Santana Rey created Business Solutions on October 1, 2015. The company has been successful, and Santana plans to expand her business. She believes that an additional $86,000 is needed and is investigating three funding sources.
- Santana?s sister Cicely is willing to invest $86,000 in the business as a common shareholder. Since Santana currently has about $129,000 invested in the business, Cicely?s investment will mean that Santana will maintain about 60% ownership, and Cicely will have 40% ownership of Business Solutions.
- Santana?s uncle Marcello is willing to invest $86,000 in the business as a preferred shareholder. Marcello would purchase 860 shares of $100 par value, 7% preferred stock.
- Santana?s banker is willing to lend her $86,000 on a 7%, 10-year note payable. She would make monthly payments of $1,000 per month for 10 years. Required
- Prepare the journal entry to reflect the initial $86,000 investment under each of the options (a), (b), and (c).
- Evaluate the three proposals for expansion, providing the pros and cons of each option.
- Which option do you recommend Santana adopt? Explain