Convincing Features
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Guide STV Corporation in making their investment decision in bonds, common stock, or preferred stocks in specific securities offered in the Malaysian market. Show the specific calculations and evidence to support your Use the following questions to justify your investment decisions.
CASE STUDY QUESTIONS:
Risk Tolerance:
1. What are the risks associated with each financing option and how does the company’s risk tolerance influence their decision between issuing bonds and issuing common shares to finance the project?
Cost of Capital:
1. What is the current cost of debt for STV Corporation, and how does it compare to the cost of equity (required return on common shares)?
2. How does the cost of capital impact the choice between bonds and common shares?
Ownership and Control:
1. How would issuing common shares impact the ownership structure and control of STV Corporation?
2. What are the implications for existing shareholders and management?
DFN5013 Income vs. Equity Dilution: Does the company prioritize maintaining a stable income stream, which is typically expected with bond financing, or are they willing to accept equity dilution in exchange for funding, as in issuing common shares?
Market Conditions:
1. How do current economic conditions and market trends affect the decision between bonds and common shares?
2. What is the state of the bond market, and how might it impact bond issuance?
Investor Appetite:
1. How might potential investor’s view bonds versus common shares in the context of financing STV Corporation’s expansion?
2. What factors might influence investor appetite for these securities?
Regulatory and Legal Considerations:
What legal and regulatory requirements are associated with issuing bonds and issuing common shares, and how might they impact the decision?
Financial Flexibility:
How does each financing option affect the company’s financial flexibility, including future borrowing capacity and adaptability to changing circumstances?
Tax Implications:
1. What are the tax implications for STV Corporation and its investors in choosing between bonds and common shares?
2. How might taxes impact the overall cost of financing?
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