Summary Corporate Finance, Investments and Risk Managment

ISBN-10 1307263852 ISBN-13 9781307263855
419 Flashcards & Notes
2 Students
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Summary - Corporate Finance, Investments and Risk Managment

  • 1.1 College Vanaf Slide 23 moet nog

  • Financing comes basically from two sources. Which Two?
    1. Internal: Retained earnings
    2. External: Private and public
  • Which environment factors are essential for raising capital?
    • The legal environment
    • the financial system
    • ownership structure
  • Capital markets can be devided in two. Which two?
    1. Debt
    2. Equity
  • Name 5 forms of Debt
    • Bank Loans
    • Bonds
    • Supplier Credit
    • Leases
    • Informal
  • Name 4 forms of Equity
    • Ordinary Shares
    • Preference Shares
    • Warrants
    • Informal
  • What are the characteristics of Equity (Income, Tax status, Control, default)
    • Income: Dividends
    • Tax status: Dividends are taxed as personal income. Dividens are not a business expense
    • Control: Ordinary shares usually have voting rights
    • Default: Firms cannot be forced into bankruptcy for non-payment of dividends
  • What are the characteristics of Debt (Income, Tax status, Control, Default)
    • Income: Interest
    • Tax status: Interest is taxed as personal income. Interest is a business expens, and corporations can deduct interest when computing corporate tax liability
    • Control: Control is exercised with loan agreement.
    • Default: Unpaid debt is a liability of the firm. Non-payment results in bankruptcy
  • Name a few examples of Financial intermediaries/providers of capital:
    • Banks (Commercial)
    • Banks (Investment)
    • insurance companies
    • pension funds
    • charitable foundations
    • mutual funds
    • hedge funds
    • venture capital
    • venture banks
    • governments
  • What is meant with private placement?
    Sale of securities to a limited number of investors without a public offering (US definition)
  • What are the advantages of private capital vs Public capital?
    • Terms of private bonds and equities can be customized for individual investors
    • no costly registration with the securities regulator
    • no need tot reveal confidential information
    • Easier to renegotiate
  • What are the disadvantages of Private capital vs Public Capital?
    • Limited investor base
    • less liquid
  • What is a Qualified institutional buyer?
    Entity entitled under SEC rule 144A to purchase and trade private placements. (USDefinition)
  • What are the steps to obtain venture funding?
    • Prepare a busniess plan
    • Receive first-stage financing
    • receive subsequent staged financing
  • What is a General Cash Offer?
    Sale of securities open to all investor by an (Already Public) company.
  • What are the three forms of General Cash offer?
    • Initial Public offering: First offering of stock to the general public
    • Seasoned offering: Sale of securities by a firm that is already publicly traded
    • Shelf Registration: A procedure that allows firms to file one registration statement for several issues of the same security
  • What is a international security issue?
    Sale of securities in other countries
  • Which two forms of International security issues are there?
    • Eurobond: Bondsunderwritten by a group of international banks and offered simultaneously to investors in a number of countries.
    • Global bonds: Bonds where one part is sold internationally in the eurobond market and the remainder sold in the company's domestic market
  • What are motives for an IPO? (From most common to less common)
    1. To create public shares for use in future acquisitions
    2. To establish a market price/value for our firm
    3. to enhance the reputation of our company
    4. to broaden the base of ownership
    5. to allow one or more principals to diversify personal holdings
    6. To minimize our cost of capital
    7. To allow venture capitalists to cash out
    8. to attract analysts' attention
    9. our company has run out of private equity
    10. debt is becoming too expensive
  • What are the main steps in making an IPO in the US market:
    1. Company appoints managing underwriter (Bookrunner) And co-managers. Underwriting syndicate formed.
    2. Arrangement with underwriters includes agreement on spread (Typically 7% for medium-sized IPO's) and on greenshoe option (Typically allowing the underwriters to increase the number of shares bought by 15%)
    3. Issues registered with SEC and preliminary prospectus (Red herring) Issued.
    4. Roadshow arranged to market the issue to potential investors. Managing underwriter builds book of potential demand.
    5. SEC approves registration. Company underwriters agree on issue price
    6. Trading starts
    7. Managing underwriter makes liquid market in stock and provide coverage
  • What is an underwriter?
    Firm that buys an issue of securities from a company and resells it to the public.
  • What is Firm commitment from an underwriter?
    Underwriters buy the securities from the firm and then resell them to the public.
  • What is Best Efforts Commitment from an underwriter?
    Underwriters agree to sell as much of the issue as possible but do not guarantee the sale of the entire issue.
  • What are flotation costs from an underwriter?
    The costs incurred when a firm issues new securities to the public.
  • What is a Green shoe option in an IPO?
    Allowing the underwriters to increase the number of shares bought by 15%
  • What is meant with Spread?
    Difference between public offer price and price paid underwriter.
  • What is a registration statement?
    Prospectus (A formal summary that provides information on an issue of securities)
  • What is meant with underpricing?
    Issuing securities at an offering price set below the true value of the security
  • What is meant with rights issue?
    Issue of securities offered only to current stockholders.
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