PGBM 142 - RR Ltd: Debt Financing Strategies for Expansion Project

This case study examines RR Ltd, a UK-based clothing and accessories manufacturer, as it considers building a subsidiary manufacturing plant in Manzanillo to expand its operations. The company is evaluating external income streams, specifically loan financing and stock capital, to fund the 20-month construction project. The study explores the advantages and disadvantages of debt financing, including maintaining control, repayment schedules, and funding needs. Different types of debt financing are analyzed, such as loans from business organizations, debentures, and corporate bonds, highlighting their respective advantages and disadvantages. The conclusion emphasizes the importance of managing the debt-to-equity ratio and suggests that RR Ltd. diversify its funding sources to mitigate risk. The case study references academic articles on socioemotional wealth, decision-making methods, and renewable energy investments to support its analysis.

PGBM 142 Corporate financial
management

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

INTRODUCTION
A solid financial system is needed for a company's survival and growth. Big companies
evaluating investment to operate their day-to-day operations as well as to grow their
company. In opportunity to expand and thrive, the company requires a huge volume of
cash with an extended transaction period.

Overview of case study
The company RR Ltd. is based in the United Kingdom. It involved in the manufacturing of
clothing and accessories. The company's senior management is considering building a
subsidiary manufacturing plant in the town of Manzanillo in goal is to expand its
operations in neighbouring countries. The shops are due to be finished in 20 months, with
revenue starting at the end of the first year of business. The company is looking for
external income streams and is evaluating two options: loan financing and stock capital.

What is debt financing
It is a sort of fundraising that often requires borrowing money from a third party and
returning it with interest more than a set period of duration. It appears to have a lot of
advantages. Several instances are as follows:
 Maintain command of the circumstance
 Mortgage repayments

Continued...
Advantages have usually been matched by drawbacks. Here are a few disadvantages:
 Timetable for repayment
 Funding is needed

Different types of debt financing
Getting a loan from a business organisation - This is a common source of money. They
are loans granted by financial organisations such as banks, financial corporations, and
other business lenders for a set period of time at a set interest level.
Advantages:
 Transferred money
 Investor action
Disadvantages:
 Stocks
 Visibility

Continued...
Debentures- Debt repayments are long-term creditors of the business offered by the
corporation. They are awarded for a specific period of duration and have a fixed rate of
revenue.
Advantages:
 Holdings
 Rebuilding
Disadvantages:
 Borrowing
 Transferable at a certain cost

Continue...
Bonds – Corporate notes are investments issued by companies. Consistent income assets
are those which are available for purchase on the public exchange.
Advantages
 Flexibility
 Profitability is preserved
Disadvantages
 Lender Restrictions
 Limitations on the trading exchange

Conclusion
According to the PPT previous section, fiscal leveraging is a dangerous approach
since the debt-to-equity ratio should be managed. RR Ltd. may buy from any conventional
financial institution or set up a variety of loans from financial institutions to decrease and
avoid aspect from an unified system. This might also consider the issuance of corporate
bonds with maturities ranging from 8 to 10 years. Only money from additional systems
would've been available to the business.

References
Gomez-Mejia, L.R., Patel, P.C. and Zellweger, T.M., 2018. In the horns of the dilemma:
Socioemotional wealth, financial wealth, and acquisitions in family firms. Journal of
Management, 44(4), pp.1369-1397.
Kumar, K. and Garg, H., 2018. Connection number of set pair analysis based TOPSIS
method on intuitionistic fuzzy sets and their application to decision making. Applied
Intelligence, 48(8), pp.2112-2119.
Strantzali, E. and Aravossis, K., 2016. Decision making in renewable energy
investments: A review. Renewable and Sustainable Energy Reviews, 55, pp.885-898.
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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