The Expansion Of The Mabati Rolling Mills Production

In order to finance the expansion of the Mabati Rolling Mills production in 1999, the company considered four options to amass funds for their Continuous Galvanizing Line. The first is issuing commercial paper. Commercial paper refers to a short-term promissory note that has the following characteristics: †¢ Unsecured- this means that MRM requires no collateral from those issued with commercial paper. It is offered on goodwill. †¢ Is paid at a specific date †¢ Has specified amount (par/face value). †¢ It falls within the capital market i.e. †¢ Commercial paper reaches maturity in 270 days or less in the United States but the length varies in other countries. †¢ Has a fixed rate of interest. †¢ Commercial paper are negotiable. Commercial paper is not issued at once. Like MRM, corporations create a commercial paper (CP) program which means the buyers can make purchases at their convenience. Commercial paper can be issued directly to investors with no agent or middle-man, known as direct paper or through a dealer, known as dealer paper. Majority of commercial paper is in the primary market as the short maturity period do not allow for them to become secondhand. Commercial paper originated over a century ago in New York, USA. Today, commercial paper is the most common form of sourcing funds in the money market. Corporations issue these to investors at a discounted rate on the par value of the note i.e. The advantages of commercial paper are; 1) It is a fast method of generating