Answered: State the ways in which NextGen Wealth…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Related questions

Question

NextGen Wealth Ltd is a large manufacturing firm Ghana, that was created 20 years ago by Opanin Nsiah’s family. It was initially financed with an equity investment by the Opanin Nsiah family and ten other individuals. Over time, NextGen Wealth Ltd has obtained substantial loans from finance companies and commercial banks. The loans that NextGen Wealth Ltd has obtained from commercial banks stipulate that NextGen Wealth Ltd must receive the banks’ approval before pursuing any large projects. The interest rate on the loans is tied to market interest rates, and is adjusted every six months. Thus, NextGen Wealth Ltd.’s cost of obtaining funds is sensitive to interest rate movements. It has a credit line with a bank in case it suddenly needs to obtain funds for a temporary period. It has purchased Treasury securities that it could sell if it experiences any liquidity problems. NextGen Wealth Ltd has assets valued at about Gh₵50 million and generates sales of about Gh₵100 million per year. Some of its growth is attributed to its acquisitions of other firms. Because of its expectations about Ghana’s economy that it will be strong, NextGen Wealth Ltd plans to grow in the future by expanding its business and through acquisitions. It expects that it will need substantial long-term financing, and plans to borrow additional funds either through loans or by issuing bonds. It is also considering the issuance of stock to raise funds in the next year. NextGen Wealth Ltd closely monitors conditions in financial markets that could affect its cash inflows and cash outflows and thereby affect its value. Given NextGen Wealth Ltd’s large exposure to interest rates charged on its debt, NextGen Wealth Ltd closely monitors the Bank of Ghana (BOG), actions. It subscribes to a special service that attempts to monitor the BOG’s actions in the Treasury security markets. It recently received an alert from the service that suggested the BOG has been selling large holdings of its Treasury securities in the secondary Treasury securities market. Required a. State the ways in which NextGen Wealth Ltd is surplus unit and deficit unit? b. Explain how the intermediaries and securities firms might facilitate NextGen Wealth Ltd ’s expansion? c. Why might NextGen Wealth Ltd have limited access to additional debt financing during its growth phase? d. Explain how might NextGen Wealth Ltd use the primary and secondary market to facilitate its expansion? e. If financial markets were perfect, how might this have allowed NextGen Wealth Ltd to avoid financial institutions? f. Why should NextGen Wealth Ltd receive its current banks’ approval before pursuing any large projects. Examine the purpose of this condition g. Explain how NextGen Wealth Ltd should interpret the actions by the Central Bank with respect to treasury yields and interest rate?

Expert Solution

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions