Raising Capital Cost Of Issuing Securities

Term Paper , 2013 , 37 Pages , Grade: B-

Business economics - Investment and Finance

The central focus of this research project is to guide the relatively medium sized car dealership company towards making decision on the appropriate security financing option so that it would permit the given company to expand its operation while minimises its cost and maximises its profitability. In general there are three types of security financing (Equity Securities, Debt Securities and Asset-Backed Securities). Security Financing is also considers being a good financing source which involves the issuance of securities either in the stock market or in the capital market. In general, the companies’ financial decision subject to the composition of its Capital Structure. The Capital Structure is made up of two factors: debt & equity. The trade-off theory was originated out of debate over the Modigiliani Miller theorem. The term trade-off theories was been used by different authors to state different group or similar related theories. The static trade-off theory confirms that the firm has perfect capital structure which they gain by trading off cost from the benefits of the use of equity and debt. The dynamic trade-off theory relates to the role of profit, role of retained earnings and path dependence. The concept of agency theory is emphasised more on the approach of concentrating on the nature of relationship existing between the company’s shareholders (Principal) and their managers (Agents). Pecking order theory stressed that the company should first prefer to use internally generated income for the purpose of raising as it would restrict the company to expose itself towards financial leverage. The marketing timing theory state that firm value their equity in the way that when the stock price is perceived to be overvalued then they issue new stock and gain their share back. After the careful analysis of all possible options, it seemed better for the medium sized Car Dealership Company to go for option of debt security instrument known as Debentures for the purpose of pursuing expansion.

Table of Contents

Section-1: Aims & Objectives
1.1. Background Context
1.2. Problem Statement
1.3. Research Aim
1.4. Research Objective
1.5. Summary

Section-2: Literature Review
2.1. Capital Structure
2.1.1. Trade-off Theory
2.1.2. Static Trade-off Theory
2.1.3. The dynamic Trade-off theory
2.1.4. Agency Theory
2.1.5. The Pecking Order Theory
2.1.6. The Marketing timing theory
2.1.7. Modigliani-Miller Theory
2.2. Equity Securities
2.2.1. Ordinary Shares
a) Advantages
b) Disadvantages
2.2.2. Preference Shares
a) Advantages
b) Disadvantages
2.3. Debt Securities
2.3.1. Debentures
a) Advantages
b) Disadvantages
2.4. Asset-Backed Securities (ABS)
2.4.1. Securitisation
a) Advantages
b) Disadvantages
2.5. Summary

Section-3: Case Studies, Analysis & Discussion
3.1. Case Studies
3.1.1. Case Study on Equity Security
3.1.1.1. Company Profile
3.1.1.2. Raising of Capital from Ordinary Shares
3.1.1.3. Findings
3.1.2. Case Study on Debt Security
3.1.2.1. Company Profile
3.1.2.2. Raising of Capital from Ordinary Debentures
3.1.2.3. Findings
3.1.3. Case Study on Asset-Backed Securities (ABS)
3.1.3.1. Company Profile
3.1.3.2. Raising of Capital from Securitisation
3.1.3.3. Findings
3.2. Analysis
3.3. Discussion
3.4. Summary

Section-4: Conclusion & Recommendations
4.1. Conclusion
4.2. Recommendations

Section-5: References

• College: University of Bedfordshire
• Course: MSc FINANCE & BUSINESS MANAGEMENT
• Grade: B-
• Author: Junaid Javaid (Author)
• Publication Year: 2013
• Pages: 37
• Catalog Number: V280859
• ISBN (eBook): 9783656748717
• ISBN (Book): 9783656748090
• Language: English
• Tags: raising, capital, cost, issuing, securities