Business Paper

quity investment

Advantage:

Percentage ownership would rise, increase the control to company.

Disadvantage:

The cost of equity capital is much higher than the cost of debt capital, investors expect higher returns; because the risk of equity investment is significantly higher than debt investment.

● corporate bonds

Advantage:

Easy to adjust the capital structure, protect the right of shareholder

Disadvantage:

The relatively high cost of capital may bring financial risks.

Plan of action

There are two principles of debt. One is expected rate of return must be higher than lending rate. The other is that it must have enough cash for debt service in the worst case.

Blaine should consider the actual situation, raise and use money from the timing and reasonable amount, and predict and arrange the proportion of long and short term funds. Blaine may be consider borrow money from bank and issue bonds.

To sum up, the most key point to liabilities is the relationship between the EBIT margin and the loan interest rate.

The attitude of the owners to the control enterprise may affect the capital structure. If business owners do not want to be acquired by other companies，perhaps BKI would repurchase stock and maximize the use of debt financing.

Family members on the board may not welcome some of the possible effects of a large share repurchase. Assuming that family members held on to their shares, their percentage ownership of Blaine would rise,