Global Financial Markets
Instructions for assessment
Akzo Nobel plans to open a new factory in the UK. The cost of building new factory is £100 million:
1. Describe the mechanism of direct and indirect finances available to Akzo Nobel? Which one do you think will be preferred? And why?
2. Describe the types of financial intermediaries that can help Akzo Nobel to finance new factory? Are there any differences in the way they can provide financing?
3. Which exchange does Akzo Nobel use to issue shares for raising capital?. How big was capital raised? What is shares buyback, and what are the reasons behind a buyback?
4. What is the price of Akzo Nobels 1.625% annual coupon bond with maturity on April 2030 and required rate 1%, face value 1000 EUR? Show your calculations. What is a range for ratings of existing Akzo Nobel bonds (AAA, Abb, etc)? Is there any collateral for the bonds? Should the company issue bonds or stocks (explain your reasons)?
5. Assuming Akzo Nobel borrows £100 mil on UK market for ten years in the form of bonds (floating coupon currently at 2%). How should Akzo Nobel manage interest rate risk?
6. UK branch of Akzo Nobel operates in pounds; however, company headquarters are in the Netherlands. What FX risks does the company face? How should Akzo Nobel hedge their FX risk?
