Duke Power Company

Duke force out Company Problem / Issue Statement The objective of the swap betwixt Duke Power Company and Salomon Brothers is to allow a cheaper financing by taking advantage of the discount on the exchange of bonds by stocks. However, while this method should save some money to the partnership comp atomic number 18d to the simple issuance of stocks, this scenario could pick out a negative sham on Dukes stock price if the capital market was to look this transaction as a dilutive one. Moreover, the repurchase of low-coupon debt could affect Dukes capability to borrow money in the long draw out which would hurl them in great danger of bankruptcy as they are in dire need of $800 million of external coronation to fund their next project. Therefore, several risks assumed by both parties exist and may be an impediment to the gathering of the funds. Recommendations Duke Power Company should do the Swap with Salomon Brothers and sale the $125m Bonds to finance its upstart project. This scenario will increase its shareholder value, its book value and its swallow on common equity whereas scenario D will have a dilutive impact on its financials which will do the unload opposite. This should please their investors as for the past several years their devolve on equity has been very low compared to the marginal price of long-term debt.

Moreover, the re-purchase of low-coupon debt is consistent with Dukes financial strategy to try and belittle its LTD % in its capital coordinate, so that in the long run they have room to be able to increase their debt structure again in the future years. Their capital structure should take a long-term debt percentage that is no more than 49% and this scenario will help them reduce it to 47.3% as well as increasing their earning per share. Background Salomon Brothers were known for their expertise in fixed-income securities and trading ground on daily swings in the bond market. They are the initiators of the mortgage- natural coveringed securities back in the 80s. So it is... If you want to get a full essay, order it on our website: Ordercustompaper.com

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