Long-Term Finance Flashcards
Advs of rights issue
Opportunity to increase investment at a cheap cost
If don’t want to invest, can sell and maintain wealth
No change in control
Simple and cheap
Usually successful
Favourable publicity
Definition:
Cumulative Preference Shares
Those for which dividend must be paid in a following year if they are not paid in the current year.
Definition:
Participating preference shares
Participating preference shares give the shareholder fixed dividends plus extra earnings based on certain conditions being achieved
Two main types of share and characteristics
Ordinary - voting rights, discretionary dividends
Preference - no voting rights, guaranteed dividends
Definition:
Rights issue
Issue of new shares at a discounted price to current shareholders based on their current shareholding
Disabbreviate and define:
CRP
Cum rights price - price of shares immediately before issue
Disabbreviate and define:
TERP
Theoretical Ex Rights Price
Price of shares after rights issue
Place these in order of debtor priority upon winding up a company:
Preference shares
Debt holders
Ordinary shares
Debt holders
Preference shares
Ordinary shares
Define Convertible Preference Shares
Preference Shares which offer the opportunity to be convereted into ORdinary shares at a fixed date in the future or after a fixed period of time.
Define the difference between Primary and Secondary capital markets
Primary capital market enables a company to sell shares througha stock market - preventing the need to contact investors individually.
Secondary capital market enables investors to sell to one another.
Five benefits of listing on a stock market.
- More accurate valuation of the company;
- Creates mechanism for buying and selling shares in future at will;
- Raise profile of entities, enabling selling of debt in the future;
- Riase capital for future investment;
- EMI shcemes more attractive - IPOs can apprecaite price
Four disadvantages of listing on a stock market
- Costly for a small entity;
- Having to make more shares available leading to a dilution of control;
- More onerous reporting requirements;
- Stringent listing requirements on the Stock Market.
List the seven advisors who could be involved in a share issue
- Investment Banks;
- Stockbrokers;
- Institutional investors;
- Registrars of issue;
- Public and investor relations;
- Listing accountants;
- Underwriters.
Three methods for issuing new shares
- IPO (listing);
- Placement;
- Rights Issue.
Two methodologies for pricing an IPO
- Fixed price set by the company on sale;
- Via a tender agreement.
Define how a tender will take place
- Subscribers tender for shares at or a bove a minimum price;
- Company sets a strike price and allocates shares to all investors who tendered the strik price or more;
- Investors pay the strike price regardless of the amount of the intial bid.
Share placement
Shares placed directly with certain investors under pre-agreement.
List the four types of covenant a lender could place on a company after issuing it withe debt.
- Dividend Restriction;
- Borrowing rations;
- Fincial reporting requirements;
- Issuance of further debt.
When securing debt would a lender prefer a fixed or floating charge?
The lender would prefere a fixed charge. If the comapny is wound up, it would have the right to a specific asset as opposed to being considered in the pool of floating charges against the underlying asset. A fixed charge holder would be paid prior to a floating charge holder.
