Flash Memory, Inc is considering investing in a major new product line and a valuation analysis

is done to determine whether the new product line should be invested or not. According to the
various sales and expenses projection, a valuation analysis has shown that the new product line
will be valued at a favorable NPV of approximately $3 Million using Flashs weighted cost of
capital as the discount rate. As such, in the event that the new product line is invested, additional
financing will be required to initiate and maintain this product line in 2010.
Various alternative financing methods that company can consider to obtain the additional funds
needed to finance its forecasted sales of its existing and new product lines can be
(1) Finance with Internal Financing
(2) Short Term Debt
(3) Long Term Debt
(4) Equity Issuance
Solution 1 The recommended form of financing that Flash should seek is to finance its operations
according to the Pecking Order Theory,
Solution 2 In my opinion, if Flash Memory Inc has a high ratio of equity to debt, they should
probably seek debt financing. However, if company has a high proportion of debt to equity, it is
advisable that it should increase their ownership capital (equity investment) for additional funds.
That way it won't be over-leveraged to the point of jeopardizing the company's survival.