Private And Public Companies Flashcards
Tell me what you know about private companies, advantages and disadvantages
Private companies are not allowed offering shares to general public
Advantages - avoid pressure from investors
- Retain their control - avoid wide ownership
- No large increase in equity
- no stock market regulation
Disadvantages -
unable to raise cheaper funds compared with public companies
Unable to use equity to buy business as public companies could do
Not much visibility as public companies
Tell me about public companies
Advantages and disadvantages
Advantages -
- prestige
- Growth - raise chapear funds
- Access - under pool shareholders
- Able to use equity to buy business
- Visibility- publicity
- Flexibility- in pay dividends or not
- Can attract better management
- Borrow more easily and cheaper
Disadvantages
- Accountability- new responsibilities for directors
- Disclosure/ responsibilities- rigorous monitoring
- Regulation - compliance with the rules
- Loss of control increase
- Cost of maintaining a quote , e.g SE fees , extra disclosure cost , management time.
How to calculate Pv
To calculate the PV - help us to determine the worthlessness of a particular investment.
Formula - FV/ (1+r)^n
Fv- given
N- number of years
R - interest rate
Interpretation - if Pv is higher than the given investment we accept
How to calculate FV
Fv = Pv x (1+r) ^n
Pv -given
R - interest rate
N- year
