Walt Disney Prospectus - Book Report/Review Example

Walt Disney Prospectus Introduction This report seeks to present an analysis of Walt Disney’s prospectus. The analysis covers the following areas: the type of debt offered to the public by the company and the measures put in place to ensure a successful marketability; the dollar amount of the debt and the direction of change between 2008 and 2010; determination of the sales percentage and its fluctuation between 2008 and 2010; and Walt Disney’s expenditure plan for the proceeds from the sale of its securities and whether the goal was achieved. Below are the responses to the tasks. Indicate the type of debt did Disney offers to the public for sale and discuss the various approaches Disney incorporated to ensure the successful marketability of these securities By December 19 2008, Walt Disney Company intended to issue two types of shares. That is, the preferred stock and the common stock to the public in exchange for money. However, the plan to issue the preferred stock never materialized. The company used a plan to facilitate the sales of the shares to interested members of the public. First, the company stated their purpose for borrowing from the public via the issuance of an IPO. A plan depicts the level of seriousness and commitment to a purpose. Making this plan available to the public shows a level of honesty and trust. Second, the Company made known the officers responsible for the disbursement of shares. This information was useful since it directed the public to brokers of the shares (Walt Disney Prospectus, 2008). The company’s prospectus indicates that its shares could be sold via two avenues. That is, through sales agent and brokers and directly from the Company. Third, the company enrolled a share plan that was intended to encourage a long-term share ownership among both existing and new investors. The plan made the share acquisition and reinvestment of cash dividends possible through electronic processes. This approach was convenient and efficient to the public due to the low cost and accessibility. The level of convenience created by the plan played a key role in promoting sales of the company’s shares. Fourth, the newly enrolled share plan is available for both non-shareholders and the existing shareholders too. The members of the public who don’t own the company’s shares may enroll in the plan by simply filling and returning the enrollment form or by making a preliminary investment of not less than $ 250. This shows how fast it is to enroll in the plan. The ease with which the enrollment is done has boosted the purchase of the company’s shares (Walt Disney Prospectus, 2008). Fifth, the price of the shares purchased under this plan is determined by finding the average of the high and low market price of the Company’s shares, as reported by the New York stock exchange. This means that the shares purchased under this plan are cheap. The affordability of the company’s share through this plan has boosted their sales. Lastly, the company’s share purchase rules are friendly. For instance, a shareholder’s account is required to have at least five shares. This has boosted the sales of shares by allowing some members of the public to purchase as low as five shares (Walt Disney Prospectus, 2008). List the dollar amount of debt Disney proposed to sell to the public. Indicate whether this amount has increased or decreased from 2008 to 2010. Discuss some potential causes of this increase or decrease In the year 2008, the company’s authorized number of shares was 3.6 billion shares. However, only 2.6 billion shares were successfully issued at $0.1 par value. Therefore, the total debt sold to the public was $ 26,546,000. Comparatively, in the year 2009 and 2010, the amount of debt was $ 27,038,000 and 28,736,000 respectively. It is clear that the amount has been increasing between the year 2008 and 2010. The following are the reason for the increase: first, the company has five business segments that must be operated. The increase in the public borrowing could be to increase capital investments (machines and equipments, and buildings) in the segments (Form 10-k, 2009). Increase in capital expenditures is majorly motivated by the need for expansion. Therefore, a reasonable force behind the increase for debt borrowed from the public by the company is for expansion purpose. Second, the amount of borrowings from the public increased because public borrowing is a safer method of raising funds. There are other methods of financing a company’s expansion operation such as debt financing, commercial papers, bank overdraft and the purchase of treasury bonds. However, other avenues of financing are costly. For instance, the debt financing method increases the leverage level of a company. Companies with higher leverage levels face high risk of default. Debt defaults not only discredit a company’s credit rating, but might also send a company into receivership. As a result, Walt Disney Company selected its financing method with reference to their consequences. Consequently, more borrowing from the public was sought (Form 10-k, 2010). Determine the percentage of the sales price Disney nets after discounts and commissions. Indicate whether this amount has decreased or increased from 2008 to 2010. Discuss some potential causes of this increase or decrease There are two avenues to purchase Walt Disney shares. That is, directly from the company and through agents and brokers. There are neither discounts nor commissions attributed to a direct purchase. On the other hand, purchases made through respective agents and brokers are earning a commission of $ 0.1 per share. The company’s share prices are inclusive of this commission. That is, if the company’s market price per share is $ 1, the investors will pay $ 1.01 for the share. Therefore, the percentage of the sales price that the company nets after the sales done through brokers = (1.01-1)1.01*100 = 99% (this applies to shares purchased through brokers and independent agents). However, this amount has been decreasing between 20008 and 2010. The reason behind the decrease is the demand for increase in commission paid to agents and brokers. The effects of economic decline induced the demand for the increase in commission by the agents and brokers (Walt Disney Prospectus, 2008). Indicate what Disney stated they would use the proceeds for from the sale of securities. Discuss whether Disney was able to use those funds for the reasons stated in the prospectus. If not, should Disney be held accountable by their investors? Why or Why not? The proceeds from the sale of securities would be used for corporate purposes such as capital investments and expansion exercises. However, the company was not able to use the funds as intended due to depression in the U.S economy. To be specific, prices of machines and equipments increased. In addition, energy prices went up and it became impractical for the company to act according to the plan. Instead, some funds were used to cover for the increase in operating expenditures caused by the U.S economic decline. In view of the events that caused the failure, the company should not be held accountable. The reason is that the forces behind the failure were outside the company’s control (Form 10-k, 2010). References Form 10-k. (2009). Retrieved from . Form 10-k. (2010). Retrieved from . Walt Disney Prospectus. (2008). Retrieved . Read More