Nordstrom Expansion Project

Raising money through internal financing is usually done from profit plow back and depreciation of assets since it reduces tax thereby leaving a business with more money to spend. Money from internal financing is free from bank interests, has no application processes, and business owners do not need to relinquish ownership (Esty & Matysiak, 2004). However, not much money can be raised from internal financing, especially if the business is not doing well.

External funding from bonds eliminates the need for a swap since borrowing is done on a fixed-rate basis. Bonds offer a greater certainty because it provides the investor lower costs of liquidity risk. Additionally, most bonds produce lower fund costs since they are guaranteed and are issued at triple-A ratings. Funding a business using equity financing is cheaper since the owners do not have to pay for costs of debt, which may lead to bankruptcy in cases whereby the company defaults and placed under receivership.

External funding using equity leads to risk sharing where if the business fails; no money is paid back to investors. However, funding a business using equity may involve loss of some degree of ownership. Giving up ownership may lead to frustrations particularly if the profits from an idea and hard work are diminished. Preferred stock shares are also paid before common stock shares in the case of sale of the business.

The viability of the business combination concerning expansion to new markets would be determined by the soundness and safety of the business acquired business (Esty & Matysiak, 2004). Moreover, expansion of the business into new markets would be an important choice since it would provide the company with new financial and managerial resources as well as leverage on competition. The combination would also provide the company with a market structure that is conducive for competition.

 

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