PGBM142 Corporate Financial Management: Debt Financing Analysis

This project analyzes debt financing for WaveKrest Ltd., a luxury yacht manufacturer planning expansion in South America. The project explores debt financing as a funding option, considering its advantages like maintaining ownership and tax benefits, and disadvantages such as fixed repayment obligations and collateral requirements. It examines different types of debt financing, including loans from financial institutions, debentures, and bonds, detailing their advantages and disadvantages. The conclusion suggests a combination of debt instruments and a manageable debt-to-equity ratio for WaveKrest Ltd., including potential issuance of debt for 8-10 years. The analysis provides references to support the financial strategies and concepts presented.

TITLE
Financial Management
(Part A)

TABLE OF CONTENT
Introduction
Overview of case
Debt financing
Types of debt financing
Conclusion
References

INTRODUCTION
For both company well being and growth, a stable financial
framework is critical. Companies require funds for the regular
running and growth of the company. The business wants
substantial funds with long-term paybacks for development
and expansion. The presentation of power points is based on
an evaluation of inconveniences and debt servicing constraints
that are considered to provide funding.

OVERVIEW OF CASE STUDY
It has its offices in Naples, Italy, WaveKrest Ltd. It is specialized in the
manufacture of luxury yachts. The company’s top management plans to
extend its activities in South America and plans to construct a subsidiary
plant in Manzanillo Harbor, Mexico. It is projected that Dockyard will
last two years and that revenue is expected to begin at the end of the
production line year one. The business uses additional capital streams
and has two choices in mind: debt finance and equity investment.

WHAT IS DEBT FINANCING?
Debt funding is the source of financing that includes loans from outside and
interest payments after a given time. The funding of debt has many benefits.
Few of the following are listed:
 Keep ownership-the borrower has no influence of the company's affairs and if
a lender is paid back a binding financial arrangement. It is not at all diluting
the corporation's equity and ownership.
 Interest charge-Capital interest is inherently functional and is not tax exempt.
As interest rates are fixed, the effect on business costs is easy to foresee.

CONTINUE
Accompanying advantages are always disadvantages. Few disadvantages
are listed below:
 Fixed reimbursement-Loan funding is a fixed cost that needs to be
reimbursed at any cost despite the difficult times of industry or when the
economy is melting.
 Collateral condition – Any of the reserves have to be held with the
borrower as collateral because without loan facility is impossible to use.

DIFFERENT TYPES OF DEBT FINANCING
Loans from financial institutions-It is viewed as a conventional means of finance. This is
loans issued at a pre-set interest rate for a fixed term by different financial institutions such
as banks, community banks and other institutional lenders.
Advantage:
 Cash flow
 Investor interference
Disadvantage
 Collateral
 Vulnerability

CONTINUE
Debentures-Debt is debentures sold by a corporation over lengthy periods of time.
Debentures have a set interest rate and are sold over a particular period of time.
Advantage:
 Ownership:
 Restructuring:
Disadvantage:
 Loan:
 Set payout:

CONTINUE
Bonds: Corporate bonds are known as bonds issued by corporations. There are
forms of limited income sold to customers.
Advantage:
 Flexible:
 Preserved income
Disadvantage:
 Bondholder’s restrictions:
 Exchange regulations:

CONCLUSION
The above PPT indicates that debt finance is a challenging
choice, because debt-to - equity ratios must be managed. It can
be inferred. In the above alternatives, WaveKrest Ltd. will
borrow or build a portfolio of mortgages from a range of
institutions in combination with one to reduce the risk factor.
Debt issuance for 8-10 years can also be taken into account.
The organization can only save them from the current device.

REFERENCES
 Molly, V., Uhlaner, L.M., De Massis, A. and Laveren, E., 2019.
Family-centered goals, family board representation, and debt
financing. Small Business Economics, 53(1), pp.269-286.
 Pandey, K.D. and Sahu, T.N., 2019. Debt financing, agency cost and
firm performance: Evidence from India. Vision, 23(3), pp.267-274.
 Xin, K., Sun, Y., Zhang, R. and Liu, X., 2019. Debt financing and
technological innovation: Evidence from China. Journal of Business
Economics and Management, 20(5), pp.841-859.
 Wasiuzzaman, S. and Nurdin, N., 2019. Debt financing decisions of
SMEs in emerging markets: empirical evidence from
Malaysia. International Journal of Bank Marketing.