University of Sunderland: Corporate Finance Assignment - Part A

This presentation, designed for a Corporate Financial Management assignment, delves into the intricacies of debt financing. The content begins with an introduction to the significance of a sound financial structure for corporate growth and expansion. It then presents an overview of a case study involving WaveKrest Ltd., a luxury yacht manufacturer, considering expansion plans and the choice between debt and equity financing. The presentation defines debt financing, highlighting its advantages such as maintaining ownership and its disadvantages like fixed repayment obligations and collateral requirements. Different types of debt financing are explored, including loans from financial institutions, debentures, and bonds, each with their respective advantages and disadvantages. The presentation concludes by suggesting that WaveKrest Ltd. could consider various debt financing strategies, such as borrowing from financial institutions or issuing debentures to manage financial risks. This presentation is a valuable resource for students studying corporate finance, providing insights into debt financing strategies and their practical applications.

Corporate Financial Management
(Part A)

Table of content
Introduction
Overview of case
Debt financing
Types of debt financing
Conclusion
References

INTRODUCTION
Sound financial structure is important for company's well being as well as growth.
Corporate need funds for running daily operations of the business as well as for expansion
purposes. For growth and expansion, company requires huge funds with long term payback
period (Davydov, 2016). The power point presentation is based on assessing drawbacks
and limitation of debt financing considering as a source of finance.

Overview of case study
WaveKrest Ltd. is a company based in Naples, Italy. It specializes in luxury yacht
manufacturing. Senior management of company is planning to expand its operations in
South America and are considering building a subsidiary manufacturing hub at the port of
Manzanillo, Mexico. Dockyard is expected to take two years to complete and revenue is
expected to start at the end of first year of production. Company is going for external
sources of capital generation and has two options in consideration: debt financing and
equity financing.

What is debt financing
Debt financing is that source of finance which involves borrowing money from outside and
paying it back with interest after a specified period of time (Zhang, 2016). Debt
financing has several advantages. Few are listed below:
 Maintain ownership
 Interest payment

Continued...
Accompanying advantages are always disadvantages. Few disadvantages are listed below:
 Fixed repayment
 Collateral requirement

Different types of debt financing
Loans from financial institutions – It is considered as traditional form of financing.
These are the loans offered by various financial institutions such as banks, credit unions
and other commercial lenders for a fixed period of time at a pre fixed interest rate.
Advantages:
 Cash flow
 Investor's interference
Disadvantages:
 Collateral
 Vulnerability

Continued...
Debentures - Debentures are long term debt instruments issued by company. Debentures
carry fixed rate of interest and are issued for a specific period of time.
Advantages:
 Ownership
 Restructuring
Disadvantages
 Loan
 Fixed redemption

Continued...
Debentures - Debentures are long term debt instruments issued by company. Debentures
carry fixed rate of interest and are issued for a specific period of time.
Advantages:
Ownership
Restructuring
Disadvantages
Loan
Fixed redemption

Continue...
Bonds – Bonds issued by companies are called Corporate Bonds. These are fixed income
instruments sold to investors.
Advantages
 Flexible
 Retained Earnings
Disadvantages
 Bondholders restrictions
 Exchange regulations

Conclusion
On the basis of above PPT it can be concluded that debt financing is tricky option as Debt-
to-equity ratio has to be balanced. In above options, WaveKrest Ltd. can either borrow
from any financial institution or can create a portfolio having loans from multiple
institutions together to mitigate risk factor from one. It can also take into consideration
issuance of debentures for 8-10 years. In it, company will be able to redeem them out of
new unit only.

References
CHHABLANI, P., 2020. Sources of Finance (long term).
Davydov, D., 2016. Debt structure and corporate performance in emerging markets.
Research in International Business and Finance. 38. pp.299-311.
Divate, A., 2020. Share and Dividends.
Haesen, D., Houweling, P. and van Zundert, J., 2017. Momentum spillover from stocks to
corporate bonds. Journal of Banking & Finance. 79. pp.28-41.
Hermes, N., Lensink, R. and Meesters, A., 2018. Financial development and the efficiency
of microfinance institutions. In Research Handbook on Small Business Social
Responsibility. Edward Elgar Publishing.
Hunt, B. and Terry, C., 2018. Financial institutions and markets. Cengage AU.
Norden, L., Roosenboom, P. and Wang, T., 2016. The effects of corporate bond
granularity. Journal of Banking & Finance. 63. pp.25-34.
Zhang, S., 2016. Institutional arrangements and debt financing. Research in International
Business and Finance. 36. pp.362-372.

Thank
You