Long-Term (Capital) Finacing Notes

Question 1

What is the length of time associated with long-term financing?

Answer 1

One year or greater in length

Question 2

What are the five primary forms of long-term financing?

Answer 2

1. Long-term notes
2. Financial leases
3. Bonds
4. Preferred stock
5. Common stock

Question 3

Would components of long-term financing be included in capital structure or financial structure? Or both?

Answer 3

Both. Capital structure involves long-term debt and equity. Financial structure involves both short and long-term sources of financing (includes capital structure).

Question 4

The weighted average cost of capital for a firm is determined by its cost of? Short-term or long-term financing?

Answer 4

Both short and long-term financing.

Question 5

With regards to securities, define primary market.

Answer 5

In this market, firms raise capital by issuing new securities in the primary market.

Question 6

With regards to securities, define new issue market.

Answer 6

In this market, initial public offering market is a frequently used term for the market in which previously privately owned firms issue new securities to the public.

Question 7

With regards to securities, define over-the-counter market.

Answer 7

The over-the-counter market is the network of dealers that provides for trading in unlisted securities.

Question 8

With regards to securities, define secondary market.

Answer 8

Outstanding stocks of publicly owned companies are traded among investors in the secondary market. The original issuer receives no additional capital as a result of such trades. Listed common stock would be in secondary market.