Multinational Corporation Finance

Paper Summary:

This paper discusses the advantages and disadvantages of the use of the sinking fund in corporate bonds from the viewpoint of the corporation and the bondholders. This paper also discusses the advantages and disadvantages of the call provision from the viewpoint of the corporation as well as its bondholders. These elements carry heavy weight when considering expansion into an international market. The corporation's current status and ratings play a big role in what kind of financing is available and what kind of future debt will be acquired. Key members of management must keep all areas of performance in mind when formulating a strategy for entry. With this in mind, the paper also analyzes factors that effect performance such as bonds yield to maturity. The writer explores the issue of risk as a constant factor evident in business. It can be seen as both a positive and a negative. Risk affects all facets of the corporation, not only the foreign subsidiary but also company performance. It is therefore important to include a risk assessment as a part of any global strategy.
Introduction
Role of Debt Over Equity
The Sinking Fund
The Call Provision
Factors Effecting Yield to Maturity
Factors Effecting Risk
Conclusion

From the Paper:

"The role of debt over equity is important to consider as a company expands, as it is a true indicator of how the company will succeed. It describes how the company manages its money in its balance sheets. It refers to money the company owes and does not expect to pay off within the next year. In business, there are long term and short term debts. These debts are categorized by how lengthy a repay period there is with the creditor. A good sign that the company is succeeding is when the equity outweighs the debt or that the debt is getting smaller over time. This indicates a certain amount of health within the organizational structure. However, companies with more long-term debt than short-term debt find themselves in trouble because they must continue to pay interest payments and risk having little working capital. It is important a company pay close attention upfront when borrowing money and note the interest rate of the loans as some fall privy to market fluctuation. Long-term debt is more volatile as interest rates can be influenced by economic changes. It is important to analyze how a new international location is doing before committing to entry there. Still interest rates plays a dramatic role in how banks rate a company the ability to pay on time. In this way it benefits the banks more as they are able to "spur innovation to extract return for investors via new structures, some involving high leverage" ("The Financial Stability Conjuncture and Outlook" 51). Debt always works to benefit the banks in this way."

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