Chapter 14 Fundamentals of  Corporate Finance Fourth Edition How Corporations Issue Securities Slides by Matthew Will Irwi...
Topics Covered <ul><li>Venture Capital </li></ul><ul><li>The Initial Public Offering </li></ul><ul><li>The Underwriters </...
Venture Capital <ul><li>Since success of a new firm is highly dependent on the effort of the managers, restrictions are pl...
Venture Capital
Venture Capital
Initial Offering <ul><li>Initial Public Offering (IPO)  - First offering of stock to the general public. </li></ul><ul><li...
Initial Public Offering Expenses
The Underwriters
General Cash Offers <ul><li>Seasoned Offering  - Sale of securities by a firm that is already publicly traded.  </li></ul>...
Rights Issue <ul><li>Rights Issue  - Issue of securities offered only to current stockholders. </li></ul>
Rights Issue <ul><li>Rights Issue  - Issue of securities offered only to current stockholders. </li></ul><ul><li>Example  ...
Rights Issue <ul><li>Current Market Value = 9 mil x $15 = $135 mil </li></ul><ul><li>Total Shares = 9 mil + 3 mil = 12 mil...
Web Resources www.ventureeconomics.com www.vnpartners.com www.freeedgar.com www.ipo.com http://cbs.martketwatch.com www.tf...
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Chapter 14

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  • Chapter 14

    1. 1. Chapter 14 Fundamentals of Corporate Finance Fourth Edition How Corporations Issue Securities Slides by Matthew Will Irwin/McGraw Hill Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved
    2. 2. Topics Covered <ul><li>Venture Capital </li></ul><ul><li>The Initial Public Offering </li></ul><ul><li>The Underwriters </li></ul><ul><li>General Cash Offers </li></ul><ul><li>The Private Placement </li></ul>
    3. 3. Venture Capital <ul><li>Since success of a new firm is highly dependent on the effort of the managers, restrictions are placed on management by the venture capital company and funds are usually dispersed in stages, after a certain level of success is achieved. </li></ul>Venture Capital Money invested to finance a new firm
    4. 4. Venture Capital
    5. 5. Venture Capital
    6. 6. Initial Offering <ul><li>Initial Public Offering (IPO) - First offering of stock to the general public. </li></ul><ul><li>Underwriter - Firm that buys an issue of securities from a company and resells it to the public. </li></ul><ul><li>Spread - Difference between public offer price and price paid by underwriter. </li></ul><ul><li>Prospectus - Formal summary that provides information on an issue of securities. </li></ul><ul><li>Underpricing - Issuing securities at an offering price set below the true value of the security. </li></ul>
    7. 7. Initial Public Offering Expenses
    8. 8. The Underwriters
    9. 9. General Cash Offers <ul><li>Seasoned Offering - Sale of securities by a firm that is already publicly traded. </li></ul><ul><li>General Cash Offer - Sale of securities open to all investors by an already public company. </li></ul><ul><li>Shelf Registration - A procedure that allows firms to file one registration statement for several issues of the same security. </li></ul><ul><li>Private Placement - Sale of securities to a limited number of investors without a public offering. </li></ul>
    10. 10. Rights Issue <ul><li>Rights Issue - Issue of securities offered only to current stockholders. </li></ul>
    11. 11. Rights Issue <ul><li>Rights Issue - Issue of securities offered only to current stockholders. </li></ul><ul><li>Example - YRU Corp currently has 9 million shares outstanding. The market price is $15/sh. YRU decides to raise additional funds via a 1 for 3 rights offer at $12 per share. If we assume 100% subscription, what is the value of each right? </li></ul>
    12. 12. Rights Issue <ul><li>Current Market Value = 9 mil x $15 = $135 mil </li></ul><ul><li>Total Shares = 9 mil + 3 mil = 12 mil </li></ul><ul><li>Amount of new funds = 3 mil x $12 = $36 mil </li></ul><ul><li>New Share Price = (136 + 36) / 12 = $14.25/sh </li></ul><ul><li>Value of a Right = 15 - 14.25 = $0.75 </li></ul>Example - YRU Corp currently has 9 million shares outstanding. The market price is $15/sh. YRU decides to raise additional funds via a 1 for 3 rights offer at $12 per share. If we assume 100% subscription, what is the value of each right?
    13. 13. Web Resources www.ventureeconomics.com www.vnpartners.com www.freeedgar.com www.ipo.com http://cbs.martketwatch.com www.tfibcm.com http://bear.cba.ufl.edu/ritter Click to access web sites Internet connection required Web Links

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