Assume that the president of Garden Isle Brewery made the following statement in the Annual Report...

Question

Assume that the president of Garden Isle Brewery made the following statement in the Annual Report to Shareholders: "The founding family and majority shareholders of the company do not believe in using debt to finance future growth. The founding family learned from hard experience during Prohibition and the Great Depression that debt can cause loss of flexibility and eventual loss of corporate control. The company will not place itself at such risk. As such, all future growth will be financed either by stock sales to the public or by internally generated resources."

In 250 words.....

As a public shareholder of this company, how would you respond to this policy?

Robert · Accepted Answer

It is imperative for a company to have the optimal capital structure which would typically 
consist of both debt and equity. With there are potential solvency risks with assuming debt, 
however, using only equity to fund operations have serious limitations. With regards to 
funding expansion, it is likely unrealistic to expect all amount to be brought in through equity 
dilution as it would result in loss of control. Besides,

Assume that the president of Garden Isle Brewery made the following statement in the Annual Report to Shareholders: "The founding family and majority shareholders of the company do not believe in...

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