Business Case Research
I. Introduction
A. Brief overview of Amazon’s current financial position
B. Purpose of the business case
II. Reasons for Funding
A. Expansion of product offerings and services
B. Investment in new technologies and infrastructure
C. Acquisition of complementary businesses
D. Global market penetration
III. Sources of Funding
A. Borrowing
- Short-term loans
- Long-term loans
- Lines of credit
B. Issuing Additional Shares of Common Stock - Primary offering
- Secondary offering
C. Issuing Bonds - Corporate bonds
- Convertible bonds
IV. Requirements and Risks of Each Funding Source
A. Borrowing - Requirements
a. Creditworthiness
b. Collateral
c. Debt covenants - Risks
a. Interest rate risk
b. Default risk
c. Reduced financial flexibility
B. Issuing Additional Shares of Common Stock - Requirements
a. Regulatory compliance
b. Investor demand
c. Dilution of ownership - Risks
a. Market risk
b. Dilution of earnings per share
c. Potential loss of control
C. Issuing Bonds - Requirements
a. Credit rating
b. Investor demand
c. Debt covenants - Risks
a. Interest rate risk
b. Default risk
c. Refinancing risk
V. Best Fit for Amazon
A. Combination of long-term borrowing and issuing bonds - Favorable interest rates for creditworthy companies like Amazon
- Maintains control and ownership structure
- Provides long-term capital for expansion and investments
B. Justification - Amazon’s strong financial position and credit rating
- Alignment with long-term growth strategy
- Balancing cost of capital and financial flexibility
VI. Estimated Cost of Capital
A. Short-term Funding Sources - Short-term loans
- Lines of credit
B. Long-term Funding Sources - Long-term loans
- Corporate bonds
- Convertible bonds
C. Table displaying estimated APRs for selected funding sources
Funding Source Short-Term APR Long-Term APR
Short-term loans 8.00% (Vukelich & Maracle, 2024) —
Lines of credit 8.00% (Vukelich & Maracle, 2024) —
Long-term bonds — 4.28% (YCharts, 2024)
Corporate Bonds — 4.84% (Ramakrishnan et al., 2024)
Convertible bonds 4.00% (Ramakrishnan et al., 2024)
VII. Conclusion
References
Ramakrishnan, S., Tupper, L., Bansal, P., & Choy, M. (2024, March 1). High US rates, rising shares a tailwind for convertible bonds. Reuters. Retrieved June 17, 2024, from https://www.reuters.com/markets/rates-bonds/high-us-rates-rising-shares-tailwind-convertible-bonds-2024-03-01/
Vukelich, L., & Maracle, E. (2024, June 14). Average Business Line of Credit Interest Rates. Bankrate. Retrieved June 17, 2024, from https://www.bankrate.com/loans/small-business/average-business-line-of-credit-rates/
YCharts. (2024). US Corporate AAA Effective Yield Market Daily Insights: Bank of America Merrill Lynch. YCharts. Retrieved June 17, 2024, from https://ycharts.com/indicators/us_coporate_aaa_effective_yield
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