I.

Assume you are to set up a small business-say a simple buy and sell of ready to wear clothes so you can
earn extra money and help your parents with school expenses. Would you rather borrow money and
use it for capital or ask a partner to join you? Explain your answer.

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II. Read the following situations and answer the questions.

1. Fabrics Inc. put up a clothing outlet worth PHP10 million and funded the entire amount using a one-year short-
term loan. The company’s average annual operating cash flows for the last three years is PHP 1.5 million.

What do you think will happen to the company?

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2. Dragon Inc. is in the business of fireworks production. Their peak season is usually during the holidays, especially
during Christmas and New Year. The company needs additional PHP500,000 to finance their working capital
needs during the holiday season.

How should the owner raise fund? Should it be getting a loan, getting a partner or getting an investor? Explain your
answer.

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