This SLP has two parts. Part I Every company has capital projects. The company you have selected must need something! Be it a new wing to the building, a new product line to be funded, a new piece of equipment, find one new acquisition your company needs. Once you have identified the new possible investment item, what problems are you going to have in estimating the cash flow that might be emanating from the initial investment and problems in getting it funded? Issues might be: Risk Cost Politics (getting it through committees) Public Relations etc., Identify a potential capital project for your company describe such a project and write a short summary of the problems you see in getting the funding to see it through. Part II Examine the structure and activities in your organization and identify two projects or events that required an investment. One should be a ‘current project’ and the other long-term investment project. For each project or event, identify the preferable source of funding. You may not have access to the actual source of funding so limit your paper to the source YOU feel is most appropriate. Then explain why you feel that source is most appropriate. SLP Assignment Expectations For Part I, you must discuss both the estimates of the initial investments and the annual incremental after-tax cash flow that is expected to emanate from the investment.

 

Sources of funds

 

Name of student

Course title

Tutor’s name

Date

 

Sources of funds

Carvana Company

Carvana Company is an American based company in the technology business. The company deals with selling used cars online. The company carries out all transaction online and the client is directed on the vending machine to pick up the purchased car. Customers get to view the cars properties on the company’s website. Lately customers have forwarded complains that the used cars have more diverse problems when driven. The company is seeking to introduce a technology that inspects any faults in the car system.  The technology includes purchase of a strong devices that the cars can step on and screening happens from beneath (Remane 2016)

Problems in funding

For this project to be initiated a large amount of money is needed to facilitate the success. The project includes a long procedures from purchase, installation and operation for it to be effective. Various problems are incurred in the process of implementing the set plan. Insufficient funds is the major problem that will affect the project. Carvana is a small company hence cannot finance the project.

Borrowing from financial institutions is a challenge because the company has not been in the industry for long hence no financial history to support it. There is also no credit scoring for the company due to lack of historical credit files. The credit worthiness of the company cannot be determined also. High interest rates at the financial institution do not favor the company as repayments are very high.

Maturity gap affects funding in terms of measuring the rate of risks. Lack of a detailed business plan scares away financial providers. Equity gap also affects the availability of funds as investors prefer investing in big companies2. The technology market lack trust, leading to the company to sell more shares at less amount to get finances (Durand 1952)

Sourcing for funds

For the Carvana to get funds for its project, forming a partnership with an investor company in the technology business will help finance the project. This partnership will consists of an agreement between the two companies whereby they will contribute money to implement the project. A limited liability partnership is best suit to provide the company with funds. Carvana which is the main company will be liable for allow the damages and law suit that the company may face.

The investor company remains as a silent partner but provides finances to run the project. The partners share in the profit according to their share contributions. Carvana Company is in charge of the operations, managing all the operation. The investor company will provide a specific amount that will in turn be it shares in the project but remain as a silent partner. Limited liability partnership will enable the main company to retire the investor company when the project is completed according to the agreement.

The company seeks to expand by putting up more vending machines in other countries as a long term investment. Issuing of shares is the most preferable source of fund. Issuing of shares attracts many investors especially in the car business where the purchase has increased together with introduction of new models. 

Issuing stock is effective because the company will not owe investors any money but will entirely wait upon dividends. In instances the stock value rises the company credit rating increase meaning the company can qualify for loans in financial institutions. Investments increases the company profit hence availability of money to finance later projects. There is conservation of cash by the company in instances the company issues common stock (Butler 2005)

 

References

Butler, A. W., Grullon, G., & Weston, J. P. (2005). Stock market liquidity and the cost of issuing equity. Journal of Financial and Quantitative Analysis, 40(02), 331-348.

Remane, G., Hildebrandt, B., Hanelt, A., & Kolbe, L. M. (2016, June). DISCOVERING NEW DIGITAL BUSINESS MODEL TYPES–A STUDY OF TECHNOLOGY STARTUPS FROM THE MOBILITY SECTOR. In Proceedings of 20th Pacific Asia Conference on Information Systems (PACIS 2016), Chiayi, Taiwan.

Durand, D. (1952, January). Costs of debt and equity funds for business: trends and problems of measurement. In Conference on research in business finance (pp. 215-262). NBER.