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American Superconductor

The decision to use debt or equity to raise money is not a decision taken lightly by management. So when several years ago, in 2003 American Superconductor decided to raise funds through equity it was definitely a major decision that required intense discussions at the highest levels of management.

Read the article below about American Superconductor and do some of your own research. You can also take a look at the official American Superconductor webpage. After doing your research, apply what you learned from the background materials and write a three page paper answering the following question:

What are the advantages and disadvantages for AMSC to forgo their debt financing and take on equity financing? Do you agree with their decision?

Explain both of your answers thoroughly. Be sure to support your opinions on these assignment questions with references to the background materials or to other articles in your paper.

American Superconductor switch ; Westboro company plans to raise money through a stock offering
Andi Esposito. Telegram & Gazette. Worcester, Mass.: Aug 26, 2003. pg. E.1

Abstract (Article Summary)

"AMSC's management and board of directors believe the decision to forgo a secured debt financing and to adopt an equity financing strategy under current market conditions is in the best interests of our shareholders," said Gregory J. Yurek, chief executive officer of AMSC. The 265-employee company has operations in Westboro and Devens and in Wisconsin.

Finally, the Northeast blackout "shined a lot of light on the problems we have been talking about as a company for three to four years," Mr. Yurek said. AMSC products, such as a system installed this year in the aging Connecticut grid and high temperature superconductor power cables and other devices bought by China for its grid, are designed to improve the cost, efficiency and reliability of systems that generate, deliver and use electric power. "We are a company with products out there solving problems today," he said.

Include: all correct answers to the questions asked in this assignment. sufficient calculations to be shown; not just final answers. also looking for proper citation to be used in this assignment. expecting good sentence structure with no run-on sentences.

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American Superconductor decision for debt financing vs equity financing

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What are the advantages and disadvantages for AMSC to forgo their debt financing and take on equity financing? Do you agree with their decision?

If we see the financial statements of AMSC, it has been a debt free company and funded by equity capital. Therefore, the decision to stick to equity financing and forgo debt financing was in lines with the ongoing tradition of the company to utilize equity capital for financing operations. The major advantage of such a strategy is that it allows company to eliminate fixed interest payment burden on debt taken by the organization. In other words, the company would need not worry about paying interest payment and principal repayment on debt taken by the organization during tough times or periods of cash crunch and liquidity problems. In other words, the firm would appear very strong to prospective investors, creditors and lenders as it would essentially mean high security for their advances or money extended/invested in the firm.

However, the major disadvantage of pursuing this policy for a well established corporation like AMSC is that they are not able to utilize the leverage offered via debt financing. As the company is debt free, it can certainly take some debts in the books up to a fairly comfortable ...

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