You own a large manufacturing company that was created 20 years ago by your family. It was initially financed with an equity investment by your family and 10 other individuals. Overtime, the company has obtained substantial loans from finance companies and commercial banks. The interest rate on the loans is tied to market interest rates and is adjusted every six months. Thus, the company's cost of obtaining funds is sensitive to interest rate movements. It has a credit line with a bank in case it suddenly needs additional funds for a temporary period. It has purchased Treasury securities (T-Bill) that it could sell if it experiences any liquidity problems.

The company has assets valued at about RM100 million and generates sales of about RM200 million per year. Some of its growth is attributed to its acquisitions of other firms. Because of its expectations of a strong Malaysian economy, the company plans to grow in the future by expanding its business and through acquisitions. It expects that it will need substantial long-term financing and plans to borrow additional funds either through loans or by issuing bonds. It is also considering issuing stock to raise funds in the next year. It closely monitors conditions in financial markets that could affect its cash inflows and cash outflows and therefore affect its value.

ANSWER

a.Is this company a surplus unit or deficit unit?

b.How might finance companies, commercial banks and investment banks facilitate this company's expansion?

c.How might this company use the primary market to facilitate its expansion?

d.Why might this company have limited access to additional debt financing during its growth phase?

e. How might this company use the secondary market?

f.If financial markets were perfect, how might this have allowed this company to avoid financial institutions?

g.The loans provided by commercial banks to this company require that it receives the banks' approval before pursuing any large projects. What is the purpose of this condition? Does this condition benefit the owners of the company?