Al-Khulaifi Co. is a medium-sized carbohydrate Qatari corporation that is involved manufacturing crude oil and sells its products in local and international markets. Currently, the company's equity capital is around QR100 million while other sources of financing are QR50 million, composed equally of bank loans and bonds. Thus, the equity capital is QR100 while the liabilities are QR50 million.

The company is considering expanding its scale of operations by building new facilities, factories, and distribution centers in response to the increased demand for their products in local and international markets. The available sources of funding are either issuing new equity of QR 50 million or borrowing from either local banks or issuing new bonds. The later source of funding; issuing new bonds, seems to be the most attractive option since the company's top management believes it's the cheapest source of funds.

The company is willing to sell the proposed bonds in the local or in the international markets in the form of either foreign or euro bonds.

Requirements

1. Evaluate the pros and cons of sources funding under the company considerations (Equity funding, local bonds, foreign and euro bonds)?

2. Use a search engine (Google for instance) to offer other considerations beyond the cost that help the company choose appropriate source of funding.

3. Assume the company is willing to raise QR50 million in bonds (or the equivalent of this amount in foreign currencies) that mature in 5 years, use any spreadsheet processor (Excel for instance) to calculate the price of the issued bonds in the following 3 scenarios (attach snapshot of your calculations in excel sheet in the file you submit):

a. Determine the bond's cost if the local investor requires a yield to maturity of 5% on the bonds, and they are willing to buy these bonds from the local market (assume the par value of the bond is QR5000, annual coupon payment = 5.2%).

b. Determine the bond's cost if the foreign investors require a yield to maturity of 4.5% on the foreign bonds issued in their country by a foreign borrower, like Al-Khulaifi Co. (Assume the par value of the bond is $1000, annual-coupon payment = 4.3%).

c. Determine the bond's price if foreign investors require a yield to maturity of 4.2% on euro bonds issued in their country by a foreign borrower (Assume the par value of the bond is QR5,000, coupon payment = 4.4%, paid semi-annually.

4. Based on your answers for previous questions, offer a decision for the company regarding the appropriate source of funding in the light of the various considerations addressed earlier. Furthermore, raise other factors, which might deter the decision from choosing the source of funds indicated in Questions 2 & 3.