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Evaluating long-term financing alternatives

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I am to provide some long-term financing advice to a company that is considering expanding.

Please help expound on "Evaluating long-term financing alternatives (e.g., stocks, bonds, leases)".

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Please help expound on "Evaluating long-term financing alternatives (e.g., stocks, bonds, leases)".

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There are various long term financing options available to a company that is considering expansion in the future.

Let us discuss these options, their merits and demerits one by one:

1) Fund Raising by issuing stocks via IPO (Initial Public Offer)/ Public issue: One of the most common routes to raise funds for these expansion plans is to offer shares of the company to public via Initial Public Offer, if the company is not publicly held right now or via issue of additional shares or rights issue, if the company is already publicly traded. The major advantage of going to the stock markets to raise funds is that substantial amount of funds can be raised via this route by diluting the equity of the company in proportionate amount. Further, the cost of raising funds via this route is cheaper as well due to no obligation to pay interest on capital as investors become shareholders of the company and not lenders. IPO's are especially attractive for new projects when there is optimism in the economy and people are willing and excited to put money in the equity markets in expectation of higher returns. Most of the times, if the issue is strong and appealing, gets subscribed by the public and institutions with the help of investment bankers, merchant bankers and underwriters.

The major disadvantages ...

Solution provided by:
Sandeep Bardia, MBA
Education
  • BCom, SGTB Khalsa College, University of Delhi
  • MBA, Rochester Institute of Technology
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