Answer the Following Question:
Many of the small "dot-com" companies got financing in the form of an instrument called convertible debt. This is like ordinary debt, in that it pays a regular interest amount. But debtholders have the right to convert it to equity. Why do you think these companies chose this instrument? Do you think it was a good idea? Remember: there's no 'free lunch'. If a company offer creditors an option to convert the bond into stocks it must be giving them something of value. It should get something in return...
As you know from reading through the background materials, the decision to use debt or equity to raise money is not a decision taken lightly by management. So when several years ago, in 2003 American Superconductor decided to raise funds through equity it was definitely a major decision that required intense discussions at the highest levels of management.
Read the article below about American Superconductor and do some of your own research using the CyberLibrary and internet search engines.
After doing your research, apply what you learned from the background materials and write a three to five page paper answering the following questions:
What are the advantages and disadvantages for AMSC to forgo their debt financing and take on equity financing? Do you agree with their decision? How can a company's cost of equity be determined? Is there a tax deduction from the use of debt financing? Please explain.
Explain both of your answers thoroughly. Be sure to support your opinions on these assignment questions with references to the background materials or to other articles in your paper.
Excerpt from file: Finance Tutorial Module 5 Answer the Following Question: Many of the small "dot-com" companies got financing in the form of an instrument called convertible debt. This is like ordinary debt, in that it pays a regular interest amount. But debtholders have the right to convert it to equity. Why do
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