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Polaroid Corporation, 1996
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Polaroid Corporation, 1996
Prof. Ragupathy M B
FINANCE – II
Submitted by:
Nidhi Kanojia
2011PGP749
Section B
Prof. Ragupathy M B
FINANCE – II
Submitted by:
Nidhi Kanojia
2011PGP749
Section B
Current Financial issues in raising capital
Ralph Norwood has just recently been appointed treasurer of Polaroid. Faced with notes outstanding of $150 million which will mature in less than a year, as well as the restructuring plan of the new CEO which needs funding, Norwood decided to present a larger review of the company’s financial policies to the board of directors. Based on the circumstances, there are several challenging objectives which the new financial policy of Norwood would have to meet:
1. Serving the maturing debt 2. Maintaining an investment grade rating 3. Provide funding for the new plans of the CEO 4. Attaining an optimal capital structure for the firm
Financing alternatives
As for any firm, Polaroid has three possible sources of capital available: internal funds, equity markets and the debt market.
Internal funds
Internal funds are the cheapest form of capital and easily available. This would keep the existing capital structure intact while generating requisite funds. The flipside of such a measure is that it may hamper growth. Polaroid’s operating income has been steadily declining whilst operating expenses have been rising. Sales growth has been poor during. All of this indicates a lack of generation of funds internally. Therefore, the company will have to look for external sources.
Equity capital
The next option for Polaroid is to raise capital through the equity markets. This source of capital is expensive for the firm in the current situation. It would send a negative signal to the market in a time 