Question

As the CFO of GES Corporation, which is a fashion design firm, you need to find $5 million to expand the company's production. Research and discuss how the process of raising the $5 million would be different with the assistance of a financial institution versus raising the money directly from the financial markets?

Your initial posting should be 250-500 words and must be submitted by Thursday, midnight, of this week.

By Sunday of this week, respond to two or more of your classmates, or your instructor, in one of postings in any of the following ways:

Build on something your classmate said

Explain why and how you see things differently

Ask a probing or clarifying question

Share an insight from having read your classmate’s posting

Offer and support an opinion

Expand on your classmate’s posting

Your paper must be formatted according to CSU-Global Guide to Writing and APA Requirements.

Answer 1

As the CFO of GES Corporation, I have two ways of raising the required amount of funds i.e. $5 million for expanding the business. The two ways are:

a) We can take a loan from bank of $5million

b) We can issue an IPO (Initial Public Offering) in the market and start trading our shares.

If we take a loan from bank worth $5 million for the expansion of our business then the company will have to first give a proposal to the bank for the loan. The purpose of the loan will be stated in the proposal and how the money will be used by the business. The details of the usage of the amount of money that is being asked for in the form of loan should be clearly mentioned. The bank will be interested to know about the amount of money that the company will earn from the expansion of the business and the level of profits. This is because the profits earned by the business will be used to make the repayments of the loan. So the bank has to be assured that the company is in a good financial position and that it will be able to make the loan repayments on time. The bank may also require the previous financial statements of the company to approve the loan.

If we decide to issue an Initial Public Offering, the company will have to approach an investment banker. The investment banker will make an in-depth study of the business and its expansion plans. They will want to ensure that the business is actually planning to use the money that will be raised by IPO to expand the business and not for any other purpose. It is also important to ensure that the business is planning to continue its operations for a long time and not planning to run away with the money. Once the investment banker is assured about these things, the company will then be able to launch its IPO in the market at a given price known as the issue price. The IPO might be sold at a price above the issue price or below the issue price. Later, the company will be able to trade its shares in the stock market.

Thus, there is significant difference in the two ways of raising money for the expansion.