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प्रश्न
'Mission Coach Ltd.' is a large and creditworthy company manufacturing coaches for Indian Railways. It now wants to export these coaches to other countries and decides to invest in
new hi-tech machines. Since the investment is large, it requires long-term finance. It decides to raise funds by issuing equity shares. The issue of equity shares involves huge floatation cost. To meet the expenses of floatation cost, the company decides to tap the money market.
1) Name and explain the money-market instrument the company can use for the above
purpose
2) What is the duration for which the company can get funds through this instrument?
3) State any other purpose for which this instrument can be used.
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उत्तर
a. Commercial paper can be used by Mission Coach Ltd. It is a promissory note which is negotiable and transferable. It is primarily used by large and credit-worthy companies for bridge financing. In other words, it is used as an alternative to borrowings from banks and the capital market. On commercial paper, companies pay an interest rate lower than market rates
b. Commercial papers have a maturity period ranging from a minimum of 15 days to a maximum of 1 year.
c. Commercial paper can be used to finance the seasonal and working capital requirements of enterprises
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संबंधित प्रश्न
Explain the following as factor affecting dividend decision:
Stability of earnings
Explain the following as factor affecting dividend decision:
Growth opportunities
Explain the following as factor affecting 'financing decision'.
State of capital markets
Give the meaning of ‘Investment’ and ‘Dividend’ decisions of financial management.
| Ravi has joined as a finance manager at MTA Ltd. He had to arrange funds of rupees one crore for the company. The Chief Executive Officer of the company wants to arrange the funds by a public issue whereas the finance manager wants to have a mix of debt and equity as this will determine the overall cost of capital and the financial risk of the enterprise. |
- Identify and give the meaning of the financial decision suggested by the finance manager in the above case.
- State any three factors affecting the decision identified in (i) above.
Besides the total amount of long-term finance required, what must a business identify?
What are shareholders’ funds?
What are retained earnings?
How does equity compare with debt regarding repayment of capital?
Which comparison of financial risk for debt and equity is correct?
Which statement about the cost of sources of finance is correct?
How does a higher floatation cost affect a financing source?
How does lower cost affect the attractiveness of a source of finance?
How does higher financial risk affect the suitability of taking on more debt?
Which are examples of fixed operating costs?
Which sequence correctly orders the seven factors affecting financing decisions?
