FINANCE 301-MODULE-5-CASE ASSIGNMENT

FINANCE 301-MODULE-5-CASE ASSIGNMENT - FINANCE 301 EXTENDED...

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FINANCE 301 – EXTENDED COURSE MODULE 5 CASE ASSIGNMENT DR. STEPHEN POLLARD For American Superconductor, availability of money is essential for any new venture. Funds are required to support all of the company’s activities to include payment of employees, new equipment, rent, etc. Finding the right financial mix is instrumental before investing in a project. It is important to examine the different types of financing to ensure the lowest cost of capital, flexibility of principal payments and enhancing operating cash flow. Some businesses choose debt financing as a mean to obtain a loan with a promise to repay the loan over a specific period of time along with interest. But there will be advantages and disadvantages that must be thought out. For American Superconductor, the advantage would be that the owner of the business keeps control of his company. Also, the interest of the debt is tax exempt. On the other hand, if the debt to equity ratio becomes extremely high it may be difficult to obtain more debt financing. Another possible disadvantage is a company can become overcommitted especially when cash is required to make interest and principal payments.
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