Sources of Long-term Financing for Organizations
Considering Genesis Energy’s aggressive growth plan, Sensible Essentials suggested that its client should broaden the scope of financing beyond short-term loans and consider long-term financing options. These options would greatly enhance the ability of the operations management team to fund the capital investments and growth in operating expenses.
One option is selling more equity in the company. A public stock offering might be a possibility; however, a company as young and small as Genesis Energy might be hard to value. Sensible Essentials believes that another private investor might require preferred stock dividends in order to mitigate some of the financial risk. Another option is a long-term bank loan.
Acting as the finance expert for Sensible Essentials, respond to the following:
- Determine the cost of debt and equity for Genesis Energy and its weighted average cost of capital. Go to www.yahoofinance.com and look under SEC filings. Use a US publicly traded company, such as Apple, Google, DuPont, etc.
- Identify the sources of long-term financing for Genesis Energy.
- Analyze the potential costs and benefits of each option.
- Explain how relative risk (from the investor’s perspective) impacts the cost of capital for Genesis Energy.
- Determine the cost of debt and equity for Genesis Energy and its weighted average cost of capital.
- Calculate the required rate of return for Genesis Energy using the capital asset pricing model (CAPM). What is the required return for Genesis Energy shareholders?
Write your initial response in 5–7 paragraphs. Apply APA standards to citation of sources.
Post your response to the appropriate Discussion Area. Review and comment on at least two peers’ responses. In your response, do the following:
- Respond with substantial comments to enrich discussion and the learning experience.
- Contribute new, relevant information or quotes from course readings, Web sites, or other sources. Build on the remarks or questions of others, or share practical examples of key concepts from your experience, professional or personal.
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