BCOR 2200 Chapter 15

BCOR 2200 Chapter 15 - Chapter 15 Raising Capital 1 Chapter...

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1 Chapter 15 Raising Capital
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2 Chapter Overview We know how to choose projects: Calculate the NPV NPV = Σ CF t /(1 + R) t CFs: Incremental CFs, opportunity costs, no sunk costs… Discount rate (WACC): The investors’ required return Positive NPV, do it It’s a good use of the investors money Negative NPV, don’t do it Project does not earning enough to cover the risk We know how to choose the mix of financing: Choose D/E to minimize WACC Consider Taxes and the Cost of Financial Distress But how does the firm get the money?
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3 Chapter Overview How does a firm get the money for new projects? 1.It could Retain Earnings Wait until it earns enough from existing operations to pay for new projects 1.It could raise capital by Selling Securities Sell stocks or bonds to finance new projects What is the process of issuing securities?
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4 Chapter Overview We’ll consider 3 stages of a business: 1. A new small firm that needs money to start up Called Venture Capital Private securities that are not allowed to be sold to the public 1. A (somewhat) proven business that needs money to expand Raising money from the public market Called an Initial Public Offering (IPO) Sell stock to the public 1. An existing public company that wants to: Expand: Sell debt and/or equity to finance the expansion. Restructure its Balance Sheet: Sell debt and buy equity (or the opposite) Issue new debt to payoff expiring debt
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5 Key Concepts and Skills Understand the Venture Capital market and its role in financing new businesses Understand how securities are sold to the public The role of Investment Bankers Understand Initial Public Offerings And the costs of “going public” Understand Secondary offerings
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6 Outline: The Financing Life Cycle of a Firm Early-Stage Financing and Venture Capital Selling Securities to the Public: The Basic Procedure Alternative Issue Methods Underwriters IPOs and Underpricing New Equity Sales and the Value of the Firm The Cost of Issuing Securities Issuing Long-Term Debt Shelf Registration
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7 15.1 Venture Capital You have an idea for a product But you don’t have any money to build more than one Also, you don’t really know anything about management, HR,
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BCOR 2200 Chapter 15 - Chapter 15 Raising Capital 1 Chapter...

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