2 pages/≈550 words
Literature & Language
FINANCIAL DISCUSSION: TUI_FIN_501_TD (Essay Sample)
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FIN 501: MODULE 1
My names are Rodgers Macdonald, a senior student at TUI high school. I kindly take this golden opportunity to welcome you to the presentation of this financial course discussion. Feel free as I go through this and any queries or contribution will be highly appreciated.
I think right now will be a good time to take a company public. This is because of the improving financial status of the economy at the rate of 3 percent.
ADVANTAGES OF GOING THROUGH AN IPO PROCESS AT THE MOMENT
The company will be able to raise more cash as the economy is stable as opposed to next year maybe when the economy would have fluctuated (Pastor 2006).
Because of the increased scrutiny at the moment, going through the process will enable the company to get better rates when it issues debt.
Another advantage is that mergers and acquisitions will be easier to do because stock can be issued as part of the deal as long as there will be market demand (Shivakumar 2005).
By going through this process the company will be able to implement things like employee stock ownership plans, which help to attract top talent.
DISADVANTAGES OF GOING THROUGH THE PROCESS
There will be a lock-up period as a result of this process. This is an agreement that legally binds the underwriters and insiders of the company, prohibiting them from selling any shares of stock for a specified period of time. When lockups expire the problem now arises as all insiders are permitted to sell their stock which in turn puts a downward pressure on stock price of the company (Taylor 2007).
FIN 502: MODULE 2
Discount rate for a risk free equity was 11% (a US treasury note-called risk free because if they can pay, your money is worthless!). This was determined by adding the total cost of the debt and equity of the company.
Discount rate for a CD at a South American bank paying in their local currency would be at 13% depending on the money market coupon which is at 88%. Also this being a debt as well it should pay slightly higher interest since it does bear both the business risk and the financial risk of the South American bank.
The 15% discount because of the investor’s required return on this type of equity whic...
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