Free Course Work On Strategic Corporate Finance

Published: 2021-06-22 00:43:59
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Category: Finance, Company, Investment, Banking

Type of paper: Essay

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Going public means that the company can get the financial means needed for eliminating fragility. The reason why the company should go public include better growth strategies, acquisition or mergers opportunities, increased reputation or prestige, increased market value, increased long-term and cash capital and ability to keep and attract key personnel. The reason why it should not go include the challenge of no turning back, increased expenses, litigation risk, ongoing expenses, loss of privacy, loss of control, investor relations requiring time commitment and pressure for performance (Pettit, 2011).

Advantages and disadvantages of going through the IPO process now as opposed to waiting a year or two

Advantages of going through the process now are that the process is involving and needs adequate attention and time so that all requirements are met. If the requirements are not met in time so that the company delays and miss the IPO window even for just few weeks, the IPO can be withdrawn or postponed. Furthermore the company will experience a market valuation that is lower. Disadvantage on the other hand is that the company does not have to hurry and go through the process now. If it is not prepared to pick up once it has acquired the IPO, it is better for it to wait. Otherwise, it will be putting itself into disaster (Davies, Boczko, & Chen, 2008).

Important steps to go public

The company has to do a number of things before it goes public. In the first step the company has to do a number of things like holding all hands meeting, executing its letter of intent, selecting printer and transferring agent, cleaning up its financial statements and ensuring their compliance with provided regulations. This is the beginning of the quite period. The next thing is the beginning of the cooling off period when road show is performed by the executives. On the offering day, the company issue press release while executing underwriting agreement (Pettit, 2011).

Discount rates

a) The discount rate should be in such a way that it captures the rate of risk free over the particular period as well as the equity-risk premium over the given period of time.
b) Since this will be a debt, the interest that it should pay should be higher because it bears both the financial risk of the bank as well as the business week.
c) The return of the investor here will be higher than most debts’ interest rate to capture all the risks bound to the business in addition to the stock market.
d) Since the risk it bears is the highest, the discount rate it attracts should be the highest.

CAPM

According to CAPM, the expected return of a portfolio or a security is equivalent to the rate on a risk premium plus a risk-free security. In a situation where the expected return fails to beat or meet the required return, it is not advisable to undertake the investment. This therefore, indicates that CAPM is applicable in making personal investment decisions (Weaver & Weston, 2007).

Cost of Capital: Debt or Equity?

Among the difficulties to be faced by the acquiring banks include the performance measurements and the cash flow that has to be reviewed by Securities Exchange Commission (SEC). If SEC discovers that these measurements are not in compliance with accepted standards, it will become difficult for the acquiring banks to accomplish their merging mission (Smit & Trigeorgis, 2004).

References:

Davies, T., Boczko, T. & Chen, J. (2008).Strategic corporate finance. New York, NY: McGraw-Hill Higher Education.
Pettit, J. (2011). Strategic Corporate Finance: Applications in Valuation and Capital Structure.
New York, NY: John Wiley & Sons.
Smit, H. & Trigeorgis, L. (2004). Strategic investment: real options and games. New York, NY:
Princeton University Press.
Varma, J. & Raghunathan, V. (2001). Strategic corporate finance: managing under economic crises. New York, NY: Vision Books.
Weaver, S. & Weston, J. (2007).Strategic financial management: applications of corporate finance. New York, NY: Cengage Learning.

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