Question

(B) Raysut Cement Company is a leading cement manufacturing company in Oman. It wants to expand its business by establishing its branches in other parts of Oman. Since the investment is large, it requires long-term finance. For this purpose, the Company is looking for two alternatives- debt finance and equity finance that can be raised from the market.

Requirement:
(i) If company decides to raise debt finance, which market it should use and what are its features? Explain.
(i) If company decides to raise equity finance, which market it should use and what are its features? Explain.

Raysut Cement Company is a leading cement manufacturing company in Oman. It wants to expand its business by establishing its branches in other parts of Oman. Since the investment is large, it requires long-term finance. For this purpose, the Company is looking for two alternatives- debt finance and equity finance that can be raised from the market.

♦️Q : ?
Requirement:
(i) If company decides to raise debt finance, which market it should use and what are its features? Explain.

(i) If company decides to raise equity finance, which market it should use and what are its features? Explain.                  

Answer 1

If the company decides to raise debt finance the firm would use the debt markets.debt markets are also known as bond markets.Bond market has a primary and secondary market.in the primary market the bonds would be issued for the first time and in the secondary market they would be bought and sold.In a debt market the most common debt instrument is a bond.The other common type is mortgage backed debt.Bonds are issued by corporations or governments to raise funds for various projects..Bonds carry a fixed interest rate in most cases.In the bond market the risk remains low in debt markets so the expected returns will also be low.Transactions will be made mostly between individual investors or brokers.The price fluctuations in the bond market are less.the investment value of bonds will fluctuate based on interest rates offer.

If the company decides to raise equity finance it should use the equity market.Equity markets are also known as stock markets. Equity markets refer to a market where shares are issued and traded.this maybe done through the exchange or over the counter.The equity market consist of primary and secondary market. In the given case the company would use the primary markets to raise long term equity finance.The shares would be issued directly to the investors.Companies turn to equity markets to raise capital for projects through sale of shares.Equity market uses intermediaries to facilitate trade .Equity markets are subject to government regulations.Equity markets offer liquidity to the firm.