The capital funding of a company is made up of two components: debt and equity. Various Options of raising long finances:
1. Issue of Equity Shares
Equity can be raised either by private placement or by public. Intel has got strong track record; thus it can use this route to raise money. It has following features:
Advantages of raising shares
Permanent Capital: It need not be paid back
Borrowing Base: It can be used to trade on equity
Dividend Payment Discretion: The payment of dividend is in the hands of management
Cost: It is more costly than debt
Earnings Dilution: It involves reduction in EPS.
Ownership Dilution: It involve sharing of ownership
It is a fixed income (debt) instrument issued for a period of more than one year with the purpose of raising capital. The central or state government, corporations and similar institutions sell bonds. A bond is generally a promise to repay the principal along with fixed rate of interest on a specified date, called as the maturity date.
No ownership Dilution
Fixed payment of interest
Reduced real obligation
Issue Convertible Debenture
It is issuing of convertible debentures to which will be convertible into equity after few years. It involves selling of ordinary shares in future at a higher price.
Avoiding immediate dilution of earnings.
Using low cost capital initially.
A warrant entitles the purchaser to buy a fixed number of ordinary shares at a particular price during a specified time period. It is similar to an American call option.
Deferred Equity Financing
Cash Inflow in Future
ZID or zero coupon bonds or deep discount bonds do not carry an explicit rate of ...
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What two articles could I use to discuss the U.S. financial markets, also the role of investment bankers, and the sources of capital available to corporations. How would I describe how a corporation raises short term and long term capital through this financial system.View Full Posting Details