Carson Company

Topics: Debt, Finance, Bond Pages: 3 (673 words) Published: June 12, 2012
a. In what way is Carson a surplus unit? Carson invests in Treasury securities and therefore is providing funds to the Treasury, the issuer of those securities.

b. In what way is Carson a deficit unit? Carson has borrowed funds from financial institutions.

c. How might finance companies facilitate Carsons expansion? Finance companies can provide loans to Carson so that Carson can expand its operations.

d. How might commercial banks facilitate Carsons expansion? Commercial banks can provide loans to Carson so that Carson can expand its operations. 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Chapter 1: Role of Financial Markets and Institutionsy9

e. Why might Carson have limited access to additional debt financing during its growth phase? Carson may have already borrowed up to its capacity. Financial institutions may be unwilling to lend more funds to Carson if it has too much debt.

f. How might investment banks facilitate Carsons expansion? First, investment banks could advise Carson on its acquisitions. In addition, they could underwrite a stock offering or a bond offering by Carson.

g. How might Carson use the primary market to facilitate its expansion? It could issue new stock or bonds to obtain funds.

h. How might it use the secondary market? It could sell its holdings of Treasury securities in the secondary market.

i. If financial markets were perfect, how might this have allowed Carson to avoid financial institutions? It would have been able to obtain loans directly from surplus units. It would have been able to assess potential targets for acquisitions without the advice of investment banks. It would be able to engage in a new issuance of stock or bonds without the help of an investment bank.

j. The loans that...
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