Virtual e-commerce Development (VeD) Ltd was formed in 2008 by the entrepreneurs Daniel and Sara Brand. Under their vision and management the business grew organically and became a very respected and proactive technology business in the e-commerce space. This growth was financed by a mixture of retained profits and peer to peer lending.
In 2013 the business was listed in the digital leader top 100 businesses. This opened up new markets for VeD, and highlighted the need to raise a large amount of new capital. Not wishing to source from either venture capital or the main capital market VeD listed on the junior market, the London Stock Exchange (LSE) Alternative Investment Market with an IPO resulting in an all (100%) equity capital structure.
In 2016 it will be necessary to return to the capital market to raise an additional £1 billion of capital.
Required. The original founder and now Chief Executive (CEO) of Virtual e-commerce Development (VeD) Ltd became a client of Bloomdale Financial group which offer personal development and business support to help the company grow and deliver quality. Daniel in his capacity as CEO admits to having;
i. Some confusion and lack of understanding as to what is meant by capital market efficiency
ii. How in practice, the capital market operates in an efficient way, if at all.
He has asked therefore that his personal business advisor at Bloomdale provides a report which contains the necessary comprehensive information to clear the confusion. This request has been passed to yourself to complete. Part B: A choice of either task two (2) or task three (3).
Task 2. In preparation for the 2016 return to the Alternative Investment Market the current financial director (Sara Brand) has identified company issued debt as a possible source of finance for the capital budget. Sara recognises she has only a limited knowledge and understanding of the cost of company issued debt and has independently requested an additional report containing detailed information which will influence her final decision.
Your line manager has suggested that you organise your discussion to address each of the following; (adding that you should include any other information you consider relevant).
i. The cost
ii. The financial risk
iii. Any effect on shareholder wealth (50%)
Task 3. Moving into new markets and products requires the board of directors of VeD to set a new medium to long term strategy for the company. At a recent board meeting the question of setting a dividend policy was raised. The initial reaction of the board was to reject the idea, however the CEO suggested they obtain further information from their Bloomdale financial advisor and have emailed such a request.
Your line manager has suggested that during your response some consideration be given to the following; (adding that you should include this within any other information you consider relevant).
i. The cost
ii. The financial risk
iii. Any effect on shareholder wealth
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