Proceeds are carefully planned and are going to be used for repayment (partially). Equity hence is used as a source of financing for additional interest in the Coppabella Mines. Other growth projects are financed.
Surplus are handled better with the top-up facility. By enabling eligible shareholders to participate in the top-up facility, Macarthur Coal Ltd ensures that they can buy additional shares on top of their subscription. Where a shareholder does not want to buy a certain prescription of the shares, the shares could then be purchased by other subscribers. Subscribers who already own a prescribed amount of shares will get the chance to top up. No shareholder right is violated by this measure, and shareholders interested in buying additional shares are not constricted in their choices.
Questions (Case 05 Privatisation Telstra Corporation)
The major decision-making factor that would have gone into rolling out the partial privatization of Telstra is the extension of the Commonwealth Government’s successful privatization programs. The 1990’s saw a roll out of such programs and Telstra partial privatization was part of this drive. Secondly, the Government had the need to reduce the Commonwealth debt and Telstra issue proceeds would be used for this debt reduction. Finally, the Government would have wanted to introduce more competition in the telecommunication market in Australia and this initiative would lower costs to all consumers. Specific emphasis was on rural businesses and consumers.
A public float issue process was created, and Australian residents, institutional local and foreign investors were allowed to subscribe. In the first issue, investors found subscriptions attractive and were able to get involved in the two-step process. However, in the second sales round in 1999 for Telstra 2, there were too many competitors in the market already and this deterred share price increases. Share prices in fact fell to a loss of $2.60.
Telstra 1 was the first time that the shares were opened up for purchase holding. In the case of Telstra 2, too many competitors were in the private market already and this offered competition to the second round of privatization. There is a distributional impact in privatization, and as the first round already offered much of the advantages in share price increase, it follows that the second round would have much lesser price drive. No new attractions were offered to increase price value. Thus, the pattern of outcome is consistent with theory.
Companies go for bank overdrafts as overdrafts provide a very flexible way of financing especially when some situation goes wrong for the company. Interest rates on bank overdrafts might be higher than short term financing but when something goes wrong, the company would be able to have a reliable funding to lean on. This is why they opt for bank overdrafts.
The length of time that a small business might need a loan will be different compared to a large established business. Small business relies on the overdraft feature to protect them against uncertainty, on the other hand, larger businesses might rely on some other assets for handling uncertainty.
Short term financing options for small businesses have higher interest rates but are applicable for longer duration. These form of financing options aim at protecting businesses in the context of business risks and uncertainty. Large businesses have their assets to offer as collateral and hence opt for short term market financing and variable interest rates.
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