COURSE TITILE

Corporate Finance
FINAL REPORT
Feasibility on Diversify Business
Submitted To: Sir Faisal Dehdi
Submitted By: Muhammad Tofeeque
Date. April 22, 2013


FINANCING OPTIONS

Whether you're preparing to launch a startup or want to grow your business, one thing is for certain:
Youre going to need money. Debt and equity financing are two different financial strategies: Taking on
debt means borrowing money for your business, whereas gaining equity entails injecting your own or
other stakeholders cash into your company.

Equity Financing
Small business owners when weighing debt and equity financing options often opt for equity
financing because they have concerns about either qualifying for a loan or having to channel
too much of their profits into repaying the loan. Investors and partners can provide equity
financing, and they generally expect to profit from their investments. No debt payment means
more cash on hand. Moreover, if no profit materializes, you arent obligated to pay back equity
contributions.

Debt Financing
Business owners may have some trepidation about borrowing from a financial institution, as it
means relinquishing some cash profits. But it could be a good option so long as you expect to
have sufficient cash flow to pay back the loans, plus interest. The major benefit for debt
financing, unlike with equity financing, you'll retain full ownership of your business. The interest
on business loans is also tax-deductible, and youll build your credit.





INTRODUCTION OF BUSINESS

On the light of above discussion I have decided to go with combo investment option i.e. using
both equity and debt financing for my new business.

One option in hand is to invest my equity in almost risk free therefore I will take National Saving
-- Special Saving Certificates and use it to pledge in Bank for the borrowing for investment in
stocks.

For the purpose I have research a lot on stock market shares of different companies and
analyzed their returns through studying their history. One company which I got interest in is
HUBCO which has good market value and growth and ensures suitable capital gain and
promises regular dividends.

Capital Structure.
Owner Equity --------------------------------------------7.0 Million
Debt Financing ------- Long Term Bank (R.F)-------3.0 Million

Capital Budgeting.
7.0 M investment in Special Saving Certificate (disbursement of profit in every 6
months).
3.0 M investment in HUBCO stock.




CONCLUSION

Returns for my business starts with the profits earned on National Savings Certificate of 9.7%
p.a. it is almost risk free, secondly expected return from HUBCO stock investment is 24.068%
p.a. For the Bank Running Finance of 3.0 M payment of 11.22% p.a. will be required. Total
portfolio return after WACC calculation will be 9.158%.
Without ignoring the most important point i.e. risk I have calculated risk premium in the excel
sheet enclosed to be 12.06%. Also explained below for investing in stocks one has to encounter
certain risks.

1. Economic risk- An ailing economy puts all stocks at risk, no matter the management team or
the brand name strength. Economic risks may not seem too strong at certain times, but during
recessions and depressions these become very evident.

2. Being too emotional- Investing in stocks must be done without emotion. Those investors
who make the mistake of involving their emotions in investing are typically the ones who buy
stocks when they are at their highs and sell when they are at their lows. Emotions are very
difficult to control in investing, but if you can't control them it puts a huge risk on your
portfolio.

4. Not being diverse enough- Diversification won't allow you to go without risk in the stock
market, but it sure can reduce the amount of risk in your portfolio. A highly concentrated
portfolio has lost a whole lot of individuals a lot of money over the years. Spread your
investments out amongst different groups and industries. To overcome this high risk I have
decided to opt for diversification in my business by not only investing in stocks but in risk free
Govt. securities as well.



5. Inflation- In our Pakistani market where inflation is running uncontrolled the amount that we
are investing are worth much less, giving you a lot less hit for your money. Therefore it is
analyzed that inflation is a much bigger investment risk when it comes to investing in stocks
that most investor ever recognize.
These are the top five risks associated with investing in the stock market. The stock market can
be a great thing, but one must first understand the risks and their risk tolerance before putting
their money to work in the market.