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corporate finance and related ethical issues - Essay Example
Author : considinedoming
Finance & Accounting
Pages 6 (1506 words)
Corporate Finance and Related Ethical Issues Organisations which aim to achieve their corporate goals do it through corporate investments and financing. Generally it has been noticed that either the fund is self-generated or assistance from the external sources are taken…
This means developing a capital structure which would assist in deriving maximum value. When a project is financed, the debt of the firm results in a liability, which can be also termed as an obligation. However, equity financing is considered to be less risky because the commitments related to cash flow is respected, but this results in the dilution of the earning, control and share ownership. Moreover, as it is already known the cost of equity is higher than the cost of debt. This implies that equity financing can double the hurdle rate. This study is also based on such concepts of funding and investment (Spencer, 2000). Arthur Graham plc (AG) is a listed company which owns building merchant chains. It is located in the south of England. The company is mainly financed through equity, keeping in mind the organic growth of the firm. AG wants to acquire an unlisted company called Sandboy Ltd, which also owns building merchant chains. However, the problem is regarding the funding that AG has to make in order to acquire the company. The shareholders of Sandboy Ltd have demanded 25 percent of the market capitalization of AG, for acquiring their company, which was accepted by AG, as they found Sandboy Ltd. to be a good prospect for them. However, AG could not raise funds from its internal sources, so it has to find out ways to fund the acquisition. ...