Question

If your company was expanding globally, what are two significant aspects/concepts regarding the capital structure of the organization and cost of capital for the expansion you would present as “need to know” information to other managers or investors?

Answer 1

While undertaking international expansion, the company needs to be aware of legal requirements of the foreign country with regard to capital structure. Different countries have different type of financial instruments, which are governed by specific laws. For example, the US has a number of variations of equity shares, which may not be available in other countries. Further, the company also needs to pay attention to tax codes applicable which may affect the cost of equity and cost of debt. In such cases, the firm will be required to calculate its cost of capital afresh, in accordance with the laws of the land.

Therefore, the two main aspects to be kept in mind are the types of instruments available in a country and the second point is regarding the tax code applicable.