Fin Article 17 - Emily Yeo Article 17 Financing Corporate...

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Emily Yeo Article 17 Financing Corporate Growth Rapid growth can pose special problems for financial managers. There are two basic approaches to use finance to increase the value of the firm. These approaches can be illustrated by thinking of the farm as producing a cash flow “pie”, meaning total operating cash flow distributable to all investors. The first approach, takes the pie independent of financial policy, and divides the pie into slices by issuing varying types of securities. Instead of selling some of its existing assets to raise required funds, it will sell the rights to the future cash flows generated by its current and prospective projects. The firm may get the better price though, by repackaging the rights before selling them to the public. There are two situations in which repackaging can add value to the firm. First, since different securities are taxed in different ways, it can reduce government’s share of the pie, increasing cash flow available for distribution to investors. Many firms consider debt financing to be less expensive than
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This note was uploaded on 12/06/2011 for the course FIN 422 taught by Professor Sridharsundaram during the Fall '09 term at Grand Valley State.

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Fin Article 17 - Emily Yeo Article 17 Financing Corporate...

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