Finance for a Multinational Corporation
$19.95 Buy and instantly download this paper now
This paper examines financing a $500 million overseas production facility, comparing the most likely options and providing the advantages and disadvantages of each. First, the paper describes equity financing, which involves the sale of stock in the company. It weighs the advantages of such a method and also points out its negative aspects, such as diluting the value of ownership for the existing shareholders. Next, the paper explores using external debt for financing, such as a bond or debenture issue. Finally, the paper considers a third financing option, mezzanine, but it does not apply to the firm described in the paper and is typically geared towards entrepreneurs. The paper concludes by recommending that the plant be financed with long-term debt in the form of a debenture issue.
From the Paper:"Equity financing involves the sale of stock in the company. This has several advantages. An equity issue has no carrying costs; only the up front costs of the equity issue. It does not increase the amount of debt in the organization, which can be important depending on the organization's liquidity situation. Equity also matches up well with the time frame off the new operation, as equity has no limit to its life and our operations in the new country are also intended as such.
"Equity financing has a high initial cost, as the cost of equity issues can be steep. In general, because equity bears higher risk, the firm's cost of equity will be higher than its cost of debt. The company needs to consider what it is willing to bear with respect to cost of capital. The relative cost of debt or equity must be weighed against the expected returns of the project."
Sample of Sources Used:
- Hillstrom, Laurie Collier. (2009) Debt Vs. Equity Financing. eNotes. Retrieved July 9, 2009 from http://www.enotes.com/management-encyclopedia/debt-vs-equity-financing
- No author. (2008). Equity Financing Law & Legal Definition. US Legal. Retrieved July 9, 2009 from http://definitions.uslegal.com/e/equity-financing/
- Richards, Daniel. (no date). Debt Financing - Pros and Cons. About.com. Retrieved July 9, 2009 from http://entrepreneurs.about.com/od/financing/a/debtfinancing.htm
Cite this Term Paper:
Finance for a Multinational Corporation (2011, December 11) Retrieved March 08, 2021, from https://www.academon.com/term-paper/finance-for-a-multinational-corporation-149362/
"Finance for a Multinational Corporation" 11 December 2011. Web. 08 March. 2021. <https://www.academon.com/term-paper/finance-for-a-multinational-corporation-149362/>