Question

Please explain the following relationships between a firm and its market stages of growth, the kind of financing it should be seeking, the providers of such external finance at each stage of a market’s development, the appropriate mix of debt to equity and how this can vary by industry.
a. In a capital intensive but mature industry such as an electric utility growing about 5% per year on average and facing steady demand what would be the appropriate financing to add a gas turbine costing $300 million? Where would the utility seek financing?
b. The developer of a new mobile app needs $25 million in financing for advertising and software programming. What would be the proper debt to equity mix and where would it find this financing. What kind of dilution or floatation costs would be likely?
c. Merck wants to develop a promising new NCE [New Chemical Entity] costing $800 million to $1 billion to bring through clinical trials to market. How would it expect to finance this project? What would the impact be on its D/E?
d. Ford secured an $18 billion line of credit prior to the 2008-2009 economic crisis. What advantages did this give them compared to GM and Chrysler during the crisis?
e. WalMart has decided to expand its operations in Japan and now has a greater exposure to the Japanese Yen. How should it hedge its short term and long term foreign exchange exposures related to this expansion?

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a. In a capital intensive but mature industry such as an electric utility growing about 5% per year on average and facing steady demand what would be the appropriate financing to add a gas turbine costing $300 million? Where would the utility seek financing?
Debt is the appropriate finance source for an electric utility growing operating in a capital intensive but mature industry. With an annual growth rate of about 5%, such a company can comfortably pay interest, and get tax benefits since interest payments are tax deductible....

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