Flexibility – To what extent will a decision to increase debt restrict the firm’s flexibility? Will it violate existing loan covenants (or place the firm at risk of violating loan covenants) as a result of poor performance?
Risk – What is the financial risk of this decision? Can the firm meet interest and principal payments, even if earnings and cash flow targets are not achieved?
Income – How will various financing alternatives affect ROE and EPS?
Control – How will the sale of additional stock affect ownership / control of the firm? What are the risks?
Timing – Based on interest rates and trends, is this a good time to borrow? Based on current stock price, is this a good time to issue stock? How soon will the funds be needed?
Other – What other considerations should be factored into this decision? Owners’ attitudes regarding debt? Firm’s bond rating?