Characteristics of the various external financing options
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Having previously identified the location of its Greenfield investment, Acme, a multi-billion public MNE that is incorporated in the U.S., must next obtain external financing for its proposed overseas production facility. It has been estimated that the acquisition will cost $500M and all funds will be secured in the U.S. Your job is to explain to this committee some of the financial aspects of this acquisition.
Deliverable: At the next steering committee meeting, you will provide a detailed presentation of the characteristics of the various external financing alternatives, including the advantages and disadvantages of each. Your report should conclude with a recommendation of which alternative (or combination of alternatives) should be used to finance the overseas investment.
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Having previously identified the location of its Greenfield investment, Acme, a multi-billion public MNE that is incorporated in the U.S., must next obtain external financing for its proposed overseas production facility. It has been estimated that the acquisition will cost $500M and all funds will be secured in the U.S. Your job is to explain to this committee some of the financial aspects of this acquisition.
Deliverable: At the next steering committee meeting, you will provide a detailed presentation of the characteristics of the various external financing alternatives, including the advantages and disadvantages of each. Your report should conclude with a recommendation of which alternative (or combination of alternatives) should be used to finance the overseas investment.
There is a requirement of $500 million for an acquisition. Hence this is an issue of raising money and deciding about the capital structure. The objective of the capital structure is to minimize the cost of capital. Though debt is cheaper than the equity , but excess of debt increases fnancial risk and not desirable. Thus there must be a proper mix of debt and equity for optimal capital structure. Thus 100% Debt or 100% equity is not desirable. There must be optimal balance between the two to minimize the capital.
Equity
Equity represents ownership in the organization. There are various ways of raising money through equity shares:
1) IPO
IPO is initial public offer where the money is raised from the general public first time.
2) Follow on offers
Here the money is ...
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