Source of Finance Equity (OT)

Question 1

What determines how we raise money?

Answer 1

Whether company is quoted or unquoted

Question 2

If company is quoted ways of raising finance?

Answer 2

Public issue

Question 3

WHat is public issue?

Answer 3

Anyone can buythe shares

Question 4

Public issue characteristics?

Answer 4

Fixed price

Question 5

Public issue by tender example?

Answer 5

No fixed price, investor puts how much they want to pay. Then price is determined by company through comparing multiple offers

Question 6

What is a rights issue?

Answer 6

Cheaper than public issue. Offer of new shares to existing shareholders. Not for general public

Question 7

Characteristics of rights issue?

Answer 7

Must be offered to all the shareholders in a fair way

Question 8

What is meant by a 1 to 4 rights issue?

Answer 8

1 new share for every 4 existing shares

Question 9

Issue with little company?

Answer 9

Is difficult to find new shareholders. Likely to do a rights issue instead

Question 10

An unquoted company vs quoted company?

Answer 10

Unquoted is much harder to raise finance

Question 11

Companies on stock exchange?

Answer 11

Just big companies

Question 12

Help small companies becone big?

Answer 12

Alternative investment market. Grow to become big enough for the stock exchange

Question 13

Why is share price usually higher than TERP?

Answer 13

Shareholders hope ivnestments are going well

Question 14

A letter in a quoted company?

Answer 14

Can be sold to someone else who then buys the letter

Question 15

The value of rights per new share calculation?

Answer 15

TERP - cost of taking up rights

Question 16

The value of rights per existing share calculation?

Answer 16

Value of rights per new share / existing shares in rights price

Question 17

What is the bonus issue?

Answer 17

Not a source of finance as it is an issue of free shares to existing shareholders

Question 18

Why use bonus issue?

Answer 18

When share price gets high, can be used to reduce the price to make it more marketable

Question 19

What is stock split?

Answer 19

Not a source of finance. Withdraw shares and then replace with more shares at a cheaper price

Question 20

What is a scrip dividend?

Answer 20

Shareholders are offered shares instead of a cash dividend

Question 21

How is a dividend paid?

Answer 21

In cash

Question 22

Is a scrip dividend a source of finance?

Answer 22

Yes as shareholders are offered shares but have the option to change in the future

Question 23

Profits earned by the company belong to who?

Answer 23

The shareholders

Question 24

Retained earnings are used for?

Answer 24

Investing and expanding the company

Question 25

What is the clientel effect?

Answer 25

When people deciide which company to buy shares in, some people are more concerned with large dividends even if company has no growth due to high dividends

Whilst others prefer a company that retains a lot with less dividend

Question 26

What is the signally effect?

Answer 26

Company has paid the same dividend for years but one year company pays no dividend. May be unexpected shock to sharehodlers