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Chapter 8 - BA 3341 Business Finance Nataliya...

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1 BA 3341 Business Finance Nataliya Polkovnichenko, Senior Lecturer
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2 Firms that wish to raise new capital may either borrow money (issue bond) or bring new “partners” into the business by selling shares of stock. Primary Market – Market for newly-issued securities, sold by the company to raise cash. - Initial Public Offering (IPO) - First offering of stock to the general public. - Seasoned Issue - Sale of new shares by a firm that has already been through an IPO. Secondary Market - Market in which already issued securities are traded among investors.
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3 Common Stock Convey the Right to the Firm’s Residual Value After Other Claims Are Paid Unlimited Life Voting Rights Dividends Vary Over Time Returns Generated From Dividends and Capital Gains Preferred Stock (Hybrid) Have Claims That Come Before Common Shares Unlimited Life Usually No Voting Rights Dividends Are Constant Like Bond Coupons Returns Generated From Dividend Stream Sometimes Are Convertible to Common Shares Although Dividends May Be Skipped, Dividends Are Often Cumulative
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4 Common Stocks and Dividends Earnings are distributed to shareholders through dividends. Market price of a stock reflects the value the market has placed on the right to receive future dividends.
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