| Course | DDBA 4990 Business Essentials |
|---|---|
| Week | Week 8 |
| Paper type | Funding comparison |
| Length | About 850 words, 6 pages |
| Format | APA 7 student paper |
| School | Walden University |
| Program | Doctor of Business Administration (DBA) |
| Updated | October 2026 |
Free sample paper for DDBA 4990 Week 8
Borrow It or Sell a Share: A Funding Comparison for an Embroidery and Screen-Printing Shop That Needs $360,000 for Automatic Equipment to Win School and Team Uniform Contracts
Student Name
Walden University
DDBA 4990: Business Essentials
Instructor Name
Month Day, Year
Borrow It or Sell a Share: A Funding Comparison for an Embroidery and Screen-Printing Shop That Needs $360,000 for Automatic Equipment to Win School and Team Uniform Contracts
The Need
Stitch & Ink Apparel, a composite embroidery and screen-printing shop in Fort Wayne, Indiana, decorates shirts, jackets and bags for schools, sports leagues and local employers. It has 12 employees and revenue of $1.4 million. The owner wants $360,000 to buy a 12-head automatic embroidery machine and an automatic screen-printing press, which together would let the shop bid on uniform contracts from two school districts and a youth sports league that currently go to a larger competitor in Indianapolis. The owner projects that the equipment would add about $520,000 of annual revenue within two years at a contribution margin of about 38 percent, or roughly $198,000 a year before fixed costs. Two funding offers are on the table: a five-year term loan from the shop's bank and a minority equity stake from a local investor who owns a sporting goods store.
The Two Offers Under the Same Headings
Table 1
Term Loan and Equity Stake Compared
| Heading | Five-year term loan | Minority equity stake | |
|---|---|---|
| Cost | 8.25 percent fixed; monthly payment about $7,340; total interest about $80,500 over five years | 30 percent of the company's shares; no payments, but 30 percent of all future profits and of any sale price | |
| Control | No say in decisions; covenants require keeping a debt service coverage of no less than 1.25 times | Investor takes one of three board seats and must approve capital spending above $50,000 and any sale | |
| Obligation | Payments due every month whatever sales do; owner personally guarantees the loan; equipment pledged as collateral | No fixed payments; dividends only if the board declares them | |
| If sales disappoint | Shop must still pay $88,000 a year; a weak year could breach the covenant and let the bank call the loan | Investor shares the loss; no payment pressure; but the investor's 30 percent remains | |
Loan terms from the bank's commitment letter; equity terms from the investor's term sheet; both composite.
What Theory Says and Why It Does Not Settle the Choice
Modigliani and Miller's well-known result, as Myers (1984) summarized it, holds that under idealized conditions, with no taxes, no costs of financial trouble and everyone knowing the same things, the choice between debt and equity does not change what a firm is worth. Those conditions do not hold for Stitch & Ink. Because interest reduces taxable income, debt gains an edge. Financial trouble is costly for a small shop, since a missed payment can end the business, which favors equity. And the owner knows far more about the shop's prospects than an outside investor does. Myers (1984) argued that this last condition leads firms to reach for retained cash before borrowing and for borrowing before selling shares, because selling shares signals that insiders think the shares are worth less than the price offered. Cassar (2004) found that small firms' financing depends heavily on their size and on the assets they can pledge, and equipment that can serve as collateral makes a bank loan more available.
The equity offer has its own cost beyond the share of profits. Jensen and Meckling (1976) showed how an owner-manager's incentives shift once outsiders hold part of the firm: the investor will want oversight, and the owner's incentives change once part of every dollar of profit goes to someone else.
Can the Shop Carry the Loan?
The decision turns on whether the shop can make the payments in a bad year. The loan costs about $88,000 a year. The shop's current operating cash flow before the new equipment is about $130,000 a year, of which $54,000 already goes to an existing vehicle loan. If the new contracts produce only half the projected contribution, about $99,000, operating cash flow would be about $229,000 against total debt service of $142,000, a coverage ratio of 1.6, above the covenant's 1.25. If the contracts fail entirely, coverage would fall to about 0.9, and the shop would be in breach.
Recommendation
Take the term loan. The equipment can be pledged, the shop can cover the payments if the contracts produce even half their projected margin and the owner keeps all future profits and full control. The equity stake would cost far more over time: 30 percent of a business earning, say, $200,000 a year is $60,000 a year indefinitely, against interest that ends after five years.
When Equity Would Have Been Right
The equity stake would have been the better choice if the contracts were uncertain enough that a total failure was likely, since only equity survives a year with no new revenue. It would also have been right if the investor brought something the bank does not. The sporting goods store owner does have relationships with league organizers; if the contracts depended on those relationships rather than on price and capacity, the investor's network might be worth the 30 percent. The owner should ask whether the school districts will award contracts on capacity and price alone. If they will, borrow.
References
Cassar, G. (2004). The financing of business start-ups. Journal of Business Venturing, 19(2), 261-283. https://doi.org/10.1016/S0883-9026(03)00029-6
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305-360. https://doi.org/10.1016/0304-405X(76)90026-X
Myers, S. C. (1984). The capital structure puzzle. Journal of Finance, 39(3), 574-592. https://doi.org/10.1111/j.1540-6261.1984.tb03646.x
What the DDBA 4990 Week 8 instructions ask for
Week 8 asks you to compare two ways of financing one specific need. State the need first: how much, for what and what it is expected to earn. Describe a debt option and an equity option under the same headings, such as cost, control, obligations and what happens if results disappoint, so the reader can compare row by row. Bring in financing theory only where it helps decide the case, explaining which real conditions make debt or equity more attractive here. Test whether the firm can carry the debt in a bad year, with figures. Recommend one option and state the condition under which the other would have been the better choice. Cite sources on capital structure and small business finance. A comparison table anchors the paper.
How this DDBA 4990 Week 8 example is built
The sample opens with the shop's revenue of $1.4 million and a projected $520,000 of new revenue at a 38 percent contribution margin. The table compares a loan costing about $7,340 a month, with a 1.25 coverage covenant and a personal guarantee, against a 30 percent stake with a board seat and approval rights. The theory section notes that Modigliani and Miller's idealized result, as Myers summarized it, fails here because of taxes, costly distress and inside information, and adds Cassar on collateral and Jensen and Meckling on outside owners. A coverage test shows a ratio of about 1.6 if contracts deliver half their margin and 0.9 if they fail. The recommendation is the loan, with equity favored only if contracts depended on the investor's league relationships.
Reading the DDBA 4990 Week 8 rubric
Instructors reward matching structure: both options described under identical headings, with sentences rather than checkmarks, so the comparison is fair. The need must be stated with amount and purpose before options are judged. Theory earns credit when it is used to decide the case, as when the paper shows which idealized assumption fails for this firm, and loses credit when it is summarized for its own sake. The coverage test carries heavy weight, since it shows the writer can check whether debt is survivable with real numbers. A clear recommendation is expected, and naming the condition under which the other option would win shows mature judgment. Correct loan arithmetic and accurate citations round out a strong paper.
Common DDBA 4990 Week 8 mistakes, and how to avoid them
Many students compare debt and equity in general rather than for this need at this firm. Write the need in one sentence with the dollar figure and the expected return before anything else. Build the table with the same four or five headings for both options. Compute the loan payment and the annual debt service, then test them against the firm's cash flow in a good, middling and bad year. Remember that equity has a cost too: a share of all later profit and of the proceeds if the shop is ever sold. Use theory to explain why this firm's situation favors one option. End by saying what would change your answer. Loan payments and coverage ratios can be worked through with a tutor if the arithmetic is unfamiliar.
Get a DDBA 4990 Week 8 example written to your instructions
Tell us the firm, the amount and what the money is for, and attach the Week 8 prompt and rubric. A parallel table, the Modigliani and Miller frame applied and a recommendation carrying its reversal condition are drafted in 24 to 48 hours, the first without charge. Rates and terms are labeled estimates unless your scenario fixes them.
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DDBA 4990 Week 8 questions, answered
Where can I find a free DDBA 4990 Week 8 sample paper?
The Week 8 funding comparison is posted below in full, table and coverage test included, with no charge.
What need does the DDBA 4990 Week 8 comparison address?
$360,000 for automatic embroidery and screen-printing equipment to win school and youth league uniform contracts.
How do the two offers compare on cost?
The loan costs about $80,500 in interest over five years; the equity stake costs 30 percent of all future profits and any sale price.
Can the shop carry the loan?
Yes if new contracts deliver at least half their projected margin, giving a coverage ratio of about 1.6; total failure would breach the covenant.
When would equity have been the better choice?
If total failure of the contracts were likely, or if winning them depended on the investor's relationships with league organizers.