To determine: The reason that bank financing is unavailable for T&E startup.
Case summary: T&E is a hamburger restaurant in Chicago area started in 2009 at the time of great recession. They financed its operations by themselves and with the help of third partner VN. Both the partners have work experience in McD as executives. Recognizing the need of finance function, they hired Brian as a CFO who is a former executive of McD.
According to CFO cash flow is an important element in starting up a restaurant because of the known costs such as rent, payroll, inventory, taxes and utilities as these are recurring and relative costs incurred on weekly or monthly basis. T&E uses a technological inventory management and
CFO explains that the restaurant has net 14 credit terms with its food vendors. This means that the invoice is to be paid within 14 days after the receipt of the goods. It is a form of financing which allows company to turn the inventory once or twice during the 14 day period. According to Eddie, the goal is to increase the stores by 10 and then look at franchising the operation.
Characters in the case: The characters that in the case are T&E, VN and BG.
Adequate information: According to Eddie, the goal is to increase the number of stores by 10 and then look at franchising the operation. When considering the location where to open a new operation. He indicates that the careful consideration is to give demographics of area like average income of people, age and population.
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Chapter 18 Solutions
Understanding Business
- Please give me the solution of the following question: Define a Company. Explain its features and also explain advantages and disadvantages of forming a public company. Discuss the crucial importance of cash to a business. Is the profit that a business makes a reliable indicator of its cash balances? What is the reason for the existence of Corporate Governance? Discuss some principles of good governance as described by the Corporate Governance Code. Define Gearing and explain its advantages and disadvantages. Why might a bank be interested in a company’s level of gearing?arrow_forwardExplain the profitability-risk trade-off of alternative methods of financing a given working capital investment.arrow_forward(1) Would a profitable small business with onlymoderate growth potential be a good candidate forventure capitalist funding? Why or why not? (2) Whywould angel investors help finance companiesprivately, rather than buying shares of publicly tradedcompanies?arrow_forward
- How does a big company sell stocks rather than shares in order to acquire long-term finance? What does she sell bonds instead of shares under which circumstances?arrow_forwardWhich of the following can be categorized as Short term sources of finance? i Equity Shares ii. Trade Credit iii Debenture iv Money Market Instruments O 3. Both Equity Shares and Debentures O B. Both Money Market Instruments and Trade Credit Only Money Market Instruments O d. Only Equity Sharesarrow_forwarddiscuss the advantages and disadvantages of debt financing and common stock financing. Then, for your initial post, discuss the following: From the company’s viewpoint, why would it prefer to fund the venture initially with common stock instead of debt?arrow_forward
- Which of the following forms of business organization can finance its operation through acquiring bank term loan and by issuance of equity securities? a. Single proprietorship b. Corporation c. Limited partnership d. General Professional Partnershiparrow_forwardExplain the role of finance and the different types of jobs in finance. Identify the advantages and disadvantages of different forms of business organization.arrow_forwardA CEO has placed you in charge of a new investment opportunity to borrow $5 billion dollars to create a new subsidiary of MCI called MillerCare Insurance. Estimates indicate that in seven years, MillerCare Insurance and its assets will be valued at $8 billion. The best offer for the loan sits at 12 percent. Mr. Miller instructed you to provide guidance to the new insurance firm, if indeed you decide to accept the loan package. How might you advise the top management of the insurance firm in regard to: How the Law of Diminishing Returns impacts the insurance market The dangers of Moral hazard Adverse selectionarrow_forward
- What is the cheapest source of funds? When all other sources turn down your request for funding, what source is most likely to say yes? Why is this the case? Is the entrepreneur exploiting a personal relationship with this potential source of capital? What are the consequences of using this source of capital if the business goes bankrupt?arrow_forwarddiscuss the sources of equity financing for: 1-Venture capital firm 2-Small business investment companies 3-Public offering 4-Mergers and acquisitions 5-Angels 6-Family and friendsarrow_forwardExplain how small business use the following capital sources: Internal Funds Trade Credit Equity Sourcesarrow_forward
Foundations of Business - Standalone book (MindTa...MarketingISBN:9781285193946Author:William M. Pride, Robert J. Hughes, Jack R. KapoorPublisher:Cengage Learning
Foundations of Business (MindTap Course List)MarketingISBN:9781337386920Author:William M. Pride, Robert J. Hughes, Jack R. KapoorPublisher:Cengage Learning