Capital Structure

Francois Buisson is the controlling shareholder of Groupe Industrielle Internationale (GII), a major importer of sporting goods in the European Union. GII is aiming for a major expansion project within the next 5 years. One of the objectives of this expansion is to form a major alliance with Axetem as its main running shoe supplier. In short, GII’s expansion plans will entail huge sales revenues for Axetem. To gain additional investors, GII wants to list its company’s stock on the NYSE.

Brian Tobias, Axetem’s CEO, has mandated the creation of a special team at Axetem, Inc. with the aim of helping GII get started on its task of getting listed on the NYSE. Your team is to conduct initial research about the requirements for a non-U.S. firm to obtain an NYSE listing and how a non-U.S. firm can maintain its NYSE listing.

Hint: Start by visiting http://www.nyse.com/, and look for various listing requirements.

1. Research the top listing and continuation requirements mandated by the NYSE.
2. Then, complete the following, and submit your individual assignment:
   • 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).
   • What is the main advantage of the divisional cost of capital approach over the WACC approach?

Use the available resources to research the NYSE and the divisional cost of capital approach to complete this assignment.

 

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