Intro to Corporate Financing Flashcards
When is a market efficient?
A market is efficient when asset prices reflect all
available information
What are the three types of efficiency?
Weak Form Efficiency: Market prices reflect all
historical information
Semi-Strong Form Efficiency: Market prices reflect
all publicly available information
Strong Form Efficiency: Market prices reflect all
information, both public and private
Why internal funds?
Managers prefer to reinvest internal funds because of:
Cost of issuing securities
-Raising capital internally avoids the cost
New equity announcement implications
What are the three sources of cash
Internally generated funds – Cash reinvested in the
firm: depreciation plus earnings not paid out as
dividends
New equity issues
New debt issues
What is common stock
Companies issue common shares of ownership which
shareholders own and may trade
Issued shares: shares that have been issued by the company
Outstanding shares: shares that have been issued by the
company and held by investors
Treasury stock: shares repurchased by the company and held in
its treasury (issued but not outstanding)
What is preferred stock?
Stock that takes priority over common stock in regard to
dividends and the claim on assets in case of liquidation
- Preferred stockholders don’t usually have full voting rights
Floating-rate preferred stock: preferred stock paying
dividends that vary with short-term interest rates
Authorized share capital
max number of shares permitted to
issue without shareholders’ approval
Par value
value of a security shown in the company’s accounts
Additional paid-in capital
difference between issue price and
par value
Retained Earnings
earnings not paid out as dividends
What is Net Common Equity?
Net Common Equity represents the total amount contributed
directly by shareholders when the firm issued new stock, and
contributed indirectly when it plowed back part of its earnings
Par Value + Additional Paid-in Capital + Retained Earnings - Share Repurchases
