chap20_quest

chap20_quest - CHAPTER 20 ISSUING SECURITIES TO THE PUBLIC...

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CHAPTER 20 ISSUING SECURITIES TO THE PUBLIC Answers to Concepts Review and Critical Thinking Questions 1. A company’s internally generated cash flow provides a source of equity financing. For a profitable company, outside equity may never be needed. Debt issues are larger because large companies have the greatest access to public debt markets (small companies tend to borrow more from private lenders). Equity issuers are frequently small companies going public; such issues are often quite small. Additionally, to maintain a debt-equity ratio, a company must issue new bonds when the current bonds mature. 2. From the previous question, economies of scale are part of the answer. Beyond this, debt issues are simply easier and less risky to sell from an investment bank’s perspective. The two main reasons are that very large amounts of debt securities can be sold to a relatively small number of buyers, particularly large institutional buyers such as pension funds and insurance companies, and debt securities are much easier to price. 3.
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This note was uploaded on 02/14/2011 for the course FINANCE 620 taught by Professor Halstead during the Spring '09 term at UMBC.

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chap20_quest - CHAPTER 20 ISSUING SECURITIES TO THE PUBLIC...

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