Week 6 Capital Structure & Financing Flashcards
1
Q
What are examples of positive demand shock?
A
- Toilet paper/consumer staples during start of
Covid - Post war Australia
2
Q
What are examples of negative demand shock?
A
- Economic downturn in a trading partner
- Unexpected tax increases
- Cuts to welfare or other benefits
- Bigger than expected rise in unemployment
3
Q
What are examples of positive supply shock?
A
- Technology advances
4
Q
What are examples of negative supply shock?
A
- Natural disasters
- Political turmoil
- Trade embargoes
5
Q
Who has the risk when the company is selling its shares?
A
Investment bankers take a cut (7%) and usually take the risk of selling the shares to the public (underwriting).
6
Q
What factors should be considered before IPO?
A
- State of the market – hot market? appetite for risk in the market?
- Sufficiently used private finance? Do they need more capital
- When the founders want to cash out (but will they be able to?)
- When the venture capitalists apply pressure to realise a return
7
Q
Benefits of IPOing?
A
- Cash injection
- Reputation / perception
- ‘right of passage’
- Expensive
- Subject to public perception
8
Q
Benefits of staying private?
A
- Fewer investors / less pressure
- IPO failure risk
- Don’t have to conform
- May not be able to get top talent
- Limited liquidity for investors
