Assignment 7 Corporate debt is a large topic. Within this topic there are many different advantages and disadvantages of corporate debt. One advantage of corporate debt is that it is a cheaper source of fund than equity up to a certain limit. Another advantage is it does not dilute the ownership of the company. Another advantage is that interest is tax deductible. It is an advantage that it increases the payout to equity stock holders when the company performs well. One last advantage is that it can be obtained for short term and long terms based on requirement. One disadvantage of corporate debt is that the payments of interest and principal must be made in time and the firm needs to have enough cash flow in time to manage that. Another disadvantage …show more content…
A number of reasons provide sanction for a corporate merger and acquisition, not all of which are necessarily financial in nature. Moreover, M&A is within the scope of the Board of Directors to pursue (1) and the company executives to initiate and execute. Since board members may also be subject to political, social, and personal interests, decisions seemingly in favor of the shareholders may also become quagmire with additional factors. According to Investopedia.com, an estimated 66% of mergers and acquisitions are not successful because of M&A intent. Of the 33% that are considered successful, the mergers and acquisitions achieved a net gain from the M&A with our without bad M&A intent. A number of reasons for the majority of failures exist in addition to the failures themselves indicating a potential disadvantage of M&A activity is a relatively high risk of failure.(www.investopedia.com). In some cases, mergers and acquisitions may not only disadvantage the shareholders but consumers as well. In both cases, this may happen when the newly formed company becomes a large oligopoly or monopoly. Moreover, when higher pricing power emerges from reduced competition, consumers may be financially disadvantaged. There are some potential disadvantages facing consumers though. One of which is increase in cost to consumers. Another is the decrease of corporate performance and services. Suppression of competing businesses is another disadvantage. Shareholders may also be disadvantaged by corporate leadership if it becomes too content or complacent with its market positioning. In other words, when M&A activity reduces industry competition and produces a powerful and influential corporate entity, that company may suffer from non-competitive stimulus and lowered share prices. Lower share prices and equity valuations may also arise from the merger itself being a short-term disadvantage to the
Elliott states, “A college education should offer to all graduates similar opportunities to achieve financial success in the long run.” It does not in fact to that at all. Having high debt holds students back from that. It is sad you cannot go to school for what you are passionate about cause the fear of debt and not having good money after graduation. Article mentions, “two students investing similar levels of effort and ability in college and yet achieving dissimilar outcomes upon graduation. Obviously, there is a different in the post-graduation lives of students with and without debt” (Elliott). It would not be worth it to the one with debt because they cannot use their degree. All of your loans would not be worth it because of loan debt. I feel it would only be worth it if you had means on paying it back instead of struggling. Loans are not
The word “merger” is very common term that everyone in America has to deal with in some aspect of life. Banks, oil companies, car manufacturers, computer makers…the list goes on for ever, and the mergers of these companies have a direct effect on our daily life. For decades the US government and the court systems have tried to regulate how mergers can and cannot happen and why. The reason(s) as to why a merger is allowed or not has varied over the years, but one major concept has remained the same: too many mergers within a particular market can reduce competition and create a monopoly (or a near monopoly condition). Merging firms often state that a merger could help them reduce costs and to develop better products. They claim this would clearly be a benefit to the consumers of their product(s).
Mergers among companies is not a new concept, in fact, this concept has been used since the 1980s. There are a few reasons that companies decide to merge. A merge can increase the performance which produces a stronger company. A stronger workforce is the dream of all companies. Companies love the idea that they are able to produce a product in half the time. Diversification is another reason companies like mergers. A company that merges to diversify may acquire another company in a seemingly unrelated industry in order to reduce the impact of a particular industry's performance on its profitability. Companies seeking to sharpen focus often merge with companies that have deeper market penetration in a key area of
It has been said that more efforts should be done to prevent and resolve debts. Recent studies by Gary Foreman says, “the government owes over $16 trillion.” The question is, “who does the government owe money to?” According to the Social Security Administration, the government owes $5 trillion to other countries (including the U.S.), $1 trillion to individuals, and $5.7 trillion to the federal. This causes citizens to wonder, “are we being benefitted or neglected?” This leads to the amount of 16.8 trillion dollars of debt. Debt has caused a massive amount of people to suffer; people who have credit cards, people who needs to pay their medical expenses and students who have intentions to take out loans.There are multiple ways
These international bankers created the central banks of the world (including the Federal Reserve), and they use those central banks to get the governments of the world ensnared in endless cycles of debt from which there is no escape. Government debt is a way to “legitimately” take money from all of us, transfer it to the government, and then transfer it into the pockets of the ultra-wealthy. These international bankers created the central banks of the world (including the Federal Reserve), and they use those central banks to get the governments of the world ensnared in endless cycles of debt from which there is no escape. Government debt is a way to “legitimately” take money from all of us, transfer it to the government, and then transfer
Deficits and debt can encourage economic growth. It is tricky, and sometimes seems untrue, but this result evidently depends on how the U.S. Government spends their money. World War II is a good example of when America ran up high amounts of national debt and a large deficit. Looking back we can clearly see that our nation has recovered in comparison to todays national debt and deficit in the sense that the GDP during the World War II era was hiking up to twice of what our nations debt is today. A sustainable economy comes and goes, with the showcase of scientific and technological studies post war era that provided us with a twenty-five year post economic boom (). Spending our way into a deficit would not have triggered this push to revival. There are advantages and disadvantages to ever decision made and in the economic world, spending makes sense.
There are also a few cons in accounting for these instruments are either debt of equity. "Excessive debt financing may impair your (the company's) credit rating and your ability to raise more money in the future (Financing Basics, 1). If a company has too much debt, it could be considered too risky and unsafe for a creditor to lend money. Also with excessive debt, a business could have problems with business downturns, credit shortages, or interest rate increases. "Conversely, too much equity financing can indicate that you are not making the most productive use of your capital; the capital is not being used advantageously as leverage for obtaining cash" (Financing Basics, 1). A low amount of equity shows that the owne...
Debt financing has both advantages and disadvantages. Debt financing is a business’ way to start up, expand, or recover by borrowing money from a preson or company. The money borrowed has to be paid back along with the interest that was accrued during the length of time the loan was carried out. This option is great for company’s that do not want investors. Debt financing is beneficial because the loaners do not often get involved with the company or any decision making within the company. The downfall is the risk that is assumed with the debt which is, the company may not be able to pay back the loaner. In that case, the loaner would go after the owner or partner personally. There are many forms of debt a company is allowed to take on, such as ‘venture’ debt, even if they are a high-risk corporation. ‘Venture’ debt is a form of senior debt ...
What are the differences between mergers and acquisition? M&A is a basic idea that is generally examined in literature. However, the contrasts between mergers and acquisitions are once in a while pondered. According to Dyer, Kale, Singh (2004), both of the strategies have a tendency to impart a shared opinion. The point when one organization assumes control an alternate and plainly creates itself as the new holder, the buy is called acquisition. From a lawful perspective, the target organization stops to exist, the purchaser "swallows" the business and the purchaser's stock keeps on being exchanged. In the immaculate feeling of the term, a merger happens when two organizations consent to go ahead as a solitary new organization as opposed to remain indepen...
...titive effects. Third, the Agency assesses whether entry would be timely, likely and sufficient either to deter or to counteract the competitive effects of concern. Fourth, the Agency assesses any efficiency gains that reasonably cannot be achieved by the parties through other means. Finally the Agency assesses whether, but for the merger, either party to the transaction would be likely to fail, causing its assets to exit the market. The process of assessing market concentration, potential adverse competitive effects, entry, efficiency and failure is a tool that allows the Agency to answer the ultimate inquiry in merger analysis: whether the merger is likely to create or enhance market power or to facilitate its exercise.
A key benefit of equity financing is that the company will not be debt repayments. This is beneficial...
Firstly it must be mentioned that despite the fact that mergers and acquisitions are regarded as the same process, they are not exactly the same. Shcraeder and Self (2003) argue that mergers are the consolidation of two organisations into one; while acquisitions are the purchase of one organization from another where the acquirer maintains control. Porter and Singh (2010) state that synergy, agency and hubris are the main motives of mergers and acquisitions. Seth et al (2000) argue that the synergy motive suggests that the object of the acquisition is to create a firm greater than the sum of the value of the individual firms. Both the managers of target and acquirer firms act in the best interest of their respective shareholders, with the basic principle to maximize their wealth via economic gains. The agency motive proposes that the mana...
A merger by definition is the legal consolidation of two companies that come together and become one joint entity whereas an acquisition is when one company acquires or takes over another entity thus establishing itself as the new owner. To understand the reasons that lead to their failure, it is important to reflect on the motives behind these deals. Some of the most common aims include rapid growth, gains in market share, R&D improvements, shareholder wealth creation but the main stated objective of most M&A deals is to achieve synergy both operational and financial. Synergy is the belief that the value and performance resulting from the merger of two companies is greater than the sum of their individual parts had they not merged i.e. what is casually referred to as the 2+2=5 effect. However, many merger and acquisition failures in the past have demonstrated that the ...
A merger is a contract to bond two prevailing companies in to one company. There are several types of mergers and also several motives why companies complete mergers. Most mergers hitch two existing companies in to one newly named company. Mergers and acquisitions are commonly done to swell a company reach, expand into new segments or gain market share. All of these are done to please shareholders and create value. In a merger the BOD of the two companies approve the grouping and seek shareholders’ approval, after merger the acquired company ends to exist and becomes part of the acquiring company.
The capital structure of a firm is the way in which it decides to finance its operations from various funds, comprising debt, such as bonds and outstanding loans, and equity, including stock and retained earnings. In the long term, firms seek to find the optimal debt-equity ratio. This essay will explore the advantages and disadvantages of different capital structure mixes, and consider whether this has any relevance to firm value in theory and in reality.