Chester Corporation
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Financial Highlights
The key goals of Chester Corporations financial department were as follows; to ensure the procurement of adequate funding for the companys needs, at the lowest possible price, and to ensure the proper dissemination of information for actions to be taken to drive upward, the companys performance measures.
Chester Corporations finance department set a target capital structure of 70 % equity and 30 % debt in an effort to keep its cost of capital at low levels while still maintaining adequate sources of funding for company needs. The actual capital structure was, of course, dictated by not only these guidelines but the real life demands of the company for funds and the market conditions dictating the cost of debt and equity.
Due to the firms need for a large amount of capital for the 2007 fiscal year, the financial department devised a long term strategy of issuing as much equity as possible early on and then borrowing the remainder of the needed funds by issuing debt. The issuing of as much equity as possible early in the companys development served to not only raise large amounts of capital but also avoided sending negative signals to shareholders. Continuously reissuing equity would certainly have raised our cost of capital by impacting shareholder confidence.
Chester Corporations long term strategy for dealing with the large issue of debt and equity was as follows. The company would continue to hold the debt and pay interest charges until the company became secure and profitable. Once profitable the company would first begin to pay off its debt. As the level of debt began to fall within the range of 30% of its capital structure the firm would repurchase small amount of equity. Lastly, as debt and equity were placed in order, the company would begin pay dividends.
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