Sources of Long Term Finance for Listed Company

CORPORATE FINANCE

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Sources of long term finance for listed company........................................................................3
Shareholder wealth maximization model....................................................................................4
Capital structure theory...............................................................................................................5
Calculation of WACC.................................................................................................................6
Capital structure theory and Modigliani Miller view..................................................................8
Benefit of Modigliani Miller Theory..........................................................................................9
Conclusion And Recommendation..................................................................................................9
Skill set and reflection...............................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Corporate finance is defined as the area of finance which is related with the sources from
which a company can get finance or borrow money from others for business purpose. The
corporate finance includes the capital structure of the company that is what type of finance is
borrowed from which source of finance (Elmagrhi and et.al.,2018). The current study is based
over the Malaysian based company relating to the oil and natural gas company which is Hibiscs
Petroleum Berhad which was founded in 2007 and is headquartered in Kuala Lumpur in
Malaysia. The capital structure of the company also includes both debt and equity as this is a
good source of financing for the company.
This company is the first listed independent oil and gas company which is focused to
deliver value by producing oilfields. The current report will start by discussing the long term
sources of finance that is sources from which the company can borrow money for longer period
of time. Further the report will also highlight the shareholder wealth maximization model and the
capital structure theory of finance. Next the discussion will bring out the calculation of WACC
that is weighted average cost of capital and in the end the discussion will include the capital
structure theory with M M views and its relevance to the company (ALmuaither and Marzouk,
2019).
MAIN BODY
Sources of long term finance for listed company
The source of finance is defined as the place from which the company can get or borrow
finance for the use of money within the business. This source of finance helps the Hibiscs
Petroleum in borrowing money from outside the world. No business can run without the money
and money is the lifeline of the company without which no business can exist. For every activity
of business the most important thing is the money as without this any work can be initiated
within the business. Hence, for the success of the business it is very necessary that the business
allocates the money in such a manner that this is optimally utilised. Hence, the money or the
finance is a limited and scarce resource for the business without which the business cannot
function (Sun and et.al., 2016). Hence there are many different sources from which the finance
can be borrowed and can be applied within the business for its successful operations. The major
long term sources of finance for Hibiscs petroleum are as follows-

Equity capital- this is a form of borrowing sources which includes the fund pain in the
business by the people who gets shares and stock in exchange of money they are investing into
the business (Devereux, Maffini and Xing, 2018). This is the core or basic type of source from
which the company can borrow finance. Here the people investing within the business are known
as equity shareholders and the income which they receive in exchange of investing the money is
called dividend. This equity financing is referred to as core financing of the business and this is
very risky as if the company will face any of the loss then the equity shareholders will not get
any dividend. This is majorly because of the reason that the equity shareholders get the money
after all the other expenses and preference capital is paid off. The equity shareholders are the
owners of the company and they are the decision takers of the company.
Preference capital- this is another source of financing the money which is being used by
Hibiscs Petroleum. This is that portion of the capital which is raised by offering preference share
within the market. These shareholders are not the owners of the company they are just the
investors within the company (Garcia, 2016). Hence, they just get the dividend over the
investment they have made. These people has no voting right and no right in the decision making
process of the company.
Debentures- this is a type of long term fixed rate of interest instrument issued to people
against some security. This is a type of loan which the company is taking form the people by
issuing them a security named debenture which is not having any ownership right in the
company. On the debenture the person holding the debenture receives interest and this rate is
decided by the company. This is generally a type of loan which Hibiscs Petroleum takes from the
people who are interested in paying the money in business and the company has to pay interest in
exchange of the money invested.
Term loans- this is another form of capital which can be borrowed by the company in order
to take money from outside the business. This is a type of monetary loan which is repaid on
regular intervals for a fixed period of time and is repaid after that particular point of time. This is
taken from either any bank or any financial institution or any personal people. In against of the
loan provided the loan givers charges some rate of interest which needs to be paid by the
company.