TIMING OF ISSUE Homework Help

TIMING OF ISSUE

Closely related to flexibility in deciding the types of funds to be used is the question of Frequently very substantial savings may be obtained by proper timing of security issues. The timing of the public offerings is also an important consideration in capital structure decision firm. Public offering should be made at a time when the state of the economy as we capital market is ideal to provide the funds. The monetary and fiscal policies that are the government are also important in regard. The government follows a cheap money boost the ecology during a recession and a dear money policy during inflationary type of policy pursued by the government reflects itself in prices as well as yields securities and equity. High debentures yields are associated with relative scarcity of debt and low P/E ratios on shares are an indication of the relative scarcity of equity funds. Therefore, the company has to decide whether to finance initially with an issue with a debt issue. Consequently, it is forced to evaluate the alternative financing in the light of general market conditions and expectations for the company management feels that borrowed funds will become costly or scarce, the firm may like benefit of financial leverage immediately. An expected decline interest rates may be postpone borrowings, and remain in a flexible position which helps to take advantages lower interest rates in the future.

However, it should be borne in mind, that timing is not the only consideration. The analysis may suggest, for instance, use of debt. But the company cannot go in for existing capital structure is already top-heavy with debt. Agreements with the existing the funds may impose certain other restriction . Thus. timing in obtaining fun is exercised limits imposed by the timing of needs for funds, the extent of flexibility, and existing agreements, sometimes an implicit understanding, with lenders and owners.

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