ch15_sm - CHAPTER15 RAISINGCAPITAL Answers to Concepts...

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CHAPTER 15 RAISING CAPITAL Answers to Concepts Review and Critical Thinking Questions 1. A company’s internally generated cash flow provides a source of equity financing. For a profitable company, outside equity may never be needed. Debt issues are larger because large companies have the greatest access to public debt markets (small companies tend to borrow more from private lenders). Equity issuers are frequently small companies going public; such issues are often quite small. 2. From the previous question, economies of scale are part of the answer. Beyond this, debt issues are simply easier and less risky to sell from an investment bank’s perspective. The two main reasons are that very large amounts of debt securities can be sold to a relatively small number of buyers, particularly large institutional buyers such as pension funds and insurance companies, and debt securities are much easier to price. 3.
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This note was uploaded on 05/01/2009 for the course FINC 106 taught by Professor Dr.nehale during the Spring '09 term at Baptist College of Health Sciences.

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ch15_sm - CHAPTER15 RAISINGCAPITAL Answers to Concepts...

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