Debt Financing Essays and Research Papers

Instructions for Debt Financing College Essay Examples

Title: Finance

  • Total Pages: 2
  • Words: 561
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  • Citation Style: APA
  • Document Type: Essay
Essay Instructions: REWORD THIS ESSAY BELLOW:

QUESTION: what are the advantages and disadvantages of each of the option (i)debt financing (ii) issuing common stock (iii) preference share

When considering debt financing a qualitative advantage can be that debt is not an ownership interest in the firm. As a result, creditors have no voting power or control in how a business is operating and entrepreneurs are able to make key strategic decisions. Another benefit is that it may be easy to administer as it generally lacks the complex reporting requirements that accompany some forms of equity financing. Additionally, having debt motivates the firm to improve operations so as to meet these financial obligations. On the other hand, using debt includes various qualitative disadvantages. Firstly, there exist a collateral requirement, thus creditors can legally claim the assets of the firm in the event of default. This can result in liquidation or reorganization of the company. Another aspect is that the company would have to deal with lenders and their criteria to obtain a loan. Moreover, covenants might be stipulated in the lending documents and could impose restrictions on the operations of the business. Another shortcoming is that too much debt may impair the firm's credit ratings and their ability to raise money in the future. Lastly, the availability of debt financing is often limited to established businesses, since lenders primarily seek security for their funds. Thus, it can be difficult for unproven businesses to obtain financing.

A qualitative advantage of financing with equity in the form of common stock is that stock options can be used to motivate employees of all types. This would also promote the alignment of employee and shareholder interest. Another benefit is that business assets do not have to be pledged as collateral to obtain equity investments. Moreover, businesses with sufficient equity will look better to lenders, investors and the IRS. Conversely there exist qualitative disadvantages with this financial instrument. Firstly, stockholders are entitled to ownership interest and voting rights. Thus, there is a dilution of control allowing the possibility of takeovers by other companies and proxy fight by unhappy stockholders who act to replace existing management. Another drawback is that the utilization of equity markets to finance acquisition tends to be dependant on the market place. Thus if the industry turns down a company may suffer. Finally, the placement of equity in the form of common stock requires companies to meet many state and Federal regulatory requirements as directed by the Securities and Exchange Commission.

A third option of financing is that of preference shares. A qualitative advantage is that there is no dilution of management's interest in corporate growth or in voting power (if non-voting preferred stock is issued). Also, in the event of sale of new equity, the company must first offer share to preferred stockholders to allow them to maintain their pro rata interest. This would limit the flexibility to bring in new shareholders who can influence the company's operation systems. However, a disadvantage is that preferred stock always has the right to convert to common stock, thus creating voting power and dilution of control. Furthermore, a protective provision exists where a long list of items must be approved by 51-67% of preferred stockholders, including: sale, merger or liquidation of company; sale of shares with more privileges; issuance of debt over dollar amount; increase in board size and such like. Thus, this puts preferred stockholders in a position to manage affairs of the company and decide when the company is sold.

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Title: PLEASE USE BOLAVENS After finish discussion managers finance personnel head strategic planning stops office discuss IPO He recently investment bankers started encourage firm begin financial leverage a sign Wall Street company aggressive public

  • Total Pages: 3
  • Words: 931
  • Bibliography:2
  • Citation Style: MLA
  • Document Type: Research Paper
Essay Instructions: PLEASE USE BOLAVENS

After you finish your discussion with the managers and finance personnel, the head of strategic planning stops by your office to discuss the IPO. He says that recently the investment bankers started to encourage the firm to begin to use more financial leverage as a sign to Wall Street that the company would be more aggressive when it goes public. The investment bankers believe this will help with the IPO and likely generate millions of dollars in additional net proceeds. You two sit at the large conference table in your office discussing what the impact would be if the company purchased the production plant rather than leased it and if the company used debt rather than cash flow to finance the project (the company would also use debt to buy the facility).

With this in mind, discuss with the head of strategic planning how using more debt can impact a firm?s capital structure. Discuss the trade-offs between incremental IPO proceeds and debt financing. How would the company's balance sheet be impacted by debt financing rather than using cash? How would the company?s return on equity be impacted by utilizing more debt?

Headings for paragraphs

How can using more debt impact a firm?s capital structure?

What are the trade-offs between incremental IPO proceeds and debt financing?

How would the company's balance sheet be impacted by debt financing rather than using cash?

How would the company?s return on equity be impacted by utilizing more debt?

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Works Cited:

Loth, R. (2006). Evaluating a company's capital structure. Investopedia. Retrieved March 17, 2012 from http://www.investopedia.com/articles/basics/06/capitalstructure.asp#axzz1pI61aUrV

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Title: Expanding the Buisness

  • Total Pages: 5
  • Words: 2286
  • Sources:5
  • Citation Style: APA
  • Document Type: Essay
Essay Instructions: -Outline a financial plan for a local coffee shop business.

-Develop a guerrilla marketing strategy for your small business.

-Discuss the most appropriate location for a second store.

-Outline a plan for securing sources of debt financing for your second store.

Double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; references must follow APA or school-specific format

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1. Swarming the shelves: How shops can exploit people's herd mentality to increase sales." The Economist. 2006-11-11. p. 79-90.

2. Kotler, Armstrong, Philip, Gary. Principles of Marketing. (2011)Pearson education.

3. Joshi, Rakesh, (2005) International Marketing, Oxford University Press, New Delhi and New York ISBN 0-19-567123-6

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Title: Equity and Debt

  • Total Pages: 3
  • Words: 920
  • References:3
  • Citation Style: MLA
  • Document Type: Research Paper
Essay Instructions: American Superconductor

As you know from reading through the background materials, 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 using the CyberLibrary and internet search engines. You can also take a look at the official American Superconductor webpage(http://www.amsc.com/). 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.

Read the article below available in Proquest:


American Superconductor switch ; Westboro company plans to raise money through a stock offering:
(Proquest Article);WESTBORO -- American Superconductor Corp., whose power grid products have gained heightened visibility since the Aug. 14 Northeast blackout, has scuttled plans for a $50 million secured debt financing and will instead raise the money through a public stock offering.

The company will disclose the number of shares to be sold from the company's treasury, the amount of the expected proceeds and names of underwriters in a Securities and Exchange Commission registration statement that will be filed within two weeks, AMSC said yesterday.

AMSC had told shareholders in July that it expected to close at the end of this month on a secured debt financing package made up of a five-year term loan of up to $30 million from three groups of institutional investors, $10 million in subordinated notes and a $10 million bank credit facility.

The company hadn't identified the investors or bank.

"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.

The company's stock, which closed yesterday at $12.20, up 60 cents on the Nasdaq Stock Market, has risen 305 percent this year.

Mr. Yurek said three factors led to the decision. First, AMSC has picked up revenue momentum and is on track toward achieving its target of $45 million to $50 million in revenue this year, more than doubling revenue of fiscal 2003.

Secondly, AMSC's high temperature superconductor motor and generator business unit, which is working on a large U.S. Navy contract, was profitable in the first quarter ended June 30 -- one quarter ahead of expectations.

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.

At June 30, AMSC had cash reserves of $12.1 million. Last year the company spent $48 million to fund operations. But this year, because of cost savings and other steps, spending is forecast at $13 million to $15 million.

AMSC needs the money for general corporate purposes and to scale up manufacturing at Devens of its second-generation high temperature superconductor wire


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

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American Superconductor opts for secondary offering (2003, August 25). Boston Business Journal. http://boston.bizjournals.com/boston/stories/2003/08/25/daily4.html

Equity financing. http://www.answers.com/topic/equity-financing

What are the advantages and disadvantages of debt financing? (2007). http://bondsdebt.net/Debt/debt-financing-advantages/

$50 million is public stock prices has risen 305% this year

. First, AMSC has picked up revenue momentum and is on track toward achieving its target of $45 million to $50 million in revenue this year, more than doubling revenue of fiscal 2003.

Secondly, AMSC's high temperature superconductor motor and generator business unit, which is working on a large U.S. Navy contract, was profitable in the first quarter ended June 30 -- one quarter ahead of expectations.

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,"

At June 30, AMSC had cash reserves of $12.1 million. Last year the company spent $48 million to fund operations. But this year, because of cost savings and other steps, spending is forecast at $13 million to $15 million.

AMSC needs the money for general corporate purposes and to scale up manufacturing at Devens of its second-generation high temperature superconductor wire

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