• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

R.J. Reynolds International (RJR) is currently facing a decision of choosing between debt financing or equity financing of $1 Billion in its acquisition of Nabisco

Extracts from this document...

Introduction

rj reynolds international financing solution R.J. Reynolds International (RJR) is currently facing a decision of choosing between debt financing or equity financing of $1 Billion in its acquisition of Nabisco. After analyzing the various benefits of using debt financing over equity financing, we choose to issue debt. Debt financing is much cheaper than the equity or preferred stock financing. The corporate incomes used to pay for the interests of outstanding debts are tax exempt. According to the General Accepted Accounting Principle (GAAP), the taxable income is calculated by subtracting the interests by the earnings before interest and taxes (EBIT). The more accumulated interest a corporation is paying, the lower the tax bracket it would fall under. This argument can apply to issuing preferred stock as well. The preferred dividends, whether in arrears or not, are not tax exempt. ...read more.

Middle

While the Euro-market has the advantage of being less regulated, our plan to issue a dual currency Yen-dollar bond favors us issuing debt in the Japanese foreign market. Japan?s Ministry of finance has already started cracking down on Euro-market issued bonds that are brought back to Japan after issuance. They know that this is done to circumvent Japan?s new regulation which does not allow more than 10% of Japanese firm?s assets to be held in foreign securities. We do not want any investigation taking place with an issuance of this magnitude. RJR should issue a Yen-dollar dual currency bond for various reasons. First, the all in cost of the Yen-dollar dual currency appear to be lower than the Eurodollar all in costs of 12%, when adding coupon and fees. Euro-yen bonds have an all-in fee of 8 & 1/4 % for coupons and fees. ...read more.

Conclusion

RJR?s next step after deciding to issue debt, is figuring out what is the proper maturity. We had to consider the fact that we have a commitment of $1.2 billion domestic twelve year note that is being issued. RJR also, recently issued $250 million in 30 year debentures, and $250 million in of eight year notes. Seeing as to how the $1.2 billion notes and the $250 million debentures are for 12 years and 30 years of maturity, we initially thought a 20 year maturity was appropriate for the additional $1 billion financing. However the Japanese market mostly consist of 5 to 10 year bonds, because they are used as an alternative the lower coupon paying Japanese bonds with maturities of mostly 10 years. Therefore we would like to issue Yen-dollar dual currency bonds of $500 million with a maturity of 5 years , and another $500 million with a maturity of 10 years. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our GCSE Accounting & Finance section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related GCSE Accounting & Finance essays

  1. Costs, Profits and Break-even Analysis.

    The amateur balloonists who buy balloons just for the enjoyment of flying would appear in the top left-hand segment of the map. Professional operators who take fare-paying passengers would be opposite them in the top right-hand segment. For more details on the nature of the customers and their different demands, have a look at the marketing explanation.

  2. What does Finance involve.

    The shareholders could chuck me out of my business if they own more of the company than I do. I will also have to consider the shareholders interest and also there might be arguments because of people not agreeing with me.

  1. Business and finance

    to replace money that you have withdrawn in the same tax year. There are three different kinds of ISA and they are: Maxi ISA. A Maxi ISA is when you choose one manager for all your tax-free investments. You can invest up to �7,000 this tax year 2001 and the

  2. This report has been produced as evidence for Unit 9 - 'Financial Services' - ...

    For those who already have a robust and well balanced savings and investment programme in place the stock market offers an intriguing supplementary home for your cash. It is not for the faint-hearted. It is not for the risk averse.

  1. Management Accounting Report.

    Number two will show the breakeven and the margin of safety when the variable cost change. The maximum profit that the company can make when the variable costs have raised by �15 per product is �40,000 per annum. Summary (Break-even)

  2. Responsible accounting is the ability to conduct business in a way that is not ...

    This complication comes into play when there are partially completed goods (Constas,2002). The primary objectives are to calculate the product unit cost for goods completed during the period and those remaining in inventories at the end of the period and to promote efficient use of resources.

  1. Investment Portfolio - Shares and other investments

    There is an outline of their performance against the All Ordinaries, an overall return figure, and an analysis of each of the shares performance, as well as a table and two graphs. This will be repeated for each of the shares.

  2. Discuss about the International accounting practice between countries.

    And in many areas outside the United States, the accounting literature remains incomplete or insufficient to address the complexities of the modern market. Furthermore, Companies listed in the US are more likely to choose US GAAP but companies traded in the OTC market show considerable support for IASs, showing the

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work