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     First, let us illustrate the difference between the company’s possible liabilities under the three choices of loan provided. Option 1 Alex’s offer  Option 2 Short term loan (1 year) Option 3 Long term option(5 years) Current asset (loan) 10,000,000 10,000,000 10,000,000 Current liabilities (interest of loan) 45% of the entire stocks (10,000,000)(.06)=600,000 (10,000,000)(.1)=1,000,000 (1,000,000)(5)= 5,000,000 Total liabilities Unknown but will be literally has a bigger value than the other choices 10,600,000 15,000,000    Base on the illustration above as well from the situation under Mr. Anthony Cruz’s company and various terms of investors, we suggest to implement/ apply for the long term loan. The question now is why, why would we prefer the long term loan when there is still another option which offers lower interest?    Despite of the larger amount of liability on the long term loan, it is still more convenient and easier to pay back. Thanks to the 5 year time span it has offered, both the borrowed capital and its interest will be likely returned in time, because of the proper maximization and accumulation of profits and sales.    Comparison to the short term loan, the interest might appear in a smaller amount but the time that has required to pay back the interest is too short, where the company cannot simply cope with their sales to accumulate enough profit to cover the debt yet.    Debt for capital has also a positive effect on profitability, it allows companies to leverage existing funds thereby enabling more expansion that would otherwise be possible, yet you should be more careful and precise on choosing your source.     Now that we have determined the appropriate capital structure of the business , let us also know the profitability of the company in able for us to know will the company resolve their debt in their capital. C onsidering the facts under Mr. Anthony Cruz’s Zapatoes Inc., it was mentioned th at young professionals and college students are their main target market customers. Due to that, the prices of their products must remain affordable and should at least at the range of Php 1000  –  Php 2000 per pair. By the year 2013, they have sold 3300 pairs, 4800 at 2014 and 6200 pairs in 2015. The chart below shows the total amount of cash they have generated with those year and number of sales. Year Quantity of shoes sold Price per pair Total sales 2013 3,300 Php 1,500 Php 4,950,000 2014 4,500 Php 1,500 Php 6,750,000 2015 6,200 Php 1,500 Php 9,300,000    Because the value of the product was not entirely specified, we used the standard price Php 1500 which appears to be in the middle of the said price range to calculate the total sales within each year.    We have also noticed the increase of shoes sold where; year Quantity of shoes sold Increase of sales per year Gap 500 2013 3300 2014 4500 1200 2015 6200 1700    By the visibility of the accurate progress in sales we can openly predict future sales unto the next 5 years by just basing on the increase of sales per year starting from 2013. Year Quantity of shoes sold Product’s initial cost  [(quantity) (475)] Selling price [(quantity)(1,500)] Total profit for 5 years 2016 8,400 3,990,000 12,600,000 75,850,000  –  15,000,000= 60,850,000 2017 11,100 5,272,500 16,650,000 2018 14,300 6,792,500 21,450,000 2019 18,000 8,550,000 27,000,000 2020 22,200 10,545,000 33,300,000    With this kind of strategy, we can now further prove that long term loan is the best choice among all and that, manufacturing his own product will surely give him more profit basing from the charts we made.    ANTHONY CRUZ SHOULD TAKE “DEBT FINANCING”  
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