Financing And Expansion And Its Impact On The Magik Storage Containers Limited Msc
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Explaining, some of the issues of Financing and expansion and its impact on the Magik Storage containers limited MSC.
As the MSC, obtaining a new manufacturing facility, which is critical to the ongoing viability of MSC’s current operations. Moreover, given the present industry growth, the MSC needs an expansion in order to increase its market share and growth with the same pace as the industry has.
The proposed plan:-
As the BOD approved the expansion plan, needs the capital $3.75M, and for which company is issuing the new shares, financed primarily through a stock-offering of $3,000,000, remainder from MSC’s line-of-credit.
The NPV-analysis factored with-the closure of existing plant for the six-month construction…show more content… The 12% discounted factor is used, only reflects the cost-of-capital and not the interest factor of the bank. Even the NPV is positive, but it needs to revise which should consider these factors i.e. the open of one side of the plant or both.
As the company is running at full capacity and the production-processes of two facilities are same so they have a high demand of their products so if they close it for six months they can’t produce the six months inventory in advance, as already they have an issues of backorders and delayed orders. And by doing this the MSC can’t maintain its ratios as it is required by the bank, i.e. working capital and current ratio will be decrease as there will be no business activity and difficult to pay the other fixed costs. Losing the employee and re-recruit them within six months is not possible.
Due to the economy recession it is anticipated that the price of the shares will be decrease in the future so resulting in issuance of more share in order to get the $3M, furthermore if we close our production, ultimately the share price will be decrease and our cost of capital will be increase.
MSC can issue equity comprised of either preferred or common shares. Release information regarding the expansion and possibility for future-growth and give a disclosure in financial statements.
CCL can make financial side of expansion planning into two separate considerations.
(1) Expansions that needs a