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Corporate Finance: Expansion Plc case - Essay Example
Author : nataliehuel
Finance & Accounting
Pages 14 (3514 words)
This project highlights the various sources of long term finance which can be used by the Expansion Plc to raise the required funds which is needed to finance the property, plant, equipments, current assets and other assets which are needed for its new operating division. …
This paper focuses upon Expansion Plc which is a listed in London Stock Exchange has planned to open an operating division for manufacturing a brand new product. The company has some internal funds but has planned to raise the required additional fund from other sources. Various types of sources are available in the market which can be used for raising the additional funds but every type of long term financing may not be useful for every company as different type of source have different type of cost of capital, different risk profile and different benefits and limitation. Therefore every aspect of long term source of finance have been analysed in detail. Expansion Plc can raise its funds from any of the long term financing source discussed above like equity financing, long term debt etc but raising capital from any of these source the company will incur some costs. If Expansion Plc raises its funds through issuing equity shares or preference shares then the company would have to incur the costs associated with the public offer like the underwriter’s commission, payments to be made to the distributers, advertising costs, fees of merchant bankers etc. In case of long term debt if the company raises the funds by issuing bonds or debenture then also the company has to provide the fees to the underwriters, commissions to the brokers, stationary costs etc. Each source of financing will have different cost of capital that is the minimum required rate of return that the company will have to earn in order to satisfy the fund providers. ...