The Financing Choice of a firm in a global environment

Individual Project: The Financing Choice of a firm in a global environment:

The sources of business financing for assets acquisitions come from either internal or external sources. Internal sources such as retained earnings are the cheapest but Scarce or not enough for large assets investments. External sources (debt and equity) are more expensive and corporations have to decide on how much debt and equity to use over time (known as capital structure). Understanding characteristics of debt and equity is a key challenge to financial managers and of great importance to corporations’ market value. For example, corporations need to finance at the lowest cost of capital and in this regard, understanding of sources of funds available in international capital markets is important to corporations’ choice of capital structure. The deductibility of interest payments (on bonds or loans) lowers the cost of debt (subject to levels of corporate taxes across countries) but high debt ratio increases the risk of bankruptcy. Equity does not pay contractual interest and the risk of bankruptcy is reduced, but many corporations prefer not to issue equity to avoid stock dilution or loss of ownership and control.

The availability of capital sources and cost of capital for corporations vary across countries or regions due to many reasons such as institutional and legal quality, sound financial environment, access to capital markets and banking sector, economic environment, etc.. Corporations located or headquartered in the UK as a country in Europe for example, could have comparative advantages over corporations in the Gulf peninsula such as those in Qatar for their optimal choice of capital structure and cost of capital. Understanding how corporations in both markets can efficiently access international capital markets is of great importance to financial managers in light of increased regulations and governance on international financial integration (ability of corporations to access global capital markets for financial activities such as raising capital). Access to international capital markets for raising debt and equity means better choices, access to larger and more liquid capital markets, better management for risks related to interest rate and exchange rate of the currencies being borrowed or lent, etc..

The purpose of the current assignment is to analyze and compare the Financing Choice of a firm in Qatar and United Kingdom in a global environment. In this regard, offer your answers to the following questions:

  • Describe the main financing sources for corporations in both countries (United Kingdome and Qatar). Explain the reasons whether and why corporations in both countries are looking beyond national borders to access international capital markets. (Dimention1)
  • With greater financial integration in the last two decades, what are the main factors that affect their choices of capital? Are legal considerations, economic potentials and challenges, demographic and cultural transformations act as factors that determine their decisions-making process on capital structure?  Explain your answer. (Dimention2)
  • From the previous question, what impact do the previous factors have on the choice of capital structure for corporations in both countries and how will they affect corporate financing decisions in the future. (Dimention3)
  • Based on your previous analysis on the factors that affect capital structure and financing choices, do you find the globalization of capital markets (integration of international capital markets) has played a complete positive impact on the capital structure and choices of capital in both countries? Explain your answer. (Dimention4)

General guidelines:

  • Reserve the first page (cover page) to your names, student ID, course name, date & number of words, and college and university.
  • Answer the questions of the assignment in form of paragraph(s), do not insert the questions and give direct answers.
  • This is an open-ended assignment; there is no minimum or maximum number of words. However, avoid lengthy and unnecessary arguments.
  • You need to pay attention to the rubric marking guidelines to achieve the highest possible mark.
  • Failure to submit the soft copy online by due date is subject to mark deduction. You need also to submit a hard copy when you finish your assignment (upload on blackboard in word fine not in PDF).

The typical structure of the assignment

Cover page

Introduction

Analysis

Conclusion

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