Chapter 15 Flashcards
(25 cards)
What are the main methods of raising capital?
- Equity
- Debt
- Private placement
- IPO
- New (Seasoned) equity issue
What is venture capital?
Private financing for relatively new businesses in exchange for stock
What is the ultimate goal of venture capitalists?
To take the company public and benefit from the capital raised in the IPO
What is a public issue?
The creation and sale of securities intended to be traded on public markets
Which commission oversees companies on the TSX?
Ontario Securities Commission (OSC)
What must management obtain to sell securities to the public?
Permission from the Board of Directors
What is a preliminary prospectus also known as?
Red herring
What is the role of underwriters in the IPO process?
- Formulate method used to issue securities
- Price the securities
- Sell the securities
- Price stabilization
What is a syndicate in the context of underwriters?
A group of underwriters that market the securities and share the risk
What is a Dutch auction?
A fixed price/uniform price auction
What is a firm commitment underwriting?
Issuer sells entire issue to underwriting syndicate, which then resells to the public
What is a bought deal underwriting?
Similar to firm commitment, but marketed to institutional investors
What is the best efforts underwriting method?
Underwriter must make their best effort to sell securities at an agreed-upon price
What is the overallotment option?
Allows syndicate to purchase additional shares and oversubscribe the issue
What is IPO underpricing?
Underpricing can cause the issuer to leave money on the table due to lack of current market price
What are new (seasoned) equity issues?
- Issues to the general public (cash offer)
- Issues to existing shareholders (rights offer)
What is a rights offering?
Issue of common stock offered to existing shareholders to avoid dilution
What happens to stock price on the ex-rights date?
It drops by the value of the right
What is dilution in the context of capital raising?
A loss in value for existing shareholders
What are the types of long-term debt?
- Bonds
- Private issues
- Term loans
- Private placements
What are direct costs of issuing securities?
- Spread
- Other direct expenses (legal fees, filing fees, etc.)
What are indirect expenses in issuing securities?
- Opportunity costs
- Abnormal returns
- Underpricing
- Overallotment option costs
Fill in the blank: The firm must prepare and distribute copies of a preliminary prospectus to the _______.
OSC and to potential investors
True or False: A rights offering allows shareholders to increase their ownership percentage.
True
