Accounting Analysis

[Name of the Institute]Accounting Analysis

Assignment

Part A

Introduction

The following paper discusses about the sources of finance through which the firm can raise its capital in order to expand its business. There are multiple options through which a business can expand such as through raising debt, through equity and also through going public and other. Usually in such situations a business firm maximize its profit by getting cheaper labor, or by maximizing the sale, or by layoff of employees, but these process are time consuming, therefore the business firm usually raises debt, or will raise the equity and by going public, (IPO) initial public offering. These three ways are normally used by the firm in order to expand the business whenever firm is trying to expand. All these options have certain advantages and disadvantages therefore, the following paper discusses about the advantages and the disadvantages of the multiple options required for the business expansion. Along with this the paper also provides recommendations that are suitable for Johnson Private Limited in order to finance their expansion plan.

Discussion

Background

In this report the firm is Johnson Private Limited and it is a medium sized manufacturer for the dining furniture. Since the demand increases of their products, therefore, the owner of Johnson Private Limited wants to expand his business in order to meet its demand. The firm in present looking at various options, as the owner of business has determined that the firm will take approximately $ 60 million in order to expand. (The expansion cost of the business is $60 million). There are multiple options available for the business such as going public, or finance their expansion cost by rising through debt or either through equity.

Debt Financing

If the firm Johnson Private Ltd raises the debt on equity the firm will have following advantages and disadvantages. These advantages and disadvantages are discussed below.

Advantages

Giving Control

If the firm takes loan, or raises debt, the firm does not have to give up any control for its business. The right of the owner or the manager is not acquired by the lender in order to oversee how the owner or the manager runs small business, or how the profits are allocated. In short there is no dilution of the ownership (Eriksson, 2009).

Simple Obligation

The obligation of the loan is to repay the money that is being borrowed, according to the terms and the conditions that have been agreed by the owner or the manager of the firm. After the complete payment of the loan the relationship between the owner or the manager of the business and the lender is finished. After the repayment there is no ongoing obligation in order to burden the business (Sherman, 2012).

Tax Advantages

For the business the tax is deductible as a certain amount of the interest is being paid on the loan borrowed. This can equate to the tax saving for the number of small enterprises or entities.

Prediction

After borrowing loan the firm can be certain of the payment of the interest and the principal amount that is ...