Time Value of Money (Using General Motors as the chosen company) Time Value of Money is one of the most important concepts in the financial world. The principles of time value analysis have many applications, ranging from setting up schedules for paying

mod_1_fin_501_slp_1

Time Value of Money (General motors) (Using General Motors as the chosen company) Time Value of Money is one of the most important concepts in the financial world. The principles of time value analysis have many applications, ranging from setting up schedules for paying off loans to decisions about whether to acquire new equipment for a company. Time value of money is also called discounted cash flow analysis. Your task for this module is to apply the concept of present value to your chosen SLP company. Suppose your company is selling a bond that will pay you $2,000 in one year from today. Keep in mind that if your company has financial difficulties in one year you might not get your full $2,000 back. Given that a dollar one year from now is always worth less than a dollar today, you most certainly would not pay a full $2,000 for this bond. If you are highly risk averse or strongly prefer having money today to having money tomorrow, then you would pay significantly less than $2,000 for this bond. Higher inflation or high interest rates would also lead you to pay less for the bond. Also, the greater the chance of bankruptcy of your company the less you should be willing to pay for the bond. Given the concepts of the time value of money, answer the following questions in a two to three page paper: 1) How much would you pay for this bond today? Take into consideration your own personal risk preferences, interest rates, inflation, and the probability your company will not be able to pay you back in one year. Note: no need for any math equations for this part. Just explain how much you would personally pay for a $2,000 bond from this company. 2) Based on your answer to the previous question, what would be your discount rate for this bond? Use the present value formulas from the background materials and show your work. 3) Pick two other companies in the same industry as your SLP company. One should be one that you would pay less for a $2,000 bond than you would from your SLP company and another one that you would pay more for a $2,000 bond from your SLP company. Explain why you would pay more or less for their bonds. 4) What do you perceive you have learnt in Module 2 SLP? Please provide your evaluation of the Module 2 SLP in brief. NOTE: Please note that your report/assignment will not be accepted without proper citations and references. You must use the sources from the background material together with the sources you find your own.

Initial public offerings (General Motors) 2

TUI University

Mark A. Bullock

FIN501 – Strategic Corporate Finance

Module 1 SLP

Initial public offerings (General Motors)

Dr. Geoffrey Clarkson – P

January 22, 2012

Initial public offerings (General Motors)

For my SLP (Session Long Project) concerning the Initial Public companies, I considered reviewing the General Motors Company. General Motors which is regularly referred by the acronym GM is a multinational automotive firm which is located within the U.S. The GM firm has its headquarters within Detroit, Michigan. General Motors was actually the first runners up in the World’s automaker rankings compiled within the year of 2010. The company has offered employment to more than 209,000 individuals and it conducts its business operations within approximately 154 different countries. The company is mainly involved with the production of cars along with trucks (General Motors, 2012). The vehicles manufactured by GM are sold under various brand names. The GM’s brands which can also be termed as divisions are such as Chevrolet, Opel, Holden, Buick, Vauxhall, GMC as well as Cadillac.

In the course of 2009; the company had to undergo through a comprehensive reorganization process in order to resolve its financial troubles. Actually, the financial troubles led the firm into bankruptcy. In the process of undergoing reincorporation, the firm was subjected to a novel IPO. During 2009, the company is said to have marketed approximately 6, 5000,000 cars along with trucks, within the international market. The highest GM’s sales growth was experienced within China were they sales grew by 66.9% in the year of 2009. Since 2010, General Motors has always making good profits annually (General Motors, 2012). In 2010, the company actually earned approximately 4.7 billion USD. During the initial six months of 2011, the company managed to regain its previous position of being the leading automaker manufacturer internationally.

The reason which made me to review the General Motors firm is specifically because it’s one of the widely renowned vehicle manufacturers internationally. In addition, the company managed to undergo a complete change after been reorganized in the year 2009. Moreover, one will be attempted to study the financial trends experienced by the company because the firm made the most successful IPO ever since time immemorial (Barabba, 2004). It is also interesting to learn how the company managed to record growth in sales despite the biting recession.

The GM’s IPO is assumed to be the most successful in the stock exchange history (Espinasse, 2011). Through the IPO, the company actually managed to raise eighteen billion USD. The proceeds gained from IPO actually assisted the company to resurrect from bankruptcy and re-attain its dominancy in the motor world (Barabba, 2004). It was established that the GM’s IPO made 40% of the United States’ IPO collections in 2010. Actually, as at present, the stock price of the GM’s share is considerably below the IPO price. The share price since the IPO is considered to have dropped by almost 33%. Nevertheless, the firm has managed to exceed the Wall-Street anticipations regarding its revenues as well as profits.

The SLP Module 1 is quite beneficial as it enables learners to gain knowledge about IPO. It makes the learners to become aware of the reasons behind various companies opting to undertake IPO. Upon going through the module, students learn that IPOs have both advantages along with disadvantages. Advantages of IPO include assisting firms to access a cheap capital source. It also facilitates acquisitions along with increasing the equity holders’ liquidity amongst other advantages (Espinasse, 2011). The most significant disadvantage is that IPOs come along with significant marketing costs and there is the risk of failing to raise the desired funds. Generally, the SLP Module 1 is quite informative to the students business-wise.

References

Barabba, V. P. (2004).

Surviving Transformation: Lessons from GM’s Surprising Turnaround

. New York, NY: Oxford University Press.

General Motors. Company Profile. Retrieved on 9th January, 2012. From http://www.gm.com/

Espinasse, P. (2011). IPO: A global guide. Hong Kong: Hong Kong University Press.