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1、,An Overview of Corporate Financing,Principles of Corporate FinanceSeventh Edition Richard A. Brealey Stewart C. Myers,Slides by Matthew Will,Chapter 14,McGraw Hill/Irwin,Copyright 2003 by The McGraw-Hill Companies, Inc. All rights reserved,Topics Covered,Patterns of Corporate Financing Common Stock
2、 Preferred Stock Debt Financial Markets and Institutions,Firms may raise funds from external sources or plow back profits rather than distribute them to shareholders. Should a firm elect external financing, they may choose between debt or equity sources.,Patterns of Corporate Financing,Patterns of C
3、orporate Financing,Patterns of Corporate Financing,? How do we define debt ?,Patterns of Corporate Financing,Patterns of Corporate Financing,Common Stock,Book Value vs. Market ValueBook value is a backward looking measure. It tells us how much capital the firm has raised from shareholders in the pas
4、t. It does not measure the value that shareholders place on those shares today. The market value of the firm is forward looking, it depends on the future dividends that shareholders expect to receive.,Common Stock,Example - Heinz Book Value vs. Market Value (5/2000) Total Shares outstanding = 347 mi
5、llion,Common Stock,Example - Mobil Book Value vs. Market Value (5/00) Total Shares outstanding = 347 million,Preferred Stock,Preferred Stock - Stock that takes priority over common stock in regards to dividends. Net Worth - Book value of common shareholders equity plus preferred stock. Floating-Rate
6、 Preferred - Preferred stock paying dividends that vary with short term interest rates.,Corporate Debt,Debt has the unique feature of allowing the borrowers to walk away from their obligation to pay, in exchange for the assets of the company. “Default Risk” is the term used to describe the likelihoo
7、d that a firm will walk away from its obligation, either voluntarily or involuntarily.“Bond Ratings”are issued on debt instruments to help investors assess the default risk of a firm.,Corporate Debt,Corporate Debt,Prime Rate - Benchmark interest rate charged by banks. Funded Debt - Debt with more th
8、an 1 year remaining to maturity. Sinking Fund - Fund established to retire debt before maturity. Callable Bond - Bond that may be repurchased by firm before maturity at specified call price.,Corporate Debt,Subordinate Debt - Debt that may be repaid in bankruptcy only after senior debt is repaid. Sec
9、ured Debt - Debt that has first claim on specified collateral in the event of default. Investment Grade - Bonds rated Baa or above by Moodys or BBB or above by S&P. Junk Bond - Bond with a rating below Baa or BBB.,Corporate Debt,Eurodollars - Dollars held on deposit in a bank outside the United Stat
10、es. Eurobond - Bond that is marketed internationally. Private Placement - Sale of securities to a limited number of investors without a public offering. Protective Covenants - Restriction on a firm to protect bondholders. Lease - Long-term rental agreement.,Corporate Debt,Warrant - Right to buy shar
11、es from a company at a stipulated price before a set date. Convertible Bond - Bond that the holder may exchange for a specified amount of another security.Convertibles are a combined security, consisting of both a bond and a call option.,Financial Markets,Primary Markets,Secondary Markets,OTC Markets,Money,Financial Institutions,Company,Intermediaries Banks Insurance Cos. Brokerage Firms,Obligations,Funds,Financial Institutions,Intermediaries,Investors Depositors Policyholders Investors,Obligations,Funds,
