What is the hardware store's capacity to support equity or debt financing? What mixture of debt and equity is appropriate to use? What are the likely sources?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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  • A Neighborhood hardware store is planning to add an equipment rental service to its business.  It needs $30,000 to $40,000 to buy the rental equipment and expects rental sales of $3,000 to $3,500 per month.  It rents its building with ten years remaining on its lease and has had stable total sales over the past several years.

This exercise provides an example of how the aspects of equity and debt discussed in the lecture relate to a business situation.  The following points should be covered.

  • What is the hardware store's capacity to support equity or debt financing?
  • What mixture of debt and equity is appropriate to use?
  • What are the likely sources?
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