Mabati Rolling Mills Case Study - 2331 Words

Q1. Using the Mabati Rolling Mills Case Study, explain the various sources of funds as discussed by the management of Mabati Rolling Mills. Give the advantage and disadvantage of each source. Issue Commercial Papers – It is identified in (Short Term Finance:Commercial Paper, 2008) that a commercial paper is simply unsecured short-term debt instrument issued by an organization for meeting short-term liabilities. An advantage of issuing commercial papers is that only companies with high credit ratings can do so, therefore, a company like MRM can enjoy the prestige with such an issuance. Also it is cheaper than a bank loan as it has low interest rates. However a disadvantage could be that there are no flexibilities with regard to†¦show more content†¦Ã¢â‚¬ ¢ Collateral: The primary source of repayment. Sometimes can be larger than the borrowing sum. †¢ Capital: The bank needs to know what assets the organization owns that can be quickly turned into cash. †¢ Comfort/confidence with the business plan: It analyzes the revenue and expense projections. Q3. Does the company have any other sources that it could use to raise the funds it requires? Explain. (In your answer consider the amount required and the purpose of the funds). In which market can these funds be sourced from? Mabati rolling mills need to raise funds of about 2.3 billion shillings, to include 55% of aluminum zinc to their state of the art continuous galvanizing line at Mariakani. This facility would add product diversity and would fasten the growth of the company in the competitive steel industry. Aluminum zinc in comparison with the ordinary steel coated with zinc was more durable and had a longer life span around 4 times more than the steel coated. Apart from the funds already mentioned like the commercial paper, loans from local and international banks and the issue of ordinary shares, other funds that could help Mabati Rolling Mills are the issue of bonds and rights issue to existing shareholders. Bonds: bonds are also long term debts that are issued by government or business, which indicates that an amount of money hasShow MoreRelatedThe Expansion Of The Mabati Rolling Mills Production1151 Words   |  5 PagesIn order to finance the expansion of the Mabati Rolling Mills production in 1999, the company considered four options to amass funds for their Continuous Galvanizing Line. The first is issuing commercial paper. Commercial paper refers to a short-term promissory note that has the following characteristics: †¢ Unsecured- this means that MRM requires no collateral from those issued with commercial paper. It is offered on goodwill. †¢ Is paid at a specific date †¢ Has specified amount (par/face value)