CORPORATE FINANCE

Corporate Finance

Introduction1

Task 1 - Sources of Finance1

Overview of the Start-up Business1

Available Sources of Finance - At Initial Stage2

Venture Capitalists2

Loan from Financial Institutions2

Support Funding2

Regional Development Agencies2

Available Sources of Finance - At Growth Stage2

Debt3

Equity3

Task 2 - Corporate Shares3

Right Issues of Shares3

Task 3 - Different Types of Swap Derivatives4

Interest Rate Swap4

Index Amortization Swap5

Off-market Swap5

Forward Swap5

Amortization Swap5

Basis Swap5

Commodity Swap5

Currency Swap5

Subordinated Risk Swap (SRS)5

Credit Default Swap (CDS)6

Task 4 - Value of a Bond6

Workings6

Task 5 - Growing Business via Acquisition6

Conclusion7

References8

Corporate Finance

Introduction

The paper sheds light on the practical application of selected basics of corporate financing. In the light of provided instructions, the paper divides content into five tasks and attempts to provide answers to different concepts including sources of finance, right issues, swap derivatives, bond value and business growth by acquisition.

Task 1 - Sources of Finance

According to Evertsen and Mulvaney (2010, p. 9), finance is considered to be the backbone of a start-up or an existing business. Regardless of different stages of business cycle, financing is defined as the crucial aspect of the business. In a typical scenario, a business can raise funds either through internal or external sources of finance, which assure continual support to core business activities and functions. In accord with the changing business needs, the available sources of finance may vary across different stages of business life-cycle (Barclays, 2009, p. 1).

Overview of the Start-up Business

In the given scenario, McClean Brothers is a start-up company to be set by a group of young entrepreneurs. The firm is a new member to the high-tech industry of the US. The firm will provide services in technology and consultancy. The firm will offer product solutions and outsourcing facility to different organizations from the same industry. Initially, the firm will be set up at a relatively small scale with service offering to local companies. In the lead of highly qualified and professional experts, the firm is determined to serve the technology industry of the US. However, the firm will need considerable funds to transform the business idea into a material product. Figure 1 illustrates various sources of finance available to the firm. Hence, analysis of available sources of finance is conducted at the initial and growth stage in order to successfully lead the high-tech firm (Venture Financing, 2013, p. n.d.).

Figure 1: Sources of Finance for a High-tech Firm (Venture Financing, 2013, p. n.d.)

Available Sources of Finance - At Initial Stage

At the start-up stage, the high-tech firm can seek finance support from internal or external sources. The internal sources for a new business can include personal savings and an informal loan from a relative or friend. In each of the two options, nature of risk will be slightly different and it will provide access to limited funds. However, the new business can raise funds from any of the following external sources (Barclays, 2009, p. 1):

Venture Capitalists

McClean Brothers can access venture capitalist or equity financing, as a source to initiate the new business. Upon approval, it will not only provide financial assistance, but also management knowledge and professional expertise ...