Equity ﬁnancing is the best source of fund for Disney for its expansion. In equity financing Disney will need to exchange a portion of its ownership of business for the financial investment in the business. The ownership stake resulting from an equity investment allows the investor share in the Disney’s proﬁts. Equity involves a permanent investment in the company and is not repaid by the Disney at a later date
Disney can also issue preference shares for funding its expansion. Preference shares issued by Disney will have a fixed percentage ofdividendwhich is paid to the ordinary shareholders. If Disney issues ordinary shares then preference dividend will be paid only if sufficient distributable profits are available, however if Disney issues 'cumulative' preference shares then right to an unpaid dividend will be carried forward by Disney to later years. The arrears of dividend on cumulative preference shares must be paid by Disney before it pays any dividend to the ordinary shareholders.
Another source of fund available to Disney is Debenture. Debenture is a certificate of acceptance of loans which is given under the Disney's stamp and it will carry an undertaking that the debenture holder will get a fixed return (fixed on the basis of interest rates) and the principal amount whenever the debenture matures. It is issued for a long periods of time. Debentures can be freely transferrable by the debenture holder. Debenture holders will have no voting rights and the interest given to them by Disney is a charge against profit.
Another source of fund for Disney is borrowing from Bank. Disney can borrowfrom bank on short term, medium term or long term as per its requirement. Disney will have to pay interest on such borrowing. This interest may be fixed or variable. Disney if takes a long term loan then it will be required to security or collateral for the loan. (hall, 2012)
Disney can also fund its expansion by leasing. A lease is an agreement between two parties, the "lessor" and the "lessee". The lessor owns a capital asset, but allows the lessee to use it. The lessee makes payments under the terms of the lease to the lessor, for a specified period of time. Leasing is, therefore, a form of rental. Leased assets have usually been plant and machinery, cars and commercial vehicles, but might also be computers and office equipment. There are two basic forms of lease: "operating leases" and "finance leases".(Business, 2015)
What are the costs associated with getting capital for the expansion?
1.Weighted Average Cost of Capital (WACC) is the arithmetic average (mean) capital cost, where the contribution of each capital source is weighted by the proportion of total funding it provides. WACC is usually expressed as an annual percentage.
2. Cost of Borrowing simply refers to the total amount paid by a debtor to secure a loan and use funds, including financing costs, account maintenance, loan origination, and other loan-related expenses. A cost of borrowing sum will most likely be expressed in currency units such as dollars, pounds, euro, or yen.