Financing Options (the Dilemma - Pros & Cons)

Abstract

Deciding on suitable long term financing options to meet the financing needs of various corporate houses had emerged as the eternal riddle that had haunted finance specialists and managers across the globe (academicians and practitioners alike). Although it had been well recognized that the interest tax shield benefits available to profitable companies pursuant to the debt financing option encourages a few companies to resort to loans, it needs to be appreciated that corporate finance managers tend to evaluate the overall attractiveness of such debt financing options from a more broader perspective which prompts them to view the impact of such actions in terms of various pros and cons (that debt financing entails) which are certainly not limited to the favourable bottom line implications of such interest tax shield benefits alone. This case study (along with the list of review questions) as provided in the following pages (citing a common business problem) attempts to provide a practical insight to the practitioners about the various other aspects / issues (over and above the impact of interest tax shield benefits) that corporate finance managers (of profitable companies) need to visualize and take into consideration before resorting to debt financing options. A technical evaluation would naturally call for a detail analytical study of these numerous parameters which would lead to a more informed and appropriate management decision that may aid in effective handling of future business shocks (if any).