Question 1: Based on the company’s forecasted financial statements, can the company quickly comply with the banks requirements?
It depends on what you consider quickly. If the deadline is to only to have a plan ready by June 30th, 2012 then it looks like they can come pretty close without implementing any major changes. Just by following their expected future growth plans they will almost reach the requirements of the bank within 4 years. Using the information provided from their forecasted financials, by 2015 Pacific Grove will reach a 55% ratio of interest/bearing debt to total assets and their equity multiplier will be 2.77. (See Exhibit 1)
Depending on how stringent the bank is this may not be quick enough of a timeline or …show more content…
The most important issue currently facing the company is to reduce its interesting bearing debt so that it can continue to receive financing from the bank to support operations and growth. Investing in a project with a payback period of 3 years or longer would not be a wise decision as it would initially raise the level of interest bearing debt unless funded through the selling of equity. Although there may be some synergies between the television network and Pacific Grove which could help to promote their brand, it may also take away needed focus from their core business and lead to a poorer performance and erosion of its competitive position in the market. Pacific Grove’s lack of experience and knowledge about producing a television show add to the level of risk of the project.
If they were confident that the investment will work the only viable option to raise capital while not increasing debt would be to sell shares in the company. This may not please current shareholders as they would face dilution in both the value of their shares and their percentage of ownership in the company.
Exhibit 2:

3. Should the company issue new common stock to the external investment group?
No, I don’t think they should issue the stock. If they decide to issue shares they will lose some percentage of their company control. In fact, Peterson and the Founders will go from controlling a total of 32% of the company to only 23.8%