[FNCE 317] - Final Exam Guide - Ultimate 38 pages long Study Guide!

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Published on 29 Nov 2016
School
University of Calgary
Department
Finance
Course
FNCE 317
Professor
UofC
FNCE 317
FINAL EXAM
STUDY GUIDE
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Cost of Capital and Project Valuation
1 Background
Firm organization
There are four types:
sole proprietorships
partnerships
limited liability companies
corporations
Each organizational form has different legal and tax implications.
In this handout, we focus only on the corporation.
Corporate ownership
Corporations have many owners; each owner owns only a fraction of the corporation.
The ownership stake is divided into shares known as stock.
The collection of all outstanding shares of stock is referred to as the equity of the
corporation.
An owner of a share of stock is called a shareholder,stockholder or equityholder.
Shareholders are entitled to dividend payments.
Dividend payments are made at the discretion of the corporation to its equity-
holders.
The dividend share to each stockholder is typically in proportion to their own-
ership stake.
Ownership is distinct from control.
1
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Stock market
A public company is one whose shares trade on a stock market or stock exchange.
In the US, three national stock exchanges are the New York Stock Exchange (NYSE),
the American Stock Exchange (AMEX) and the National Association of Security
Dealers Automated Quotation (NASDAQ).
Stock markets provide two useful features:
They determine a market price for a company’s shares.
They provide liquidity.
A stockholder can quickly sell a portion of his/her ownership stake and for a
price very close to the price at which someone else can buy it.
(The difference is called the bid-ask spread.)
Corporate financing
Corporations raise funds in two ways:
Raise new equity by issuing new shares of stock and selling them to investors.
The shares are sold on the primary market.
Shares continue to trade in a secondary market between investors without in-
volvement of the firm.
Borrow funds from banks or by issuing debt (corporate bonds) via the financial
markets.
A firm’s capital structure refers to its relative proportions of equity and debt.
A firm with no debt is said to be unlevered.
Its equity is referred to as unlevered.
A firm with debt is said to be levered.
Its equity is referred to as levered.
2
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Document Summary

Each organizational form has di erent legal and tax implications. In this handout, we focus only on the corporation: corporate ownership. Corporations have many owners; each owner owns only a fraction of the corporation. The ownership stake is divided into shares known as stock. The collection of all outstanding shares of stock is referred to as the equity of the corporation. An owner of a share of stock is called a shareholder, stockholder or equityholder. Dividend payments are made at the discretion of the corporation to its equity- holders. The dividend share to each stockholder is typically in proportion to their own- ership stake. A public company is one whose shares trade on a stock market or stock exchange. In the us, three national stock exchanges are the new york stock exchange (nyse), the american stock exchange (amex) and the national association of security. They determine a market price for a company"s shares.

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