UNIT 2 ISSUE MANAGEMENT

Role of Merchant banker in appraisal of projects, Capital Structure

ISSUE MANAGEMENT

Management of issues for raising funds through various types of instruments by companies

Role of Issue Manager Easy floatation Financial consultant Underwriting Market makers Due diligence Coordination Liaison with SEBI

Functions of Issue Management Signing of MoU Obtaining appraisal note Optimum capital structure Convening meeting Appointment of financial intermediary Preparing financial documents Due diligence certificate Submission of offer document Finalization of collection centres Filing with RoC Launching the issue Promoters contribution

Role of Merchant Bankers in appraisal of projectPROJECT APPRAISAL Step in confirmation of a desired project Analysis of financial soundness of an investment project Appraisal will be made on the basis of projected cash flows Appraisal will be carried out by the promoter, it will helpful to the MB

Project evaluation will be made in comparison with respect of various alternatives to technology raw material production capacity location local production

Steps in Project AppraisalTechnical Appraisal Economic Appraisal Financial Appraisal

Selection of best available technology, design and other infrastructure facilities

Employment (Direct & Indirect) Foreign Exchange (Export & Import)

Simple Rate of return method Payback period Discounted cash flow method

Capital Structure Permanent financing of the firm, represented primarily by long-term debt, preferred stock and common equity, but excluding all short-term credit. Common equity includes common stock, capital surplus and accumulated retained earnings

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Geresternberg

Capital Structure ProcessCapital Budgeting Decision Need to Raise Funds Capital structure Design Existing Capital Structure Desired DebtEquity MixReplacement Modernization Expansion Diversification Internal Funds Debt External equity

Payout Policy

Effect on Return Effect on Cost of capital

Effect on Risk

Optimum Capital Structure Value of the firm

Characteristics of Capital StructureSimplicity Profitability Solvency Flexibility Intensive use of funds Conservation Provision for meeting future contingencies Control Economy

Factors Affecting Capital StructureInternal Factors Cost factor Risk factor Control factor Objects of the capital structure planning External Factors General economic conditions Behaviour of interest rates Policy of lending institutions Taxation policy Statutory restrictions

General Factors Constitution of the company Characteristics of the company Stability of the company Attitude of the management