BFN 110 Lecture Notes - Lecture 8: Tunxis Community College, Initial Public Offering, Common Stock
6 Jan 2021
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Document Summary
Understand the difference between debt and equity. Holders of ordinary equity are the firm"s owners. Dividends, voting entitlements, residual claim to assets, limited liability. Publicly listed companies trade on the asx. Preferential treatment for dividends and in liquidation. Expected return on preference shares lower than return on ordinary shares. Share valuation can be based on future dividends. Financing for a new investment isn"t required if a firm has sufficient internal cash flow. If cash flow isn"t sufficient then external financing is required. New, high risk firms very unlikely to access debt financing. Venture capital more popular for start ups. Explain the various types of equity securities. Ipo is the 1st sale of ordinary shares. Usually also apply to become listed company. Requires the services of an investment bank. Underwriting agreement requires purchase of unsold shares. Issue of shares to an individual or group. May or may not be shareholders of firm. Secondary issue of shares to existing shareholders.
