Explore BrainMass

Explore BrainMass

    Issuing Equity

    As a company grows, its growth prospects will likely require additional financing. For many companies, raising new capital can be done by issuing more common stock. This may be done privately, where new shares are sold to existing owners or to investors within the personal networks of these existing owners. However, for efficiency reasons, many companies choose to issue new stock on an organized exchange. A company's first issue of common stock to the public is called an Initial Public Offering. Afterwards, a corporation may issue new equity at any time in order to finance its growth. When new common shares are offered to existing shareholders first, this is called a rights offering.

    Underwriting
    Underwriters play an important role in the issue of new securities. Underwriters help price and sell the new securities, often by buying the securities themselves and reselling them. To manage risk, underwriters often work together in groups, called syndicates. Typically, major financial institutions such as banks all offer underwriting services.

    The Costs of Issuing Equity
    Spread: The difference between the price that the underwriter pays the issuing company for each new security and the price that the underwriter resells the security at is known as the spread. The spread is considered to be a direct expense incurred from issuing the new equity. Direct expenses of any new issue must be reported on a prospectus given to the Securities and Exchange Commission.

    Other Direct Expenses: Legal fees, filing fees and taxes for example are other direct expenses paid by the issuing firm. Direct expenses must be reported on a company’s prospectus.

    Indirect Expenses: An issuing company may incur other costs such as the cost of management’s time working on the security issue. These fees are not reported on the company’s prospectus.

    Abnormal Returns: The announcement of a new issue causes the price of existing stock to drop. Since the firm raises money in any new issue, the price should not drop since we would not expect a dilution affect if the new issue is correctly priced.

    Underpricing: Often during an IPOs the a new issue will be underpriced. This leaves cash on the table that could have been collected if it was appropriately priced. One explanation is the winner’s curse. That is, because smart investors are able to get their hands on hot IPOs, when the average investor wins and gets shares from a new issue, it is probably because the smart investor knew better and avoided the issue. An underwriter may underprice the stock to attract more average investors.

    Overallotment (Green Shoe) Option: Underwriters may buy more shares from the issuing company at the offer price when the underwriter allots more shares to investors than issued.

    Photo by Kelly Sikkema on Unsplash

    © BrainMass Inc. brainmass.com March 18, 2024, 6:34 pm ad1c9bdddf

    BrainMass Categories within Issuing Equity

    Rights Offering

    Solutions: 40

    A rights offering is an issue of common stock that is offered to existing shareholders. Pre-emptive rights may be included in a corporations articles of incorporation that require a company to issue new common stock to existing shareholders first, in order to allow existing shareholders to maintain their percentage ownership if they so desire.

    Initial Public Offering (IPO)

    Solutions: 211

    An initial public offering is the first time that a corporation sells its shares to the public in a financial market.

    BrainMass Solutions Available for Instant Download

    Discussion on stocks transaction

    Consider the issue of stock other than cash and respond to the following: •What ethical challenges can a company face while issuing stock other than cash?

    Investment Transactions

    Investment Transactions The beginning balance sheet of NASDAQ Corporation included the following: Long-term investment in MSC Software (equity-method investment)..... $619,000 NASDAQ completed the following investment transactions during the year: Mar. 16 Purchased 2

    Questions

    1. Although corporate bonds have lower total annual returns per year than common stocks, corporate bonds are not risk free. For example, Enron's filing for bankruptcy in December 2001 was one of the largest bankruptcy filings in the U.S. The creditors received less than twenty cents on the dollar for their investments. Similarly

    Filling in Stockholders' Equity Information

    The market price of a share of common stock at the time of issuance was $19.50, while the market price of a preferred share of stock at the time of issuance was $32. The company paid $12.50 for its treasury stock. Fill in the missing stockholders' equity information below. Stockholders' equity: Preferred stock, $2.00 par

    Complications of the Mixed Processes of Short Sale

    See the attached file. In order to understand clearly the complications of the mixed processes of Short Sale, Aggregate Short Sale and Buying on Margin and the Aggregate of both Short Sale and Buying on Margin I need an elaborate solution to the questions in the two problems as per attached file showing the formulas, writing

    Conduct Comparative Dupont Analysis Two Companies: Ford GM

    Conduct a comparative DuPont analysis of two companies. Find one large corporation included in the S&P 500. Then, find one of its largest competitors. Go to the investor relations portion of each corporation's homepage and find their most recent annual report. Calculate a complete DuPont analysis calculating the ROE, ROA, th

    What is Stockholder's Equity?

    Define and explain Stockholder's Equity. Are there any financial statements from companies for stockholder's equity?

    Social Equity, Affirmative Action, Merit Pay, and Contracting

    1. It is important to be able to articulate the details of a given discipline through formal education and be knowledgeable enough to discuss social equity fluently in an interview or a meeting. Define the term social equity. . 2. State the purpose of affirmative action. 3. Identify the pros and cons of using merit pay within

    Five questions: HD & LD, Muscarella Inc., Quigley Inc.

    1. Which of the following statements is CORRECT? a. The ratio of long-term debt to total capital is more likely to experience seasonal fluctuations than is either the DSO or the inventory turnover ratio. b. If two firms have the same ROA, the firm with the most debt can be expected to have the lower ROE. c. An increase in

    Owner's Equity of a Proprietorship of Partnership

    In comparison to the owners' equity section of a corporation's balance sheet, owners' equity of a proprietorship or partnership: a) normally does not make a distinction between invested capital and retained earnings b) normally uses "Capital" accounts for each individual owner, rather tha a "Retained Earnings" account for all

    Equity and Debt - Wal-Mart

    Examine the structure and activities in Wal-Mart and identify two projects or events that required an investment. One should be a 'current project' and the other long-term investment project. For each project or event, identify the preferable source of funding. You may not have access to the actual source of funding so limit

    Cost of Equity Questions

    1. Blakeslee Machinery announced this morning that their next annual dividend will be increased to $2.10 a share and that future dividends will be lowered by 2 percent per year. The stock price after the announcement settled at $16 a share. What is the firm's cost of equity? a. .33% b. 9.33% c. 11.13% d. 13.33% e. 15.13%

    Case investment banking and the public sale of equity

    Mini case: Pc Unlimited wishes to go public by issuing 20 million shares of common stock at an offer price 14.63 each. Skrail underwriters will charge 6.5 % underwriting fees. 1. How much will PC Unlimited raise in cash, assuming that all the shares sell? 2- If PC Unlimited wishes to raise $250 million in cash, what proport

    Internal and External Pay Equity

    Address the importance of managing pay equity (both internal and external) and the consequences for not doing so. Address the role of pay equity and employee job satisfaction and motivation from a strategic perspective.

    International Equity Markets Global Stock Exchanges

    Global Stock Exchanges More and more corporations these days are choosing to list their stock not just on one exchange, and not even just in one country. Rather, they are choosing to list their stock in multiple exchanges in multiple countries. Read the information in the background material, look for more information, and

    Shareholder's Equity

    Blue Co. issued preferred stock with detachable common stock warrants at a price which exceeded both the par value and the market value of the preferred stock. At the time the warrants are exercised, Blue's total stockholders' equity is increased by the Cash received upon exercise of the warrants | carrying amount

    Stockholder Equity Section

    After several profitable years, Planter Corporation's stock price had increased by 10-fold. Management prefers the stock price to be within range of the majority of potential investors, and on June 30, 2013, split its stock 2-for-1. Prior to the split, Planter's stockholders' equity section showed: Common Stock, 5,000 shares at

    Determining Total Owner Equity

    A certain company had the following: Total Assets at Dec. 31, 2012: $1,000K; Total Liabilities at Dec. 31, 2012: $400K; Total Contributed Capital at Dec. 31, 2012: $200K; Total Retained Earnings at Dec. 31, *2011*: $450K; Total Revenues for 2012: $300K; Total Dividends for 2012: $150K. Required: How much is this com

    Fair Value and Equity Methods Assignment

    Brooks Corp. is a medium-sized corporation specializing in quarrying stone for building construction. The company has long dominated the market, at one time achieving a 70% market penetration. During prosperous years, the company's profits, coupled with a conservative dividend policy, resulted in funds available for outside inve

    Blackstone Company: Stockholder's Equity at December 2009

    On January 1, 2009, Blackstone Company reported assets of $1,000,000 and liabilities of $600,000. During 2009 assets decreased by $200,000 and Stockholders' Equity decreased $250,000. What is the amount of Stockholder's Equity at December 31, 2009.

    Beta Analysis

    8. You are analyzing the beta for Hewlett Packard and have broken down the company into four broad business groups, with market values and betas for each group. Business Group Market Value of Equity Beta Mainframes $ 2.0 billion 1.10 Personal Computers $ 2.0

    What does it mean to be good in the world of Beowuf?

    A company's EPS are $2.00 and has a 60% pay-out ratio. Dividends are expected to grow at 7% per year. Its stock beta is 1.2, the risk free rate is 6% and the average return on equity in the market is 12%. a. What is the firm's cost of equity? b. What is the most you should be willing to pay for a share of its stock?

    Levered Equity Calculation

    Use the information for the question(s) below. Consider a project with free cash flows in one year of $90,000 in a weak economy or $117,000 in a strong economy, with each outcome being equally likely. The initial investment required for the project is $80,000, and the project's cost of capital is 15%. The risk-free interest r

    Liquidity

    Please discuss the following topics: 1. Why is too much liquidity not a good thing? 2. Why is the ROE a more appropriate proxy of wealth maximization for smaller firms rather than for larger ones? 3. Why is it not enough for an analyst to look at just the short-term and long-term debt on a firm's balance sheet? Please u

    Cost of Debt, Cost of Equity

    How do you calculate the cost of debt and cost of equity if you are only given the beta, debt/equity proportion, and the after tax interest rate? Please see attached for more details. Use a spreadsheet to calculate the cost of debt, cost of equity (using CAPM), and weighted marginal cost of capital for each level of debt

    External Equity

    One observer argues that external equity should always be the primary concern in compensation, noting that it attracts the best employees and prevents the top performers from leaving. Do you agree? What are the advantages and disadvantages of letting the team administer discipline to a team member?