt. The only thingthat is worrisome is the cash flow issues from delayed insuranceand government reimbursement. But, that is the nature of theindustry, isn’t it?
Directions:
Part 1: Create a post by answering thequestions below. Use business writing, provide examples, andinclude visuals to be clear in your explanation.
(HINT: Remember, this is related to financing, notinvesting)