An over-reliance on borrowed funds with no matching infusion of equity has plunged the company into losses. To reduce its need for financial leverage, the company has issued equity shares on a rights basis, which has helped but is not sufficient to reduce its debt burden.
The business’s management is seeking options to further deleverage the company’s capital structure but is finding it challenging due to losses in the recent past, the adverse operating environment created by the worldwide economic crisis and a slow down in the major segments in which it operates.
Learning Objective: The case is best suited for a class in corporate finance at the MBA degree or in an executive education program. Students will observe and extend an thoughtfulness of the capital structure choices - making organization. The essential learning objectives of the instance are as follows:
To analyze the magnifying impact of financial leverage.
To investigate the relationship between financial leverage and danger.
To show the pecking order that is theory.
To understand the risks and rewards associated with foreign-currency loans.
To discern between preference shares and equity shares.
To identify the factors influencing the choice between the public problem and the rights issue of shares.
To highlight the issues in deleveraging.
Publication Date: 10/06/2015
This is just an excerpt. This case is about Finance
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