14 1 B 40 2302 Class 5 w
14 - 1 B 40. 2302 Class #5 w BM 6 chapters 14. 1 -14. 3, 15. 1 w Based on slides created by Matthew Will w Modified 10/10/2001 by Jeffrey Wurgler Irwin/Mc. Graw Hill ©The Mc. Graw-Hill Companies, Inc. , 2000
Principles of Corporate Finance Brealey and Myers u Sixth Edition An Overview of Corporate Financing Slides by Matthew Will, Jeffrey Wurgler Irwin/Mc. Graw Hill Chapter 14. 1 -14. 3 ©The Mc. Graw-Hill Companies, Inc. , 2000
14 - 3 Topics Covered w Patterns of Corporate Financing w Common Stock w Preferred Stock Irwin/Mc. Graw Hill ©The Mc. Graw-Hill Companies, Inc. , 2000
14 - 4 Patterns of Corporate Financing w Two ways to finance investment: è è Irwin/Mc. Graw Hill Raise equity or debt (external finance) Plow back profits rather than distribute them to shareholders (internal finance) ©The Mc. Graw-Hill Companies, Inc. , 2000
14 - 5 Patterns of Corporate Financing Irwin/Mc. Graw Hill ©The Mc. Graw-Hill Companies, Inc. , 2000
14 - 6 Patterns of Corporate Financing Irwin/Mc. Graw Hill ©The Mc. Graw-Hill Companies, Inc. , 2000
14 - 7 Patterns of Corporate Financing How to define “debt ratio” (aka “leverage ratio”) ? Irwin/Mc. Graw Hill ©The Mc. Graw-Hill Companies, Inc. , 2000
14 - 8 Patterns of Corporate Financing Irwin/Mc. Graw Hill ©The Mc. Graw-Hill Companies, Inc. , 2000
14 - 9 Common Stock Mobil Book Value Equity (12/97) Shares Issued = 894 million, Outstanding = 783. 4 million Irwin/Mc. Graw Hill ©The Mc. Graw-Hill Companies, Inc. , 2000
14 - 10 Common Stock Mobil Market Value (12/97) Total Shares outstanding = 783. 4 million Irwin/Mc. Graw Hill ©The Mc. Graw-Hill Companies, Inc. , 2000
14 - 11 Common Stock w Typical common shareholder rights: è Right to vote for director candidates • If own 100 shares, and 5 directors to be elected – Majority voting: have 500 votes, can only apply 100 to any one candidate – Cumulative voting: can apply all 500 votes to one candidate è Right to vote in “proxy contests” (e. g. control contests) w May be multiple “classes” of common stock w/different voting rights è Can get control of firm without buying all shares Irwin/Mc. Graw Hill ©The Mc. Graw-Hill Companies, Inc. , 2000
14 - 12 Preferred Stock – Another form of equity (i. e. directors can choose not to pay a dividend) Differences with common stock: Promises (doesn’t guarantee) fixed dividend stream è Dividends (if declared) must go to preferred before common è Preferred has only limited voting rights è Tax advantages and disadvantages è Irwin/Mc. Graw Hill ©The Mc. Graw-Hill Companies, Inc. , 2000
Principles of Corporate Finance Brealey and Myers u Sixth Edition How Corporations Issue Securities Slides by Matthew Will, Jeffrey Wurgler Irwin/Mc. Graw Hill Chapter 15. 1 ©The Mc. Graw-Hill Companies, Inc. , 2000
14 - 14 Topics Covered w Venture Capital Irwin/Mc. Graw Hill ©The Mc. Graw-Hill Companies, Inc. , 2000
14 - 15 Venture Capital Equity invested to finance a new firm 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 disbursed in stages, after certain milestones are achieved. Irwin/Mc. Graw Hill ©The Mc. Graw-Hill Companies, Inc. , 2000
14 - 16 Irwin/Mc. Graw Hill Venture Capital ©The Mc. Graw-Hill Companies, Inc. , 2000
14 - 17 Irwin/Mc. Graw Hill Venture Capital ©The Mc. Graw-Hill Companies, Inc. , 2000
- Slides: 17
