Long-Term Planning
Long-term planning is essential for a business is to thrive and plan. Some organizations develop plans that are designed for a year, and some are meant for three to five years. When an organization creates plans, they typically streamline into strategic or operational plans. A strategic plan is normally intended for long term objectives. As Siciliano observes, “the plan is typically intended to drive the company’s strategy for several years, and serves as the basis for the company’s operating plan” (Siciliano, 2015). When a company faces debt, there are two things to consider. One is restructuring or replacing the debt, which typically has a lower interest rate. Another way is equity financing, which is a way to pay down …show more content…
The Chief Financial Officer (CFO) made the decision to refinance $400 million of the $500 million. In addition, Target wants to make additional fixed asset investments of $100 million over the next ten years. Target is facing adversities and needs to take into consideration on how to utilize this money. Consequently, if Target uses debt financing for the $400 million, it would end up paying an extremely large amount of money due to interest. However, the recommendation is that Target uses equity financing and issues stock since the CFO decided to refinance at least $400 million of the $500 million. Therefore, there are many positive impacts that can make equity financing a smart decision when refinancing the $400 …show more content…
The goal is to have higher equity ratios as they are more favorable by companies. In this case, the equity ratio is 0.32 which demonstrates that the company is worth investing in, thus investors tend to finance in the company. It’s also less risky and shows the company is sustainable.
If Target uses debt refinancing as a solution to making additional fixed asset investments of $100 million over the next ten years, it’s important to look at the fact that even if the company is not doing well, there is a requirement to pay interest every six month no matter the cash flow. This can be a great concern if the company has a history of not making enough profit. If the company misses a payment, they will go into a default status. Furthermore, debt financing is typically an affordable option compared to equity financing.
When considering the timing, debt refinancing is a quicker way to receive the funds compared to the alternative. It’s crucial to consider that the amount financed must be paid back since it’s a loan. When considering debt, the ratio times interest earned is useful to support a decision. A concern is that if $100,000 is being refinanced, there is a 6% annual interest rate, meaning that it will accrue $6,000 in interest over ten years. That equates to $60,000 in interest tagged to the $100,000
Long-term planning is essential for a business is to thrive and plan. Some organizations develop plans that are designed for a year, and some are meant for three to five years. When an organization creates plans, they typically streamline into strategic or operational plans. A strategic plan is normally intended for long term objectives. As Siciliano observes, “the plan is typically intended to drive the company’s strategy for several years, and serves as the basis for the company’s operating plan” (Siciliano, 2015). When a company faces debt, there are two things to consider. One is restructuring or replacing the debt, which typically has a lower interest rate. Another way is equity financing, which is a way to pay down …show more content…
The Chief Financial Officer (CFO) made the decision to refinance $400 million of the $500 million. In addition, Target wants to make additional fixed asset investments of $100 million over the next ten years. Target is facing adversities and needs to take into consideration on how to utilize this money. Consequently, if Target uses debt financing for the $400 million, it would end up paying an extremely large amount of money due to interest. However, the recommendation is that Target uses equity financing and issues stock since the CFO decided to refinance at least $400 million of the $500 million. Therefore, there are many positive impacts that can make equity financing a smart decision when refinancing the $400 …show more content…
The goal is to have higher equity ratios as they are more favorable by companies. In this case, the equity ratio is 0.32 which demonstrates that the company is worth investing in, thus investors tend to finance in the company. It’s also less risky and shows the company is sustainable.
If Target uses debt refinancing as a solution to making additional fixed asset investments of $100 million over the next ten years, it’s important to look at the fact that even if the company is not doing well, there is a requirement to pay interest every six month no matter the cash flow. This can be a great concern if the company has a history of not making enough profit. If the company misses a payment, they will go into a default status. Furthermore, debt financing is typically an affordable option compared to equity financing.
When considering the timing, debt refinancing is a quicker way to receive the funds compared to the alternative. It’s crucial to consider that the amount financed must be paid back since it’s a loan. When considering debt, the ratio times interest earned is useful to support a decision. A concern is that if $100,000 is being refinanced, there is a 6% annual interest rate, meaning that it will accrue $6,000 in interest over ten years. That equates to $60,000 in interest tagged to the $100,000