RR Ltd Expansion: A Comprehensive Analysis of Debt Financing Options

This report examines debt financing strategies for RR Ltd, a UK-based fashion company planning to expand its operations by establishing a production base in Manzanillo. The company is considering debt financing as an alternative to equity funding to finance the new outlet, which is expected to be completed in twenty months. The report discusses the advantages and disadvantages of various debt financing options, including commercial loans, debentures, and bonds. It emphasizes the importance of maintaining a healthy debt-to-equity ratio and suggests that RR Ltd could diversify its borrowing sources to mitigate risk. The report concludes by referencing academic sources on multinational financial management and related topics, providing a comprehensive overview of debt financing considerations for RR Ltd's expansion project. Desklib provides access to similar solved assignments.

Corporate Financial Management
(Part A)

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

INTRODUCTION
A good fiscal framework is critical for a firm's sustenance and development. Large
corporations require capital to run their day-to-day activities and also expand their
businesses. The business needs a large sum of money with a longer repayment time in
order to develop and flourish.

Overview of case study
The firm RR Ltd. is located in UK. It specialises in the production of fashion products. The
corporation's top administration is contemplating establishing a branch production base at
the city of Manzanillo in order to grow its activities in nearby nations. Outlets are planned
to be completed in twenty months, with income beginning at the conclusion of the first
year of operation. The firm is seeking for outside funding institutions and is considering 2
alternatives: loan finance and equity funding.

What is debt financing
It is a type of funding typically entails acquiring funds from a third party and repaying it
with charge over a predetermined amount of time. It seems to have a number of
benefits. The following are some examples:
 Keep control of the situation.
 Repayment of interests

Continued...
Benefits have always been accompanied with negatives. The following are a few
drawbacks:
 Payback schedule
 Financing is required

Different types of debt financing
Obtaining a credit from a commercial organization – It is regarded as a customary
source of funding. They are mortgages provided by fiscal organizations like as bankers,
finance companies, as well as other corporate creditors for a predetermined length of
duration at a predetermined cost of borrowing.
Benefits:
 Transfer of funds
 Intervention by shareholders
Drawbacks:
 Securities
 Exposure

Continued...
Debentures- Debts are company-issued long-term secured loans. They are granted for a
certain amount of time and have a set amount of return.
Benefits:
 Holdings
 Reconstruction
Drawbacks
 Mortgage
 Redeemable at a set price

Continue...
Bonds – Company Bonds are securities issuance by businesses. Guaranteed revenue
securities are those that are sold on the open market.
Benefits
 Adaptability
 Profits Maintained
Drawbacks
 Limitations for creditors
 Restrictions on the stock market

Conclusion
The above PPT suggests that financial leverage is a risky alternative because the debt-
to-equity proportion must be maintained. RR Ltd. could acquire from any banking
organization or establish a collection of mortgages from numerous banks to reduce and
prevent element from a single organization. It may also take into account the issuing of 8-
10 year debt securities. The corporation would only be eligible to receive credits from new
units.

References
Shapiro, A.C. and Hanouna, P., 2019. Multinational financial management.John Wiley
& Sons.
ŠIKÝŘ, M., Sekerin, V. and Gorokhova, A., 2018. Managing Human Resources Using
the Best Practice. Best Fit Approach. Journal of Applied Economic Sciences, 13(1).
Sonnenberg, S. J., 2018. 22 The Economic Psychology of Financial Decision-Making
and Money Management in the Household. CENTRE FOR DECISION RESEARCH,
UNIVERSITY OF LEEDS, UK, p.354.
Voltan, A. and De Fuentes, C., 2016. Managing multiple logics in partnerships for
scaling social innovation. European journal of innovation management.
Wei, G. and Lu, M., 2018. Pythagorean fuzzy Maclaurin symmetric mean operators in
multiple attribute decision making. International Journal of Intelligent Systems, 33(5),
pp.1043-1070.

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