Topic12_external_financing[1]

Topic12_external_financing[1] - Thomas Moeller FINA 30153:...

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Unformatted text preview: Thomas Moeller FINA 30153: Financial Management 1 Topic 12 Sources of external financing Objectives Become familiar with: 1. Sources of short-term financing 2. Public and private placement of securities and investment banking 3. Long-term debt and lease financing 4. Common and preferred stock financing Thomas Moeller FINA 30153: Financial Management 2 1. Sources of short-term financing Trade credit - Stretch the payment period - Cash discount, e.g., 2/10 net 30 - Usually very expensive form of financing Example: What is the cost of funds when you pay after 30 days instead of 10 days and the terms are 2/10 net 30? Thomas Moeller FINA 30153: Financial Management 3 Bank credit - About 2 / 3 of bank loans are short-term (90 to 180 days) - Renewing loans gives them the character of long-term debt - Term loans extend from 1 to 7 years and are usually repaid in installments - Term loans are available to superior credit risks only - Generally variable rates tied to benchmarks like the London Interbank Offered Rate (LIBOR) Example: Cost of bank financing Suppose you have to pay $500 interest on a $15,000, 120-day loan. What effective annual interest rate are you paying? Thomas Moeller...
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Topic12_external_financing[1] - Thomas Moeller FINA 30153:...

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