INTL-303 International Financial and Trade institutions Assignment

Assignment Task

Scenario

FLLP Company is a large manufacturing company in Kitchener that was incorporated in 1985 by the Flinn family. Start-up financing came from the Flinn Family savings. Over the years the owners have borrowed working capital from finance companies and their commercial banks. The interest rate on the loans is tied to market interest rates and is adjusted every six months. FLLP Company’s cost of obtaining funds is sensitive to interest rate movements. The company enjoys a credit line with its commercial bank to meet any shortfall in working capital. The company is also holding Treasury bills that can be sold quickly to meet any liquidity crisis.

The company’s assets total $60M and enjoy sales revenue of approximately $110 million annually. The directors recently acquired a company, increasing the assets for FLLP Company. The directors anticipate continued growth in the Canadian economy and plan to purchase other companies. To meet their goals, the directors will need a substantial amount of long-term financing either through loans or by issuing bonds or stocks. The Flinns’ are carefully monitoring the financial markets and available options as cash inflow and cash outflow are their major concern since this can impact the company’s value.

From the mini case presented, please provide FLLP Company with their best options.

1. How might finance companies, commercial banks, and securities firms facilitate FLLP Company’s expansion?
2. How might FLLP Company use the primary and secondary markets to facilitate the expansion?
3. Why might FLLP Company have limited access to additional debt financing during its growth phase?
4. If the financial markets were perfect, how might this have allowed FLLP Company to avoid financial institutions?
5. The loans that FLLP Company has received from commercial banks specify that FLLP Company must receive the bank’s approval prior any engagement in large projects. What is the purpose for this condition? Does this condition benefit the owners of the company?

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