Global financial markets
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?
[10 marks]
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?
[15 marks]
3. Which exchange does Akzo Nobel use to issue shares for raising capital? (examine Investor relations website https://www.akzonobel.com/en/for-investors/for-investors-overview). How big was capital raised? What is shares buyback, and what are the reasons behind a buyback?
[15 marks]
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)?
[20 marks]
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?
[15 marks]
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?
[15 marks]
Additional 10 marks will be allocated for presentation and use of appropriate references.
