Jp Morgan Bank

Toni Rose T. Tahil                                MBA 114 B                        April 23, 201 6

Ms. Estella Ganas, MBA

Merit Enterprise Corp.

1. Option 1:

Since JPMorgan Bank have established a good relationship with the company, Merit Enterprise can negotiate to obtain a lower interest rate. The business will remain private. However, if Merit Enterprise Corp. takes on a large amount of debt and then later finds it cannot make its loan payments to lenders (JPMorgan and different banks), there is a good chance that the business will fail under the weight of loan interest and have to file for bankruptcy. The major drawback in this case is creating a debt with multiple debtors.

1. Option 2:

Going public will result to stock value appreciation if the company performs well. Since based from the case, the business had been brisk for the past two years, there will be a greater chance of gaining investors. However, if the company fails to meet their return expectations, the investors can share their ownership interest and move capital elsewhere, reducing the value of the company and hampering future efforts to raise capital. The biggest drawback in this decision is having an extensive disclosure requirements for investors and with stock trading in the secondary market anyone or any institutions might wind up holding a large chunk of Merit stock.

1.          If I were to decide, the Chief Financial Officer should suggest the second option. Merit has been profitable for the past years and the ultimate goal of every business is profit maximization, relying on retained earnings and debt alone might be risky and outstanding results might be uncertain. Moreover, having an extensive disclosure will allow transparency and better corporate governance in their company.

Equity financing does not divert capital from the business in order to pay debt, and it also shares in the business risk along with the entrepreneur. They don’t have to pay investors back right away. This gives an advantage for the company to have more time to grow before they need to start worrying about how they’re going to pay for it all. If the business ultimately fails, Merit won’t have anyone to repay. “Investors sink or swim alongside the business owners.”

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