The central focus of this research project is to guide the relatively medium sized car dealership company towards making decision on the appropriate security financing option so that it would permit the given company to expand its operation while minimises its cost and maximises its profitability. In general there are three types of security financing (Equity Securities, Debt Securities and Asset-Backed Securities). Security Financing is also considers being a good financing source which involves the issuance of securities either in the stock market or in the capital market. In general, the companies’ financial decision subject to the composition of its Capital Structure. The Capital Structure is made up of two factors: debt & equity. The trade-off theory was originated out of debate over the Modigiliani Miller theorem. The term trade-off theories was been used by different authors to state different group or similar related theories. The static trade-off theory confirms that the firm has perfect capital structure which they gain by trading off cost from the benefits of the use of equity and debt. The dynamic trade-off theory relates to the role of profit, role of retained earnings and path dependence. The concept of agency theory is emphasised more on the approach of concentrating on the nature of relationship existing between the company’s shareholders (Principal) and their managers (Agents). Pecking order theory stressed that the company should first prefer to use internally generated income for the purpose of raising as it would restrict the company to expose itself towards financial leverage. The marketing timing theory state that firm value their equity in the way that when the stock price is perceived to be overvalued then they issue new stock and gain their share back. After the careful analysis of all possible options, it seemed better for the medium sized Car Dealership Company to go for option of debt security instrument known as Debentures for the purpose of pursuing expansion.
Table of Contents
Section-1: Aims & Objectives
1.1. Background Context
1.2. Problem Statement
1.3. Research Aim
1.4. Research Objective
1.5. Summary
Section-2: Literature Review
2.1. Capital Structure
2.1.1. Trade-off Theory
2.1.2. Static Trade-off Theory
2.1.3. The dynamic Trade-off theory
2.1.4. Agency Theory
2.1.5. The Pecking Order Theory
2.1.6. The Marketing timing theory
2.1.7. Modigliani-Miller Theory
2.2. Equity Securities
2.2.1. Ordinary Shares
a) Advantages
b) Disadvantages
2.2.2. Preference Shares
a) Advantages
b) Disadvantages
2.3. Debt Securities
2.3.1. Debentures
a) Advantages
b) Disadvantages
2.4. Asset-Backed Securities (ABS)
2.4.1. Securitisation
a) Advantages
b) Disadvantages
2.5. Summary
Section-3: Case Studies, Analysis & Discussion
3.1. Case Studies
3.1.1. Case Study on Equity Security
3.1.1.1. Company Profile
3.1.1.2. Raising of Capital from Ordinary Shares
3.1.1.3. Findings
3.1.2. Case Study on Debt Security
3.1.2.1. Company Profile
3.1.2.2. Raising of Capital from Ordinary Debentures
3.1.2.3. Findings
3.1.3. Case Study on Asset-Backed Securities (ABS)
3.1.3.1. Company Profile
3.1.3.2. Raising of Capital from Securitisation
3.1.3.3. Findings
3.2. Analysis
3.3. Discussion
3.4. Summary
Section-4: Conclusion & Recommendations
4.1. Conclusion
4.2. Recommendations
Section-5: References
Research Goals and Core Themes
The primary aim of this research is to evaluate various security financing options available to a medium-sized car dealership to facilitate business expansion. The study analyzes the impact of different financial instruments on the company’s cost of capital and overall profitability to determine the most effective approach for achieving sustainable growth.
- Analysis of Capital Structure theories including Trade-off, Agency, and Pecking Order theories.
- Evaluation of Equity Securities, including Ordinary and Preference shares, regarding their pros and cons.
- Assessment of Debt Securities and the role of Debentures in corporate financing.
- Examination of Asset-Backed Securities (ABS) and the process of securitization.
- Case studies on successful capital raising projects across different sectors.
Excerpt from the Book
2.1.1. Trade-off Theory
The original version of theory was originated out of debate over the Modigiliani Miller theorem. The term trade-off theories was been used by different authors to state different group or similar related theories. All of these theories the decision maker has the ultimate power to take decision. He decides or evaluates the various cost inquired for different plans. By use of these theories we get the interior solution which balances the marginal cost and the marginal benefits. The original version these theories exploit the firm and the business the gain earned from the tax. And have created a shield to serve from earning shares. It saved them from the financial distress and bankruptcy. The firm and business opt for debt capital other than equity because it shields protection as the tax is calculated after deducting the interest given for debts so the firm’s better option is the debts. The Haugen & Senbet (1978) provide important discussion about the bankruptcy cost. The tax code makes it more complicated than the assumed theories (Haugen & Senbet, 1978)
A popular defense has been argued as follows “while the Modigiliani- Miller does not provide a realistic description of how firms finance their operations, it provides a means of finding reason why financing may matter” this quote describes the interpretation about how much of the theory of cooperation related.
Summary of Chapters
Section-1: Aims & Objectives: Defines the research background and the problem statement regarding business expansion and financial decision-making for a car dealership.
Section-2: Literature Review: Explores theoretical foundations of capital structure, including trade-off, agency, pecking order, and marketing timing theories, alongside various security instruments.
Section-3: Case Studies, Analysis & Discussion: Provides practical evidence through case studies on Equity, Debt, and Asset-Backed securities, analyzing their effectiveness in corporate expansion.
Section-4: Conclusion & Recommendations: Summarizes findings and provides a final recommendation for the dealership to utilize debentures for expansion.
Section-5: References: Lists the academic and professional sources utilized throughout the research project.
Keywords
Capital Structure, Security Financing, Trade-off Theory, Pecking Order Theory, Ordinary Shares, Preference Shares, Debentures, Asset-Backed Securities, Securitization, Business Expansion, Cost of Capital, Profitability, Financial Leverage, Corporate Finance, Investment Decision
Frequently Asked Questions
What is the fundamental purpose of this research?
The research project aims to guide a medium-sized car dealership in choosing the most appropriate security financing strategy to fund expansion while balancing cost and maximizing profit.
What are the primary themes covered in the report?
The report centers on capital structure theories, diverse financing instruments like equity, debt, and securitization, and their practical application in corporate expansion projects.
What is the central research question?
The central question is: what are the available security financing options for the company, and which specific option best fits its goal of minimizing the cost of capital while maximizing profitability?
Which scientific methodology is employed?
The research adopts a qualitative approach using literature review to establish a theoretical framework, followed by case study analysis of real-world companies to evaluate financing instruments.
What is addressed in the main body of the work?
The main body focuses on theoretical literature regarding capital structures and detailed case studies (Keppel T&T, First Global Data Corporation, and Ford Motor Company) to demonstrate the application of equity, debt, and ABS.
Which keywords best describe this study?
Key terms include Capital Structure, Security Financing, Debt vs. Equity, Debentures, Securitization, and Business Expansion.
Why are debentures recommended for the car dealership?
Debentures are recommended because they offer a lower cost of capital compared to equity without diluting ownership control, and they are more straightforward than the complex processes required for asset-backed securitization.
How does the research account for the risks of securitization?
The study notes that securitization involves risks such as reputational damage and the loss of best-performing assets, which is why it might not be the primary recommendation for the dealership in question.
- Arbeit zitieren
- Junaid Javaid (Autor:in), 2013, Raising Capital Cost Of Issuing Securities, München, GRIN Verlag, https://www.grin.com/document/280859
