How Corporations Issue Securities

Giai đoạn Zero-tài chính đại diện cho các khoản vay tiết kiệm và cá nhânHiệu trưởng của công ty nâng cao để bắt đầu một công ty. Giai đoạn đầu và giai đoạn thứ haitài trợ từ nguồn kinh phí cung cấp bởi những người khác (. thường đầu tư mạo hiểm)để bổ sung đầu tư của người sáng lập.
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How Corporations Issue Securities CHAPTER 15 How Corporations Issue SecuritiesAnswers to Practice Questions1. a. Zero-stage financing represents the savings and personal loans the company’s principals raise to start a firm. First-stage and second-stage financing comes from funds provided by others (often venture capitalists) to supplement the founders’ investment. b. An after-the-money valuation represents the estimated value of the firm after the first-stage financing has been received. c. Mezzanine financing comes from other investors, after the financing provided by venture capitalists. d. A road show is a presentation about the firm given to potential investors in order to gauge their reactions to a stock issue and to estimate the demand for the new shares. e. A best efforts offer is an underwriter’s promise to sell as much as possible of a security issue. f. A qualified institutional buyer is a large financial institution which, under SEC Rule 144A, is allowed to trade unregistered securities with other qualified institutional buyers. g. Blue-sky laws are state laws governing the sale of securities within the state.2. a. Management’s willingness to invest in Marvin’s equity was a credible signal because the management team stood to lose everything if the new venture failed, and thus they signaled their seriousness. By accepting only part of the venture capital that would be needed, management was increasing its own risk and reducing that of First Meriam. This decision would be costly and foolish if Marvin’s management team lacked confidence that the project would get past the first stage. b. Marvin’s management agreed not to accept lavish salaries. The cost of management perks comes out of the shareholders’ pockets. In Marvin’s case, the managers are the shareholders. 1353. Alternative procedures for initial public offerings of common stock include: a. Firm commitment underwriting in which the investment bankers buy the entire issue before reselling it to the public. The issuing company receives the money immediately, but at a price below the offering price. b. Best efforts offers in which the investment banker tries to sell as much of the issue as possible. The share price is higher but the entire issue may not be sold. c. In some countries, the issue may be auctioned off. In these cases, the firm may place a reserve (i.e., lowest acceptable) price, but both price and the number of shares sold are not known in advance. d. In a fixed price offer, the price of the shares is fixed and the number of shares sold is in question. If the price is too high, not enough shares will be sold; if the price is too low, the issue is oversubscribed and investors receive only a portion of their desired shares.4. If he is bidding on under-priced stocks, he will receive only a portion of the shares he applies for. If he bids on under-subscribed stocks, he will receive his full allotment of shares, which no one else is willing to buy. Hence, on average, the stocks may be under-priced but once the weighting of all stocks is considered, it may not be profitable.5. Some possible reasons for cost differences: a. Large issues have lower proportionate costs. b. Debt issues have lower costs than equity issues. c. Initial public offerings involve more risk for underwriters than issues of seasoned stock. Underwriters demand higher spreads in compensation.6. There are several possible reasons why the issue costs for debt are lower than those of equity, among them: The cost of complying with government regulations may be lower for debt.  The risk of the security is less for debt and hence the price is less volatile.  This increases the probability that the issue will be mis-priced and therefore increases the underwriter’s.7. This is a one-time cost, not an annual cost, so it is not correct that flotation costs increase the cost of external equity capital by ten percentage points. However, flotation costs do increase the cost of external equity capital. 1368. a. Inelastic demand implies that a large price reduction is needed in order to sell additional shares. This would be the case only if investors believe that a stock has no close substitutes (i.e., they value the stock for its unique properties). b. Price pressure may be inconsistent with market efficiency. It implies that the stock price falls when new stock is issued and subsequently recovers. c. If a company’s stock is undervalued, managers will be reluctant to sell new stock, even if it means foregoing a good investment opportunity. The converse is true if the stock is overvalued. Investors know this and, therefore, mark down the price when companies issue stock. (Of course, managers of a company with undervalued stock become even more reluctant to issue stock because their actions can be misinterpreted.) If (b) is the reason for the price fall, there should be a subsequent price recovery. If (a) is the reason, we would not expect a price recovery, but the fall should be greater for large issues. If (c) ...