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FIN401- Cheat sheet- after midterm.docx

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FIN 401
Scott Anderson

CHAPTER 15- RAISING CAPITAL CHAPTER 24- RISK MANAGEMENT AND DERIVATIVE SECURITIES Rights valuation: R o(P oS)/(N+1) Seasonal offering: everyone knows the price per Derivative: security or asset whose value Options puts-right to sell benefit: price  Over priced= CP-OP/OP share, they are already investors EX) Co wants is derived from some underlying security Calls- right to buy strike/ exercise price Rights share price=M =E -R0 0 to raise $2M equity 1-sell shares a-discount or asset Types: forward contract buy future asset for 3 ways VC make money: price (below mrkt price) b- flotation costs Approaches: math (TVM), diagram price, Future exchange forward contracts, 1-identify attractive investments (transaction Fe=5% (100/1-0.05)=210.5M) 2- (geometry), Intuition Swaps series of forward contracts, 2- increase value of these investments 3- Issue rights to S.H.  rights give owners the Users: investors, hedgers, arbitrageurs European options: only exercised at expiry contractsderivatives right, but not the obligation to buy 1 share of Co Hedging: reducing firms exposure to price American options: may be exercised on day up to ownership=# shares held/total shares on a future date, for same price in exchange for  Exchange rate volatility and including expiry some number of rights Profit= payoff-cost payoff=expire- future  Commodity price volatile Ex-rights share price: Pe=Po-RoOR IPO 1- prospectus (historical ‗audited‘ financial Rules: 1-zero sum game every winner Managing financial risk Shares OS/(rights amount/S) when statements, financial, business, people, market there‘s a loser 2- only 2 time periods matter  Risk profile: measure exposure to risk you buy stocks you don‘t get the rights, info, risk factors)2-under written current a-now b- expiry (maturity) 3- expiry buyer  Reduce risk exposure: Δ in $ can (-) affect price drops, rights trade on own [After owners- hire investment bank i- market IPO— will a- makes money b- lose money 4- all CF ex right price do not include +1] sell my shares ii-determine IPO price ―offer derivatives are options in disguise  Hedging SR $ exposure: unforeseen events price‖ Large debt concerned interest rate  Hedging LT exposure: economic exposure Date: 4 days prior to holder of record IPO expected profit= undervalue$ - overvalue$ Import-export concerned exchange rate  Hedging forward contracts Rights valuation steps Dilution: Buyer of Call CALL Seller of Call Payoff profile:  &  on FC—unexpected $ Δ 1: # new shares issued= total funds Proportionate ownership: SH not purchase any + ∞ MAX Π Premium Types of interest rate hedges raised/ subscription price new shares & proportional ownership decreases Premium MAX loss - ∞  Interest rate cap: call option—sold 2: # of rights to buy new share= #old Value: book VS. MV: new shares sold below x +premium BEP x +premium conjunction with floating-rate loan shares/ # new shares book value, firms ROE falls Buyer of Put PUT Seller of Put  Floor: put option—sells= rate never fall 3: Value of a right= R =(M -S)/(N+1) MV: decreases in MVPS following issues of x - premium MAX Π Premium 0 0 Premium MAX loss -(x –premium) below specified in contract new shares of common stock, occurs if funds x - premium BEP x -premium  Simultaneous: purchase of cap and sale of are used to invest (-)NPV projects floor= collar Shares to raise new funds Futures contracts Forward contract 1: revised amount raised  Settled regularly in cash market to  Private = project cost/(1-c ) market  Legal 2: new shares  Publically traded  No market to market = revised cost/ S  Legal (no chance of default)  Buying commodity itself  Buyer and seller—must be  No upfront costs underlying commodity  Price in contract (forward price)  Buys contract—goes long  Seller contract—shorts contract P0  No upfront cost CHAPTER 23- MERGERS & ACQUISITIONS NPV =acqV aft bf Cost of an acquisition Takeover defenses 1- dual classes of stock a- Forward contract legally binding V aft+Va+syBergy-cash paid Merger by cash- V postV XNPV voting b- nonvoting  complete defense o agreement between 2 parties calling Syngery=NPV +PrTmium T NPV =acq- AY*cost V = V +sY*ergyY hostile take over 2- staggered elections for BOD for the sale of an asset or product in Premium paid= price-org value PPS postV postAcq/StockX O/S 3- shareholders‘ rights plan (give existing SH the future at a price agreed upon
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