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WA W6 IPO Pricess.docx - 1 WA W6: Mergers, Buy Outs, IPO...

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1 WA W6: Mergers, Buy Outs, IPO Process, Functions of Money and the Financial ManagerWritten Assignment Week 6: Mergers, Buy Outs, IPO Process, Functions of Money and theFinancial ManagerUniversity of the PeopleBUS 5110 – Managerial AccountingInstructor: Dr. Juan Carlos GinarteJuly 28, 2020Abstract & IntroductionLike most growing companies, Dottie’s Grocery store is faced with the dilemma of raisingcapital for operating and expansion purposes. The company has two financing options, equityand debt but the current shareholders are still unsure of which they would like to pursue. In this1
2 WA W6: Mergers, Buy Outs, IPO Process, Functions of Money and the Financial Managercase study, we shall address the effects of both equity and debt financing as well as go in-depthwith the IPO process.Debt FinancingThis method involves the issuance of bonds or long-term contracts wherein the borrower agreesto make payments of interest and principal to the bondholder (Brigham & Houston, 2011). Thisraises the company capital as well as liabilities and is very similar to a bank loan.The main advantages of debt financing are that control & ownership of Dottie’s Grocery isretained by the family & interest payments are tax deductible hence lowers the overall cost ofcapital. A disadvantage is that since the company already has a bank credit line, this would mean2
3 WA W6: Mergers, Buy Outs, IPO Process, Functions of Money and the Financial Managerthat taking out another loan-type financing would increase the company’s total liabilities whichis dangerous if they are not able to settle obligations as according to Managing FinancialResources (2012), inability to settle bond interest payments could force companies intobankruptcy.

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Term
Fall
Professor
Dr. Schmidt
Tags
Corporate Finance, Dottie s Grocery

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