Please describe each of the below options for a U.S. MNE looking to get external financing in the U.S. for an overseas Greenfield project. The topics that must be examined are:
Bonds, bank notes, effective tax rates, preferred equity and common equity should be addressed in your paper.
Agency costs should be addressed relative to the leveraging of the firm.
Please detail the advantages and disadvantages of each and give a recommendation of which option(s) to use.
Remember to only look at External financing in the U.S. for this project.
External Financing options in the U.S for a U.S MNE:
There are three main determinants taken into consideration by a firm when it comes to selecting a choice of financing the firm such as information asymmetry, renegotiation and liquidation and floatation costs. The three factors will provide the firm with the direction to take such as; whether to choose a public or a private debt.
External financing refers to the act of financing a company through issuing equity or a debt. Bond issuance within an international capital market is considered as a source of finance for a company which is credit worthy as well as the middle and the low income developing countries for some time. In the United States, bonds are known to supply a third of the external finance as well as non financial businesses (Dittmar & Yuan, 2008).
In the US, debt is known to constitute a major source of external financing especially for the large firms. This further resulted to the introduction of corporate bonds and euro syndicated loans which have been extensively used by firms as the main source of large debt financing since it supports the functionality whereby firms can raise large amounts of funds which have both long term and medium term maturities (Dittmar & Yuan, 2008).
Effective tax rates:
When financing a multinational subsidiary by an intra-firm parent debt is associated with an advantage that, in the cases where the interest rates on the debt can be deducted by tax, offsetting bankruptcy costs are not going to be in existence. In the cases where the foreign corporate tax rate is known to be higher than the domestic tax rate and the MNE is known to have an incentive of exaggerating the interest rate on the intra-firm debt, the tax authorities are known to provide a limit on the rate that the parent can be able to charge.
For any given level of the total debt financing, corporate tax rates which are higher in the foreign country always go hand in hand with a ...
The external financing options for a United States MNE Company.