Top listing and continuation requirements mandated by the NYSE
Not all firms can be considered as adequate candidates to be enlisted in the NYSE. There are standards that NYSE maintains for those firms that are listed in it. The NYSE offers two standards for exchange; worldwide or international and domestic exchanges. Non United States companies can still qualify to be listed in this trading. Both the two standards encompass the financial and distribution standards and it is a must for a company to qualify for both financial and distribution methodologies in its specific standard. A company that does not maintain these standards or that falls below the standards will not qualify for listing and if it was already listed, it can risk being delisted (Fuller and Halbert, 2008).
The standards that are set by NYSE are considered very essential and all entities must fulfill them. Foreign firms that are listed in the NYSE are sometimes allowed to stick to home practices in lieu of specified sections. In addition, these firms are obligated to stick to a number of sections. Some of the requirements of non U. S. firms must fulfill include the establishment of an independent committee of auditors who shall carryout specified roles and responsibilities. Ina addition, the company must provide immediate certification from its chief manger of any non compliance material that has specified corporate rules for governance.
As noted by Brigham and Joel (2007), it is also a requirement of non U.S. firms to write to the NYSE an affirmation of its corporate governance and the firm’s practices. Lastly, the entity should come up with a brief description of important distinctions that exist between the entity’s corporate governance and the ones that are followed in the United States. Simply stated, apart from this, the entity must meet all the criteria presented by a specific standard.
Currently, GII’s capital structure is 75% equity based and 25% debt based. GII is in the 25% marginal tax bracket in France and has a cost of equity of 18% and an average debt cost of 7%. Calculate GII’s weighted average cost of capital (WACC).
WACC = rD (1-Tc)*(D/V) + rE * (E/V)
WACC= 0.25 (1- 0.25) * (0.07) + 0.75 * 0.18
= 0.25 (0.75) * 0.07 + 0.75 * 0.18
What is the main advantage of the divisional cost of capital approach over the WACC approach?
Divisional cost of capital is considered as the expected rate of return for a corporation’s division whose risks differ greatly from those of other departments within the corporation. Divisional cost of capital is regarded as the most important capital costs that an entity incurs in the management of its businesses (Brigham and Joel, 2007).
Divisional cost of capital is essential when an entity has more than one department owed with different responsibilities. The presence of more then one wing implies that the company must spend a significant amount of cash in the various departments. The divisional cost of capital makes it possible for the firm to keep up track of the expenses and the costs incurred.
Divisional of cost capital employs two methodologies or approaches which are considered helpful in tracking the costs of a specific project. The method unlike WACC is essential when it comes to the calculation of returns within a specific division in an organization.
Three core approaches that are used in the divisional cost of capital and each of the approach has its own implementations to hurdle. There is the analytical approach, the pure play approach and the spanning approach. The analytical approach makes use of system connections that exists in various CAPM and accounting variables (Fuller and Halbert, 2008). The pure play approach makes sure that it is able to estimate the risk return of a specific division in an organization. Lastly, the spanning approach is essential in the estimate of capital’s opportunity cost especially on assets that are not being traded on.