Company Debt

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Company Debt

Postby StillCrazy on Tue Dec 09, 2008 4:26 am

Is it best to pay off your debt (which means lots of saving time and less expansion for awhile) or keep building infrastructure and let the interest rate jump and pay off the debt later.

Any feedback or opinions welcome.
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Re: Company Debt

Postby Kit on Tue Dec 09, 2008 6:58 pm

My theory has always been that so long as your Return on Investment Capital (ROIC) is higher than your interest rate you are making more money with the cash than you are spending to service the loan.

Once the difference gets down to 2 or 3 percent though I tend to pay off the loan as soon as I can as the value of the money starts getting much smaller and I don't want to get caught with a negative return the next time the interest rate rises.

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Re: Company Debt

Postby StillCrazy on Thu Dec 11, 2008 1:02 am

Ok thank you for the feedback. It was a tough decsion but I opted to pay off my debt so thats one less thing I need to worry about.

It would be nice if I had the option to take out another loan now at the same interest rate but I'll just save again to build more buildings. :)
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Re: Company Debt

Postby Kit on Fri Dec 12, 2008 3:59 am

There is certainly something to be said for reducing your risk by not depending on external loans. Just ask the folks on Wall Street recently...

It's not always about what gives you the best return, sometimes it's about what makes things simplest for you, or allows you to sleep at night instead of worrying.

As to the current loan options. I know they are far too limited currently. It's on my list of things to do, but I want to be careful here because too easy access to capital can be destabilizing. Again I'll point you to the current financial news :)

Thanks for playing the game, and hope you are enjoying it.

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Re: Company Debt

Postby JohnGalt on Fri Dec 12, 2008 6:01 am

What about loaning between companies? As with supply contracts, a player could bid/ask the amount, the maturity, the payments/interest rate, and the game could automatically send those payments. Another way for players to interact.
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Re: Company Debt

Postby Kit on Fri Dec 12, 2008 10:21 pm

The idea of players loaning money to other players is something I'd like to allow, it's a very interesting idea.

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Re: Company Debt

Postby Qlaras on Tue Dec 23, 2008 7:58 pm

Still not out of my initial loan period (coming due in under 4 years) but I recently decided to double up my production and sales...and it's taken off. I'm now on track to pay off my loan, AND get to keep 2 factories, a warehouse, and 2 convenience stores, all while clearing $30,000+/month. If for whatever reason, my sales tank, I can always quickly liquidate either one of the shops or factories for quick cash to pay off that loan.

Reinvesting your profits can be very beneficial, even if it's only temporary income.
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Re: Company Debt

Postby Zerico on Fri Dec 26, 2008 5:51 pm

I paid off my loan before the 7 day period in a bid to increase my networth.

I came out of my 7 day period with 3 stores, 4 factories, and 1 warehouse.

I balanced it as growth, growth, growth, until I knew that the money I was making each turn would add up to the 2.1 mil.

Say you're making 50k an hour, that's 48 hours to make the 2.1. Grow until 2 days before you start saving the money. If you do it right, you'll likely be making more than 50k, which means you can grow a little longer.

I ended up only having to save for a day or so to pay it off (and I still paid it off early).
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Re: Company Debt

Postby Morpheus on Fri Nov 20, 2009 12:59 am

seriously out of date...

loans are possible everytime now, unless you took one last turn, or you still are at your limit.

best way to repay loans is to issue new stock every 4 years, which also means you sometimes dont have to loan anything...

personally i prefer issuing stock to loaning, since it just causes your dividend costs to rise by the same percentage of your stock you're issuing. (usually cheaper per month than loaning)
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Re: Company Debt

Postby Kit on Fri Nov 20, 2009 1:47 am

Using Equity (issuing new shares of stock) to raise capital cause stock dilution. That is, if before the new shares are issued you owned 30% of the company, you may only own 20% after the new shares are issued.

I think the value of using debt vs equity to finance your company, really depends on your personal cash position. If you have a bunch a spare cash that you want to invest in your company, but you are at the 70% ownership limit then issuing new shares would allow you to own the same percentage of a larger company by putting some more of that personal cash to work.

If you don't have any spare cash then issuing new shares will reduce your ownership percentage, which may not be a good thing.

It may depend on if you goal is to have a large personal fortune, or to run a large high valued company.

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