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Financial Statements by Thomas Ittelson

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Chapter 19. Sources and Costs of Capital

We’ve decided on an expansion strategy. However, AppleSeed does not have enough cash on hand to finance either an acquisition or major expansion of its business. However, we do have a very solid Balance Sheet with a 0.5 debt-to-equity ratio. Total debt is only one-half of our equity. (See the discussion of liquidity ratios on page 203.)

Our preliminary analysis of cash flows shows that AppleSeed will need $2 million for additional property, plant and equipment, plus more working capital to finance the expansion. We’ll discus how we prepared these projections in Chapter 22.

We are on good terms with the local bank. We could take on additional debt. Also, our venture capital investors have offered to purchase ...

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