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 project
PROJECT 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 theevaluation
MB
Project
will be made in comparison with respect of
various alternatives to
technology
raw material
production capacity
location
local production

Steps in Project Appraisal

Technical
Appraisal

Selection of best
available
technology,
design and other
infrastructure
facilities

Economic
Appraisal

Financial
Appraisal

Employment
(Direct & Indirect)

Simple Rate of return

method

Foreign Exchange
(Export & Import)

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

Geresternberg

Capital Structure Process

Capital Budgeting Decision

Replacement
Modernization
Expansion
Diversification

Need to Raise Funds

Internal Funds
Debt
External equity

Capital structure Design

Existing
Capital
Structure

Desired DebtEquity Mix

Effect on
Return

Payout Policy

Effect on Risk

Effect on Cost
of capital

Value of the
firm

Optimum
Capital
Structure

Characteristics of Capital Structure

Simplicity
Profitability
Solvency
Flexibility
Intensive use of funds
Conservation
Provision for meeting future contingencies
Control
Economy

Factors Affecting Capital Structure

Internal Factors
Cost factor
Risk factor
Control factor
Objects of the capital structure planning

General Factors

Constitution of the company

Characteristics of the company
Stability of the company
Attitude of the management

External Factors
General economic conditions
Behaviour of interest rates
Policy of lending institutions
Taxation policy
Statutory restrictions