Finance simulation Harvard Case Solution & Analysis

Finance simulation Case Solution

INTRODUCTION:

This reports attempts to explain the financing decisions taken by the top management of the company XYZ. The management of the company is considering various strategies in order to optimize its financing process while lowering its costs at an optimum level in order to earn high profitability as well as economies of scale.
The management of the company has to make use of the simulation model in order to determine the optimal financing decision. The simulation model would help the company to identify the potential financing options and ways in order to enhance the overall effectiveness of the financing process by utilizing the resources of the company in such a way that the overall results could be optimized.
In addition to this, simulation model would also allow the company the potential sources and optimal modes of financing, which could enhance the overall efficiency of the operations of the company as well as enhance the overall funding efficiency of the operations of the company.

LITERATURE REVIEW:

In this modern era of globalization, the business cycle is revolutionizing at a very rapid pace. In order to cope up with the rapidly changing business environment as well as in order to enhance the overall competency of the company, businesses make a number of changes such as changes in production department, organization structural changes, adoption of latest technologies, etc. Moreover, regardless of the decision which the management of the company takes in order to enhance the overall competitiveness and competency of the company, financing is the major necessity in order to fulfill such decision. (SC Myers, 1984)
Thus, financing departmentacts as the corefor the overall performance of the company as all the major departments of the company are dependent on the financing department of the company as the financing department sets all the budgets for all the other departments whether it is production, marketing, research and development, etc.. (Plosser, 1982)
Thus, it is very crucial for the top management of the company to take appropriate financing decisions in order to enhance the overall competency of the financing department as well as the organization as a whole. In addition to this, the financing department of the company influences the pace of growth of the company at a wide spread scale. (EF Fama, 2005)
Financing decision is important irrespective of the operations of the company, whether it is a service provider, manufacturing company, distribution company, etc. Moreover, financing decisions are crucial for every organization as funds are the basic need for any company in order to run the operations of the company efficiently and effectively.(X Chang, 2006)
Moreover, there are a number of financial decisions that the company has to take in order to maintain the overall funds of the company. Mainly the company has three financing options,
• Debt financing.
• Equity Financing
• Equity + Debt financing.

DEBT FINANCING:

Under this financing structure, the management of the company finances the operations of the company through procuring loans from the financial institutions. There are a number of situations when the company looks for funds, such as, when the company decides to launch a new project or a new product, or the company is going through its startup process, mergers or acquisitions, restructuring, etc. (Lewellen, 2006)
Under debt financing, the management of the company looks for the optimal financial institution from where the company could get a loan under favorable terms and conditions. In addition to this, the management of the company also seeks for the financial institutions that could provide funds to the company for the longer period of time as compared to other institutions. (H. Kent Baker, 2011)............................

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