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FIN Mod 5 CA - Equity Financing (AMSC) (Research Paper Sample)

Assignment: 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. Assignment Expectations: After doing your research, apply what you learned from the background materials and write a three to five 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 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. source..
Equity Financing (AMSC) The American Superconductor also referred to as AMSC is an energy Company which is located at Devens in Massachusetts and it specializes in designing and manufacturing of the power systems and the superconducting wires. The Company also owns Windtech located at Klagenfurt in Austria. The decision to choose either debt financing or equity financing will always depend on one’s situation, the financial capital, the potential investors, the credit standing, the business plan, the tax situation, the type of business one plans to start will always have an impact on the decision. It is always important that one makes this decision wisely. To be able to know why American Superconductor (AMSC) preferred Equity Financing other than Debt Financing, we have to look at the merits and demerits of each financing option as below (American Superconductor, 2010). Equity Financing It is a form of getting your business financed without incurring any debts. With this form of financing, one does not have to take out a loan since the funding will readily come from an investor in exchange of a piece of ownership of the business. It is commonly used by many small and growing businesses as a source of funding. One can be able to borrow from non-professional investors such as the family and friends but mostly, the common source are the professional investors (Valdez, 2005). Advantages One is able to use his/her cash and that of the investors to start his business for the start-up costs instead of incurring large loan repayments to financial institutions and other organizations or other individuals. One is able to get underway without the burden of debt on ones back. If one has prepared a prospectus for his investors and explained to them that their cash is risky in the new start-up business, the investors will understand that if the business doesn’t do well, then they won’t be able to get back their cash. Depending on the kind of one’s investors, they can be able to offer valuable business help that the entrepreneur may not have. This assistance is very important in the early days of a new firm. That is why it is very important for one to choose the investor...
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