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Having previously identified the location of its Greenfield

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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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The response addresses the queries posted in 1207 words with references.

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The response addresses the queries posted in 1207 words with references.
//In this paper, we will discuss some financial aspects of the acquisition for Acme Company. External financing plays a crucial role for an organization, while going for a new project. In this section, we will shed light on the fundamentals of external financing. We will also discuss some sources of external finances.//

External Financing

External financing is a tool to generate finance for various other purposes from sources, outside the organization. In internal financing, companies use their internal reserves to finance any project, but in case of external financing, money from the external sources, such as investors or lenders is used by the issuance of debt or equity. These are the tools, which businesses need for obtaining long term financing. Some firms, especially those, involved in services sector may require little amount of external funds or some investment in fixed assets. Other firms, which are capital intensive or require latest and advanced technology, cannot generate enough funds from their internal sources, therefore, they have to rely more on external sources. All the manufacturing firms come in this category (Sources of finance, 2011).

Along with the business cycles, the proportion of internal and external financing changes, simultaneously. When the company is in expansion stage, it has to rely more on external sources, as the requirements cannot be matched with the company's internal ability. In contrast to this, at the time of economic contraction, the reliance on external sources reduces, as the investment opportunities come to a deceleration (Norton & Melicher, 2010). Mainly, there are following sources of external financing:

1) Venture Capital

2) Franchising

3) Loans from Banks or Financial Institutions

//Further, it will be explained as a recommendation as to which alternative should be used to finance the overseas investment, and the advantages it can bring to a company.//

1) Venture Capital

Venture capital is a kind of risk capital and the investment of capital in a business, where there ...

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Ashish Sharma, MBA (IP)
Education
  • MBA (IP), International Center for Internationa Business
  • BBA, University of Rajasthan
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