Slides by Matthew Will <ul><ul><li>How Corporations Issue Securities </li></ul></ul>Principles of Corporate Finance Sevent...
Topics Covered <ul><li>Venture Capital </li></ul><ul><li>The Initial Public Offering </li></ul><ul><li>Other New-Issue Pro...
Venture Capital Venture Capital Money invested to finance a new firm
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...
The Underwriters
The Underwriters
Initial Offering <ul><li>Average Expenses on 1767 IPOs from 1990-1994 </li></ul>
General Cash Offers <ul><li>Seasoned Offering  - Sale of securities by a firm that is already publicly traded.  </li></ul>...
Underwriting Spreads
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 = 8 x E99.65 = E797.20 </li></ul><ul><li>Total Shares = 8 + 1 = 9 </li></ul><ul>...
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How Corporations Issue Securities Principles of Corporate Finance

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  • How Corporations Issue Securities Principles of Corporate Finance

    1. 1. Slides by Matthew Will <ul><ul><li>How Corporations Issue Securities </li></ul></ul>Principles of Corporate Finance Seventh Edition Richard A. Brealey Stewart C. Myers Chapter 15 McGraw Hill/Irwin 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>Other New-Issue Procedures </li></ul><ul><li>Private Placements and Public Issues </li></ul><ul><li>Rights Issue </li></ul>
    3. 3. Venture Capital Venture Capital Money invested to finance a new firm
    4. 4. 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
    5. 5. Venture Capital
    6. 6. Venture Capital
    7. 7. 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>
    8. 8. The Underwriters
    9. 9. The Underwriters
    10. 10. Initial Offering <ul><li>Average Expenses on 1767 IPOs from 1990-1994 </li></ul>
    11. 11. 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>
    12. 12. Underwriting Spreads
    13. 13. Rights Issue <ul><li>Rights Issue - Issue of securities offered only to current stockholders. </li></ul><ul><li>Example - Lafarge Corp needs to raise E1.1billionof new equity. The market price is E99.65/sh. Lafarge decides to raise additional funds via a 1 for 8 rights offer at E80 per share. If we assume 100% subscription, what is the value of each right? </li></ul>
    14. 14. Rights Issue <ul><li>Current Market Value = 8 x E99.65 = E797.20 </li></ul><ul><li>Total Shares = 8 + 1 = 9 </li></ul><ul><li>Amount of funds = 797.20 + 80 = 877.20 </li></ul><ul><li>New Share Price = (877.20) / 9 = E97.47 </li></ul><ul><li>Value of a Right = 97.47 - 80 = 17.47 </li></ul>Example - Lafarge Corp needs to raise E1.1billionof new equity. The market price is E99.65/sh. Lafarge decides to raise additional funds via a 1 for 8 rights offer at E80 per share. If we assume 100% subscription, what is the value of each right?

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