Melco Crown Entertainment: Rolling the Dice and Other Ways to Raise Capital Harvard Case Solution & Analysis

Melco Crown Entertainment: Rolling the Dice and Other Ways to Raise Capital Case Study Solution

Required Funding

Notably, the current requirement of finance on the basis of the expenditure that is needed for the development of two project i.e. City of Dreams and Crown Macau Hotel. Also, during the calendar year 2006, the company would most likely need $190 million for the Crown Macau Hotel and for the development of casino sites, the company would need $140 million, combining the total of $330 million which is required for the purpose of financing these capital expenditures.

In addition to this, during the calendar year 2007, the company would likely need $62.5 million in order to finance the Crown Macau Hotel’ development expenditures and working capital expenditures amounted to $50 million in the very first year of business operations. In the first year of the business operations, the positive operating cash flows of $266.14 million would be generated after tax. It is assumed that the cash flows would be evenly generated for the 2^nd half of the year 2007 business operations. However, the total require funding for the Crown Macau Hotel would be amounted to $91.38 million.

On the other hand, the required capital expenditure for the City of Dreams would amounting $600 million, hence during the year 2007, the total of $691.38 million financing would critically be required.

Afterwards, the only project that would be under the development during the year 2008 would be City of Dreams, it would likely need $600 million during the year 2008. Additionally, the Crown Macau Hotel would tend to be fully operational and it would generate $645.86 operating cash flows during the year 2008. Also, during the year 2009, the company also need additional $600 million to pay the total cost of construction.

Domestic Capital Market

Significantly, the company has variety of option to raise funds either from domestic capital market or international capital market. In the domestic capital market, there are two renowned casino-based companies that has been listed on Hong Kong Stock Exchange namely Emperor entertainment hotel and other is Galaxy entertainment hotel. The pros and cons of raising capital from domestic capital market are listed below;

Pros

• Equity financing would result in exponential growth.
• It would lead to higher returns in comparison to other alternates
• There would be no interest payments and no liability.
• It would provide number of opportunities as well as diversifying the risk.

Cons

• It would lead to giving up ownership (Sander, 2015).

International Capital Market

In addition, the company can take finance from the international markets especially United States, the company has two option either to directly list on the United states exchange or using United States depository receipts for the purpose of raising needed capital in US. The pros and cons of stock exchange are listed below;

Pros

• It would allow the company to make money
• It provides easy access to cash
• It would help the company in bolsteringentire financial portfolio

Cons

• The volatile market can pose threat to company in short term and long term
• The daily volatility in the stock market require time tor recover, thus the company would need rebuild its portfolio.

The benefits and drawbacks of the US depository receipts are listed below;

Pros

• One of the significant advantages is that the pricing of shares of the foreign companies in American depository receipt is cheaper, thus provides further benefits
• It simplifies the calculation of tax
• No restriction to invest in ADR.

Cons

• The ADR exposed to the risk that is related to the fluctuation in foreign exchange
• There are limited number of options to invest in foreign organization.

Recommendation

After taking into consideration, it is to recommend that the company should raise the capital required to start the process of development of the project that were stopped due to the insufficient funds. Since the projects are feasible or viable for generating positive cash flows and operating profit, it is to recommend that the company should raise capital from accessing the overseas capital market, it would result in greater benefits and would allow the company to finance the projects with significant means. Also, the company would be able to raise capital via private placement or registered public offerings(CHRISTY, 2018)...........

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