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Class 11_10 & 11_11 - Ch 10

Class 11_10 & 11_11 - Ch 10 - Agenda Questions Page...

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Page 1 Questions? Agenda
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Page 2 Firms raise money either by selling stock to shareholders (equity) or borrowing money from creditors (liability) We’ll focus on the borrowing money in Chapter 10 Bonds Why issue bonds (notes payable) instead of Equity? Cheaper most of the time Bond holders don’t have voting power – stays with equity holders Increases return to shareholders Example Firm needs $2,000,000 to begin operations – assume financing is split equally between debt (5 years) and equity (4 shareholders) After 5 years, the firm has earned $11 million – how much goes to debt holders versus equity holders? $1mm to debt holders - $10 mm to 4 equity holders Example – what if we financed with all debt? Firm needs $2,000,000 to begin operations – assume financing all equity (8 shareholders) After 5 years, the firm has earned $11 million – how much goes to each equity holder? $11 mm to the 8 shareholders Chapter 10 – Bonds
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Page 3 Terminology
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