Accounting

As it is evident from the analysis of the firms condition through ratios that the firms financial position would be worse as compared to the previous year as direct effect of increase in the associated costs of market development expenditures and rise in the costs and other related expenses the firms decision to open a new office would be effected by the following considerations

The major consideration for the firm would be
Determining the viability of the proposed investment.
Deciding the viability of the proposed investment is critical to the firm as the firm would only prefer to go ahead with opening of the new office in Miami if it offers the company a return that is higher than the return that would be required by the financers of this project (lenders or stock holders). The company should do this by using investment appraisal techniques and evaluate whether the proposed investment brings value to the company.

As the firm believes that there exists a high potential for growth from the proposed investment, the firms should analyze and project its cash flows associated form the project. In making such cash flows the firm would need to revisit its current collection period from debtors and payment period to creditors.

The firm also needs to consider if it can make the proposed investment can be made to produce more favorable results by introducing any product innovation that might help the firm to generate better revenues and to cover the initial startup and market development costs associated with the project, however the costs of such innovation should entirely be covered by the expected benefits offered.
If based on this first analysis it appears that the project is feasible and a worthy investment, its only then that the company should undertake this project.

Determining the total amount of capital expenditure required.
The decision regarding the amount of capital investment required would depend on the scale of operations the firm is proposing to undertake from its new office. Keeping in view the firms current ROA and ROE this decision has will have a significant effect on the profitability of firms investment and the future success of its operations.

Determining how the proposed investment should be financed.
The decision regarding the mode of financing the capital investment is very much critical to the company as the financers for the firm for this particular investment would be expecting a better return as the company has to offer currently.

Keeping in view the firms existing Debt ratio calculated in part 2, the firm has some unused debt capacity that it can utilize to raise funds for the project. Raising the required investment for the proposed investment through issuing debt would be a better option for the company as the interest associated with such funds would bring to the company a tax saving normally associated with such borrowing. This would add to the value of the firm and would contribute in generating a positive analysis in part one.

However if the firm decides to raise the required investment by issuing common stock, the firm would have to make sure that it communicates its forecasted results relating to the financial viability of the proposed investment to the shareholders, as discussed earlier. The company should do this in an effort to support the expectations of the shareholders who are currently being offered a lower return on their investment as compared to the industry average.

The analysis for such communication should be presented by using investment appraisal techniques as it would assure the shareholders to the potential returns associated form the project and would help the decide if it would offer them the required return.