Lecture%2010_Student_6slides - New Wiley-Plus Assignment...

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1 FIN 221 Lecture 10 CH 15: How Firms Raise Capital? CH 16: Capital Structure and 1 Firm Value New Wiley-Plus Assignment • Lecture 8-9 has been uploaded. 2 Relevant Reading Chapters •In all relevant sections below, replace SEC with ASIC • 15.3 • 15.4 • 16.1 • 16.2 The benefits of debt INTEREST TAX SHIELD BENEFIT The Costs of Debt 3 • 15.6 Private versus Public Markets Private placement Commercial bank lending • 16.3 The trade off theory Pecking order theory 4 Initial Public Offering • Company’s first sale of common stock in public • Company’s first invitation for the public to subscribe for shares • Also known as “Float” 5 • The sale of securities to the public by a firm that already has publicly traded securities outstanding Seasoned Public Offering Initial Public Offering • Advantages • The amount of equity capital that can be raised in the public equity markets is LARGE • Going public can enable an entrepreneur to fund a growing business without giving up control. 6 • After the IPO, there is an active _________market in which stockholders can buy and sell its shares. • Publicly traded firms find it easier to attract top management talent and to better motivate current managers
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2 Initial Public Offering • Disadvantages • Likely liquidity of a stock that is sold in an IPO is ____ well-known and its value is more ________ • Investors will not pay as high a price for it as for a similar seasoned stock D P R = 7 • Cost of complying with information disclosure requirement is high. WHY? • Disclosure documents need to be lodged with the A ustralian S ecurities and I nvestments C ommission(ASIC) • Disclosure documents known as “_________” Investment Banking Services • To complete an IPO, the services of investment bankers are important. • Investment bankers provide three basic services when bringing securities to market – origination, underwriting, and distribution. Oii i 8 • Origination – the investment banker helps the firm determine whether it is ready for an IPO. • Firms’ historical and expected performance strong enough to go for IPO • How much money the firm needs to raise • How much shares need to be sold – Preparation of Prospectus Investment Banking Services– Prospectus a) Info about the security issue • Common stock offered ‐‐‐‐‐‐‐‐ 3,300,000 shares • Public offering price ‐‐‐‐‐‐‐‐‐‐‐ $9.00 •U se of proceeds ‐‐‐‐‐‐‐‐‐‐‐‐‐ We intend to use the offering proceeds for working capital and general corporate purposes 9 b) A detailed description of its business including risks •Rap id Technology change could make our products obsolete. • Our independent Manufacturers may not be able to meet our manufacturing requirements.
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This note was uploaded on 06/16/2010 for the course COMMERCE f221 taught by Professor Ala during the Spring '10 term at Uni. West.

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Lecture%2010_Student_6slides - New Wiley-Plus Assignment...

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