Equity Finance (10)

Question 1

What are some advantages and disadvantages of share issues?

Answer 1

Advantages - no obligation to pay dividends, capital doesn’t have to be repaid.
Disadvantages - high costs, loss of control, dividends cant be used to reduce taxable profit

Question 2

What is Authorised capital and Issued capital?

Answer 2

Authorized - maximum number of shares a company is legally allowed to issue
Issued - he actual number of shares that the company has sold or distributed to shareholders.

Question 3

What is the difference between primary capital markets and secondary capital markets?

Answer 3

Primary - allow for issuance of new securities
Secondary - where something is traded after having been sold on the primary market

Question 4

What is par value?

Answer 4

Par value is the minimum legal value assigned to a share of stock when it is issued.

Question 5

List 3 requirements to be eligible for a company’s securities to be traded on the London Stock Exchange.

Answer 5

Three years of audited accounts
Expected market value of shares at least £50million
Shareholders of more than 3 percent to be named

Question 6

What are 2 issuing methods for an IPO?

Answer 6

Offer for sale by tender - public and institutions bid prices for shares (minimum set by company) the issue price is the highest price that will dispose of all the shares
Placing - selling new shares directly to selected investors

Question 7

What are rights issues?

Answer 7

Existing shareholders given rights to purchase new issues to not dilute their ownership. They can sell these rights

Question 8

What is the financing gap?

Answer 8

The gap between how small firms (savings) and large firms (stock market launch) finance themselves.