Question

Publishing needs to replace one of their textbook printers, but they do not have adequate cash on hand to purchase the printer. In addition, they do not want to increase their debt load. The new printer costs $40,000, and their old printer is worth $8,000. Which of the following methods would allow Kendall to purchase the printer without affecting cash or increasing the debt load.

Answer 1

Answer:

Issue shares/equity to the printer seller.

Explanation:

I'm this scenario, if the business were to obtain a loan to cover the purchase the debt portfolio will increase.

If the old printer is sold to buy a new one it both increase debt profile when the new printer is obtained, and involves cash on sale of the old printer.

The only way to get the printer without increasing debt is to issue shares for its purchase. This way the cost will be considered capital acquisition and not a debt the company has to pay off