The mix of debt and equity financing used by an organization is called its capital structure. Many managers
struggle with finding a balance between these two options. It is a critical decision, as it impacts the
organization’s assets, liabilities, and bottom line.
You are the business office manager for Hope and Healing General Hospital. The radiology department is
considering purchasing a new, high-tech diagnostic machine. It has a high resolution and has resulted in more
accurate diagnoses. The machine costs $200,000 dollars. The three options for financing are obtaining a bank
loan with interest (debt) for the entire purchase price, buying it outright with no debt, or using venture capitalists
(equity). You have been asked to prepare a memorandum for the hospital’s executive director with your
In your memorandum, start out by reminding the executive director what debt and equity financing are. You will
then comment on the pros and cons of each method. Also, note which option you feel is the safest and which is
the least safe option. Be sure to state why.