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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. O i i 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 • Use 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 • Rapid Technology change could make our products obsolete. • Our independent Manufacturers may not be able to meet our manufacturing requirements.
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Lecture%2010_Student_6slides - New Wiley-Plus Assignment...

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