Assume you found that this project to purchase a competitor will have a positive NPV and is desirable (regardless of your Part 3 calculations). The firm must raise financing for the acquisition project in the amount equal to 5% of the current level of its total assets. As you know, these funds can come from several sources: operations, short-term debt, long-term debt (new bond issues), or equity (new stock issues). Your task is to decide where funds for this acquisition project should come from based on your knowledge of the firm and your knowledge of the current state of the economy (i.e., level of interest rates, state of the stock market, future prospects for the economy/firm). Your analysis should answer the following questions: How much must your firm raise for the investments to be undertaken? How will you determine where the funds should come from? Provide analysis for the following areas: Current capital structure of the firm, specifically, you must cite how some of the ratios you calculated in Part II will influence your decision. Federal Reserve policy and interest rates, meaning what are current borrowing interest rates and what direction do you believe these will trend in the near future? Stock price and state of the stock market, meaning are current stock prices high? Low? How could a firm's financing choice(s) be impacted?

Answer rating: 100% (QA)

The logic behind the answer being A Underwriting risk as well as the explanations for L N Liabilitie... View the full answer