How can a company increase its share price through borrowing in the international capital market? and how can a company reduce cost of capital through borrowing in the international capital market?
Timothy Onyebujoh from Nigeria ( Date : 7/14/2011 and Time 6:47:13 )
Timothy Onyebujoh! Like international stock market, there is also international bond or debt market from where you can buy or sell debt. To increase the share price through borrowing in the international capital market is just part of the techniques of increasing share price. For this, you have to understand your company's capital structure and financial leverage first. In simple words, if your company is generating high ROI, you can get more and more cheap loan by anywhere in the world. After paying small fixed interest to debenture holders, your existing shareholders will enjoy high earning on their investment. So, it will lead to increase share price in the stock market.
On the other side, if you are interested to reduce the cost of capital with borrowing in the international capital market, you should learn weighted cost of capital, if you are lucky to get cheap loan in the international capital market, it will be low cost of debt which will reduce overall weighted average cost of capital.
In above picture, you are seeing that debenture is the part of capital structure of capital and its cost is $ 10 per debenture which is almost equal to the cost of equity share capital. But, suppose, your company gets cheap loan @ $ 5 per debenture in international capital market, it will surely reduce weighted average cost of capital.