identification of sources_of_finance

Jun 27th, 2015
Studypool Tutor
Abilene Christian University
Price: $25 USD

Tutor description

Par value: Face amount; paid at maturity. Assume $1,000. Coupon interest rate: Stated interest rate. Multiply by par value to get dollars of interest. Generally fixed.

Word Count: 1687
Showing Page: 1/21
SOURCES OF LONG TERMFINANCENeed for long term FinanceLong term vs. short term(workingcapital) funds requirementsFor modernisation, expansion,diversification; huge quantities reqd.,irreversible decisionAsset-liability mismatch, interest raterisk, liquidity risk, if LT reqts.met by STfundsEquity CapitalAuthorised, Issued, Subscribed and Paid upcapitalPar/face value, Issue Price, Book value andMarket ValueRights of equity shareholders-Right to Income :PAT less preferred dividends-Right to Control: voting rights-Pre-emptive Right: for additional issues,rights issue in the same proportion-Right in liquidation: residual claim over assetsPros and cons of equityCapitalAdvantagesNo fixed maturity, noobligation to redeemNo compulsion topay dividendsProvides leveragecapacityDividends taxexempt for investorsDisadvantagesDilution of control ofexisting ownersHigh Cost: rate of returnexpected by equityholdershigher than debtholdersDividends are not taxdeductible: hence cost ishigherIssue costs higher:underwriting, brokerage,other issue expensesHigher servicing costs: holdAGMs, post annual reportsetc.Internal AccrualsConsists of retained earnings and depreciation chargesProsReadily available, notalking to outsidersEffectively additionalequity capital, howeverno issue costs of lossdue to underpricingNo dilution of controlNo expansion i

Review from student

Studypool Student
" Excellent work as always thanks so much "
Ask your homework questions. Receive quality answers!

Type your question here (or upload an image)

1828 tutors are online

Brown University





1271 Tutors

California Institute of Technology




2131 Tutors

Carnegie Mellon University




982 Tutors

Columbia University





1256 Tutors

Dartmouth University





2113 Tutors

Emory University





2279 Tutors

Harvard University





599 Tutors

Massachusetts Institute of Technology



2319 Tutors

New York University





1645 Tutors

Notre Dam University





1911 Tutors

Oklahoma University





2122 Tutors

Pennsylvania State University





932 Tutors

Princeton University





1211 Tutors

Stanford University





983 Tutors

University of California





1282 Tutors

Oxford University





123 Tutors

Yale University





2325 Tutors