Financing Decisions Flashcards
Name methods to raise finance using capital markets
~ stock markets ~ banks ~ bond markets ~ leasing ~ debt factoring ~ grants ~ crowd funding ~ peer-to-peer lending
Sources of equity finance
~ retention of profit
~ rights issue
~ new issues
Dividend payout ratio
dividend/ earnings after tax and preference dividend
Theoretical ex-rights price (TERP)
= (MV shares pre-rights issue + rights proceeds + project NPV)/ no. of shares ex-right
~ if NPV not given assume it’s 0
= PV of new total dividends/ no. of shares ex-right
Underwriting
in exchange for a fee, a group will purchase any securities not subscribed for by the public
Dividend yield
100 x dividend per share/ market price per share
Earnings per share (EPS)
(PAT - pref div)/ no. of ordinary shares
Price-earnings ratio
market price per share/ EPS
Total S/H return
dividend yield + capital gain
Crowdfunding: Pros
~ quick
~ builds awareness + attracks customers
~ can start up w/o trading history
Crowdfunding: Cons
~ fee to crowdfunding website
~ legal costs
~ admin costs (dealing w/ investor requests)
Initial Coin Offering (ICO) raises finance by…
- investor receives a token for a share
- payment is made in cryptocurrency
- ‘white paper’ issued providing details of venture and tokens
~ likely to be regulated in future
~ risk = cryptocurrency volatility
Sources of Debt Finance
~ loan stock
~ loan stock w/ warrents
~ convertible loans
~ peer-to-peer lending
Convertible loans: Advantages
~ lower rate of interest
~ avoid redemption issues if converted into equity
~ issue equity cheaply
Gearing
= debt/equity
= debt/ (debt + equity)
