As a finance student, you should be able to help Bentley by telling him which companies in Section B should use the financing methods listed in Section A.
Section A Leasing arrangements Long-term bonds Debt with warrants Friends or relatives Common stock: non-rights Preferred stock (nonconvertible) Common stock: rights offering Convertible debentures Factoring
Section B
Boudoir’s Inc. Timberland Power & Light Ripe and Fresh Canning Company Piper Pickle Company Copper Mountain Mining Company Bull Gator Saloon and Dance Hall Golden Gate Aircraft Corporation Schooner Yachts Teller Pen Corporation
Financing Method Company Reasoning
1. Leasing arrangements Boudoir’s Inc. The
…show more content…
Another option is the issuing of preferred stock, the company’s common stock is already overvalued in the market; therefore, sourcing additional capital through common stock might result to lower proceeds. Common stock: rights offering Golden Gate Aircraft Corporation Issuing additional debt to finance the company expansion would worsen the company’s debt ratio as it is already more than average. The company envisions to be profitable by raising capital from existing stockholders by issuing common stock through rights offering. Convertible debentures Teller Pen Corporation The company’s leverage ratio is 28% - 72% of its assets are financed by common equity and the company was profitable in the last reporting period. The company should easily raise additional funds from creditors and a convertible debenture will be an appealing venture for creditors who would want to purchase stocks of the company in the future. Factoring Ripe and Fresh Canning Company The company’s credit terms are 60-day, but it needs to pay its purchases within 30 days after purchase. Factoring would provide a short-term solution to reduce the gap between average collection and payment periods.
Answers:
Leasing arrangement Boudoir’s, Inc. The company can negotiate for a lease to own arrangements for the new building with a builder/contractor.
Long term bonds Timberland Power & Light Given that the maximum long term debt
Our company will plan to finance our strategy principally through issuing stock and cash flows from operating activities generated from the company’s normal business functions. It is undesirable for our strategy to issue debt because we would like to stay away from interest payments. Our company anticipates our debt to equity leverage ratio to be around 0.5.
Abdomen: The lipases appeared unremarkable. The liver, spleen, gallbladder adrenals, kidneys, pancreas and abdominal aorta appeared unremarkable. The bowels seen on the study appeared thickened. Dilated appendix seemed consistent with acute appendicitis. All the structures of the abdomen appeared unremarkable. No free air was seen.
The company position is strong enough so its better that company should use debt financing instead of equity financing.
“There must be no barriers to freedom of inquiry. There is no place for dogma in science. The scientist is free, and must be free to ask any question, to doubt any assertion, to seek for any evidence, to correct any errors. Our political life is also predicated on openness. We know that the only way to avoid error is to detect it and that the only way to detect it is to be free to inquire. And we know that as long as [we] are free to ask what [we] must, free to say what [we] think, free to think what [we] will, freedom can never be lost, and science can never regress.”
Aside from the two aforementioned proposals the company can raise its leverage in other ways. By conducting DuPont analysis and understanding operating leverage we see that purchasing fixed assets and decreasing stockholder’s equity will raise the equity multiplier and the firm’s operating leverage. In this instance we recommend against this approach as the firm already has a large amount of excess cash above what they require to fund new positive NPV projects and purchase new assets. Investors would rather see their capital returned to them in the form of share repurchases and dividends as it is evident by the company’s cash stockpile that they can
Analysis and modification of both LTD and shareholder’s equity is needed for a clear identification of leverage. Exhibit 4 shows the major contributing factors to each company’s shareholder’s equity: common stock, additional paid-in capital, retained earnings, treasury
Based upon the firm’s low target leverage of 5%, low degree of operating leverage, and favorable credit history and financial outlook, the model assumes a cost of debt in line with AAA corporate debt at 7.02%. This estimate seems reasonable and sensitivity analysis shows a 1% decrease in the forecasted share price requires at least a 2.4% increase in the cost of debt.
Nathan Samuel Rosenbaum is a commercial real estate investor and President of Manta Holdings, LLC, which owns several apartment buildings throughout Washington State. His professional background includes positions with Amazon.com, where he was Senior Relationship Manager for Amazon's portable e-reader Kindle and Senior Account Manager, External Payment Services, and at Microsoft Corporation, where he had positions in business development, account operations and credit services.
Albert Einstein was born on March 14, 1879 in Ulm, the first child of the Jewish couple Hermann and Pauline Einstein. In June 1880 the family moved to Munich where Hermann Einstein and his brother Jakob founded the electrical engineering company Einstein & Cie. Albert Einstein's sister Maria was born on November 18, 1881. Einstein's childhood was a normal one, except that to his family's irritation, he learned to speak later than most. In 1884 he received some tutoring in order to get prepared for school.
We tend to forgive the people that we love. Parents overlook their children's flaws, lovers forgive infidelity, and friends forgive friends for lying. Perhaps this is why we have forgiven Albert Einstein for releasing the equation to develop an atomic bomb (DiscoverMagazine.com). Instead, we remember him as one of the most influential outliers ever. Without his discoveries, science would not be what it is today. Under his wacky alabaster hair is one important brain, so important that it was stolen by scientists after he died. His theory of relativity, suggested that “the laws of physics are the same for all non-accelerating observers, and he showed that the speed of light within a vacuum is the same no matter the speed at which the observer travels” (Redd). He took physics by surprise. His passionate research led him to be the most important physicists in the 20th century but he wouldn’t be that today without his academic career, his quest from Germany to the United States, and his predecessors.
In order for an organization to generate greater equity in an effort to fund additional operations or growth opportunities, some seek the quick and easy solution of issuing additional shares of common stock. While this action helps organizations meet their financial needs, it dilutes
The current weighted average cost of capital for the company, based on these initial figures, appears to be slightly higher than 7% (7.298%, to be more precise). With a current payout ratio of more than twenty percent on shareholder equity, borrowing money to repurchase stock might not be a bad idea at this stage; borrowing can likely be accomplished at a much cheaper rate and will incur less costs to carry the debt than would selling more equity or even simply failing to repurchase existing outstanding equity. The company could retain a much greater share of its earnings and increase profit margins significantly without cutting dividends and lowering the rate of return on investments in the firm. This additional money could be utilized in many different areas of the company, form operational divisions to the capital management division, in order to increase profitability still further. Simply put, the cost of increased debt is far lower than the cost of equity and given the current rating of the company's debt borrowing in order to increase
The intent of this Term Sheet is to describe, for negotiation purposes only, some key terms of the proposed investment agreement by and among NDA Venture Partners, L.P. and its associated entities (“NDA”), and Wangyong Holdings, Ltd. (“Holdco”), a limited liability Cayman Islands company.
* Issuing new shares (crediting equity reserves) to the previous debt holders, preference shares holders, suppliers for accepting to restructure the debts.
In recent years, the issue of efficiently mobilizing capital has become the concern of all companies. There are some ways of doing this: borrowing from the banks, issuing stocks or issuing bonds. However, when the interest rate of borrowing from banks is very high due to high inflation, together with the stock market is quite instable; calling for capital from bond market is much more preferred by investors.