Session8 - AFP Learning System: Treasury Session 8 Module...

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v1.1 © 2004 Association for Financial Professionals. All rights reserved. Session 8: Module 4, Chapter 13 - 1 AFP Learning System: Treasury Session 8 Module 4: Information Technology & External Financing
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v1.1 © 2004 Association for Financial Professionals. All rights reserved. Session 8: Module 4, Chapter 13 - 2 Session 8, Module 4: External Financing Chapter 13: Sources of Capital and Leasing Chapter 14: Capital Structure and Dividend Policy
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v1.1 © 2004 Association for Financial Professionals. All rights reserved. Session 8: Module 4, Chapter 13 - 3 Chapter 13: Sources of Capital and Leasing—Outline Role of Treasury in Determining and Managing Cost of Long-Term Capital Debt (Bond) Capital Markets Lease Financing Equity (Stock) Markets Valuation of Corporate Securities Cost of Capital Procedures for Selling Additional Common Stock Initial Public Offering (IPO) The Decision to List Securities
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v1.1 © 2004 Association for Financial Professionals. All rights reserved. Session 8: Module 4, Chapter 13 - 4 Reasons Private Placement Is Preferred Over Public Issuance Less restrictive covenants The size of the issue The reduced time and number of parties involved The complexity of the securities A desire for minimal reporting, agency ratings or public disclosure Lower costs Control over who holds the debt
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v1.1 © 2004 Association for Financial Professionals. All rights reserved. Session 8: Module 4, Chapter 13 - 5 Discussion Question When might a public offering be preferred to a private placement? Answer: A public offering would probably be needed or preferred if the issue is very large and/or the firm wants ownership of the security to be widely distributed among investors.
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v1.1 © 2004 Association for Financial Professionals. All rights reserved. Session 8: Module 4, Chapter 13 - 6 Debt (Bond) Capital Markets Use of short- and long-term debt usually results in lower overall cost of capital and an increase in cash flows per dollar of equity due to: Generally lower cost of debt (versus equity). Tax deductibility of interest payments. Fixed nature of debt payments. Profitable companies favor debt. Payments limited to principal/interest Risk of insufficient cash flows Additional borrowing or possible default or bankruptcy
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v1.1 © 2004 Association for Financial Professionals. All rights reserved. Session 8: Module 4, Chapter 13 - 7 Short-Term Borrowing Organizations use short-term money market borrowing for temporary funds until short-term obligations can be rolled over into medium- and long-term debt. Government entities issue short-term tax anticipation notes (TANs) or bond anticipation notes (BANs) to cover timing differences.
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v1.1 © 2004 Association for Financial Professionals. All rights reserved. Session 8: Module 4, Chapter 13 - 8 Medium- and Long-Term Borrowing Alternatives Term loan Medium- or intermediate- term notes and bonds Long-term bonds Other types of bonds
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v1.1 © 2004 Association for Financial Professionals. All rights reserved.
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This note was uploaded on 02/08/2011 for the course FINANCE 430 taught by Professor Richter during the Spring '11 term at Rutgers.

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Session8 - AFP Learning System: Treasury Session 8 Module...

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