... B) bonds and commercial paper issues. C) stock issues. D) loans from nonbank financial intermediaries. Answer: D Ques Status: Revised 2) Of the sources of external funds for nonfinancial businesses in the United States, loans from banks and other financial intermediaries account for approximately ________ of the total. A) 6% B) 40% C) 56% D) 60% Answer: C Ques Status: Previous Edition 3) Of the sources of external funds for nonfinancial businesses in the United States, corporate bonds and commercial paper account for approximately ________ of the total. A) 5% B) 10% C) 32% D) 50% Answer: C Ques Status: Previous Edition 4) Of the following sources of external finance for American nonfinancial businesses, the least important is A) loans from banks. B) stocks. C) bonds and commercial paper. D) loans from other financial intermediaries. Answer: B Ques Status: Previous Edition 5) Of the sources of external funds for nonfinancial businesses in the United States, stocks account for approximately ________ of the total. A) 2% B) 11% C) 20% D) 40% Answer: B Ques Status: Previous Edition 6) Which of the following statements concerning external sources of financing for nonfinancial businesses in the United States are true? A) Stocks are a far more important source of finance than are bonds. B) Stocks and bonds, combined, supply less than one-half of the external funds. C) Financial intermediaries are the least important source of external...
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...that are aimed at “re-opening” the Venezuelan oil sector to foreign investment. The project consists of three key components -Production of heavy oil from a new field in Venezuela’s interior -Transportation of the oil to coast via pipeline -Transportation of oil to refineries along the US Gulf Coast Once refined, the syncrude would be sold at market prices to Conoco under a DuPont-guaranteed off-take agreement. At the end of this 35-year purchasing agreement, Conoco will transfer its shares to Maraven at no cost. The sponsors agreed to use 40% of equity (40%) and 60% of debt to finance the project’s $2.425 billion total cost. The financial advisors, Citicorp and Credit Suisse First Boston, used a multi-pronged financing strategy to raise debt from commercial banks, development agencies, and bond investors. In the end, the sponsors raised $450 million in bank finance and $1 billion in Rule 144A bonds, all of which was non-recourse to the sponsors following completion of the project. The decision to finance this deal on a project basis was actually a dual decision regarding both financial and organizational structure. Risks analysis The purpose of this paper is to analyze how the sponsors allocated both contractual and residual risk in the Petrozuata deal. There are four general categories of risk: precompletion risks, operating risks, sovereign risks, and financing risks, but in this paper I will talk just about the last two risks, as being principal part of my contribution...
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...overpriced, the underwriter, not the company, takes the loss. They compensated the risk-bearing function through the underwriting spread Competitive-bid: the issuing company specifies the date that sealed bids will be received, Competing syndicates submit bids, and the syndicate with the highest bid wins the security issue. Negotiated Offering: The issuing company selects an investment banking firm and works directly with the firm to determine the essential features of the issue.Together they discuss and negotiate a price for the security and the timing of the issue.Depending on the size of the issue, the investment banker may invite other firms to join in sharing the risk and selling the issue.Generally used in corporate stock and most corporate bond issues. 2) Best efforts offering Under this arrangement, the investment bankers agree to sell only as many securities as they can at an established price. They have no responsibility for securities that remain unsold. In other words, they bear no risk. 3) Shelf registration. A procedure that allows a company to register securities in advance that it may want to sell and essentially put that registration “on the...
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...Initial public offerings Initial public offerings Keith Broomfield Jr Trident University FIN501 Strategic Corporate Finance Professor: John Halstead Summer 2013 Keith Broomfield Jr Trident University FIN501 Strategic Corporate Finance Professor: John Halstead Summer 2013 Module 1 Case Module 1 Case 1) What type of IPO should AVG use—a traditional IPO or an online auction? Based on your analysis and findings, what would you recommend to the executives of AVG? Explain your reasoning in detail. As I understand the formula/process. Most IPO's are underwritten by an investment banking organization that specializes in providing venture capital to launch an organization toward a public offering. Once the valuation of the company whose public offering is being considered is established then shares are created. These shares represent a certain value or stock domination as based on the company's worth through their product, service or manufacturing capability as identified by the Investment Banking Firm. In other words what current market share does the pending IPO company have, their current net worth and the future of their product and the market they currently affect, oh yes and do they have a proprietary product or patent and what's their competition about. This is a rather simplistic formula and for the sake of time will work for now. Those initial shares are first offered to large institutional investors. These institutions are capable of providing large capital...
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...Financial Management includes the following 5 functions * Financing function- raising capital to support firms operations and investment programs * Capital budget function- selecting the best projects in which to invest firm resources, based on a consideration of risks and return * Financial management function- managing firms interna; cash flows and its capital structure to minimize the financing costs and ensure that the firm can pay its obligations when due * Corporate goverance function- developing an ownership and corporate governance system for the firm that will ensure that managers act ethically and in the best interest of stakeholdes * Risk management function- managing the firms exposure to all types of risk Working capital management 1) Working capital management involves managing and financing the current assets and current liabilities of the firm. Primary focus of working capital management is managing inventories and receivables. a) Managing the firms cash conversion cycle- is the length of time between when the firm makes payments and when it receives cash inflows (1) Can be analyzed by using the flowing 3 periods (a) Inventory coversion period (b) Receivables collecton period (c) Payables deferral period i) Inventory coversion period- average time required to convert materials into finished goods and sell them. IVP= avg inventory/ COGS per day ii) Receivables...
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...Project is an opportunity for you to apply concepts learned to a real-life simulation experience. Throughout the Course Project, you will assume that you work as a financial analyst for AirJet Best Parts, Inc. The Course Project is provided in two parts as follows: Part I – In Part I, you work with AirJet Best Parts, Inc. staff to identify the best loan options, as well as to valuate stocks and bonds. Part II – In Part II, you will provide the company with a recommendation for purchasing a new machine. You will base your recommendation on the Net Present Value (NPV) of the capital investment project using the cost of capital (WACC) as your discount rate. About AirJet Best Parts, Inc. AirJet Best Parts, Inc. is a company dedicated to the design and manufacturing of aviation and airplane technologies and parts. The company has commercial and military clients worldwide. Task 1: Assessing loan options for AirJet Best Parts, Inc. The company needs to finance $8,000,000 for a new factory in Mexico. The funds will be obtained through a commercial loan and by issuing corporate bonds. Here is some of the information regarding the APRs offered by two well-known commercial banks. Bank | APR | Number of Times Compounded | National First | Prime Rate + 6.75% | Semiannually | Regions Best | 13.17 | Monthly | 1. Assuming that AirJet Parts, Inc. is considering loans from National First and Regions Best, what are the EARs for these two banks? Hint for National Bank:...
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...Chapter 11: 4, 7, 8, 10, 11, 12, 14, 15, 18, 20, 21, 22, 23, 24, 26, 27 Chapter Eleven Credit Risk: Individual Loan Risk Chapter Outline Introduction Credit Quality Problems Types of Loans • Commercial and Industrial Loans • Real Estate Loans • Individual (Consumer) Loans • Other Loans Calculating the Return on a Loan • The Contractually Promised Return on a Loan • The Expected Return on a Loan Retail versus Wholesale Credit Decisions • Retail • Wholesale Measurement of Credit Risk Default Risk Models • Qualitative Models • Quantitative Models Summary Appendix 11A: Credit Analysis (www.mhhe.com/saunders7e) Appendix 11B: Black-Scholes Option Pricing Model (www.mhhe.com/saunders7e) Solutions for End-of-Chapter Questions and Problems 1. Why is credit risk analysis an important component of FI risk management? What recent activities by FIs have made the task of credit risk assessment more difficult for both FI managers and regulators? Credit risk management is important for FI managers because it determines several features of a loan: interest rate, maturity, collateral and other covenants. Riskier projects require more analysis before loans are approved. If credit risk analysis is inadequate, default rates could be higher and push a bank into insolvency, especially if the markets are competitive and the margins are low. Credit risk management has become more complicated...
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...Journal of Accounting and Economics 31 (2001) 255–307 Empirical research on accounting choice$ Thomas D. Fieldsa, Thomas Z. Lysb,*, Linda Vincentb b Graduate School of Business Administration, Harvard University, Boston, MA 02163, USA Kellogg Graduate School of Management, Northwestern University, Evanston, IL 60208, USA Received 21 January 2000; received in revised form 31 January 2001 a Abstract We review research from the 1990s that examines the determinants and consequences of accounting choice, structuring our analysis around the three types of market imperfections that influence managers’ choices: agency costs, information asymmetries, and externalities affecting non-contracting parties. We conclude that research in the 1990s made limited progress in expanding our understanding of accounting choice because of limitations in research design and a focus on replication rather than extension of current knowledge. We discuss opportunities for future research, recommending the exploration of the economic implications of accounting choice by addressing the three different reasons why accounting matters. r 2001 Published by Elsevier Science B.V. JEL classification: M41 accounting Keywords: Capital markets; Accounting choice; Voluntary disclosure; Accounting judgments and estimates; Earnings manipulation $ We are grateful for comments received from Ronald Dye, participants of the 2000 Journal of Accounting and Economics conference, the editors Ross Watts and Douglas...
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...asymmetric information problems in securities markets exemplified by the Enron bankruptcy scandal? online html notes “Enron Scandal & Moral Hazard”): In what ways (if any) are © 2004 Pearson Addison-Wesley. All rights reserved 8-2 Financial Structure Manner in which firms finance their activities using external funds. MIX SOURCE Equity Debt Securities Markets FIs 8-3 © 2004 Pearson Addison-Wesley. All rights reserved External Finance Sources 1970-2000 © 2004 Pearson Addison-Wesley. All rights reserved 8-4 The Decline of Banks as a Source of External Finance (Mishkin 12, Fig 2, p. 287) Source: Federal Reserve Flow of Funds Accounts; Federal Reserve Bulletin. © 2004 Pearson Addison-Wesley. All rights reserved 8-5 One reason for the decline…the U.S. savings & loan crisis in the 1980s Mishkin Chapter 11, Figure 1 © 2004 Pearson Addison-Wesley. All rights reserved 8-6 Recent Trends • Decreasing role for banks in supplying loans to U.S. firms. • Competing financial institutions now offering traditional banking services (e.g., Merrill Lynch) • Growing use of securities markets (e.g., corporate bond issue), especially by large corporations. • Loans → Securities. Securitization = Previously illiquid loans (e.g., mortgages) are increasingly being bundled together and turned into publicly...
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...This PDF is a selection from an out-of-print volume from the National Bureau of Economic Research Volume Title: Asymmetric Information, Corporate Finance, and Investment Volume Author/Editor: R. Glenn Hubbard, editor Volume Publisher: University of Chicago Press, 1990 Volume ISBN: 0-226-35585-3 Volume URL: http://www.nber.org/books/glen90-1 Conference Date: May 5, 1989 Publication Date: January 1990 Chapter Title: Investment, Financial Factors, and Cash Flow: Evidence from U.K. Panel Data Chapter Author: Michael Devereux, Fabio Schiantarelli Chapter URL: http://www.nber.org/chapters/c11476 Chapter pages in book: (p. 279 - 306) 11 Investment, Financial Factors, and Cash Row: Evidence from U.K. Panel Data Michael Devereux and Fabio Schiantarelli 11.1 Introduction Most empirical models of company investment rely on the assumption of perfect capital markets. One implication of this assumption is that, in a world without taxes, firms are indifferent to funding their investment programs from internal or external funds. However, there is a rapidly growing body of literature examining the possible existence of imperfections in capital markets and their effects on firms' financial and real decisions. In this paper we provide some econometric evidence on the impact of financial factors like cash flow, debt, and stock measures of liquidity on the investment decisions of U.K. firms. These variables are introduced via an extension of the Q model of investment, which...
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...Investment is when somebody uses (spends) money that they already have in hope of making more money in the future with the "investment. (3). Assets: A resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide future benefit. (4). Financial asset: A financial asset is an intangible asset whose value is derived from a contractual claim, such as bank deposits, bonds, and stocks. (5). Real assets: Real assets include precious metals, commodities, real estate, agricultural land and oil. (6). Mutual Fund: An investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets. (7). Closed-end fund: A closed-end fund is a publicly traded investment company that raises a fixed amount of capital through an initial public offering (IPO). The fund is then structured, listed and traded like a stock on a stock exchange. (8). Open-End Fund': A type of...
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...Debt Financing July 1994 Debt Financing Warning This workbook is the product of, and copyrighted by, Citibank N.A. It is solely for the internal use of Citibank, N.A., and may not be used for any other purpose. It is unlawful to reproduce the contents of these materials, in whole or in part, by any method, printed, electronic, or otherwise; or to disseminate or sell the same without the prior written consent of the Professional Development Center of Latin America Global Finance and the Citibank Asia Pacific Banking Institute. Please sign your name in the space below. Table of Contents TABLE OF CONTENTS Introduction: Course Overview............................................................................. v Course Objectives.......................................................................... vii The Workbook ............................................................................... vii Unit 1: Fundamentals of Debt Financing Introduction ................................................................................... 1-1 Unit Objectives .............................................................................. 1-1 Key Terms..................................................................................... 1-1 What Is Debt Financing?............................................................... 1-2 Sources of Debt Capital ................................................................ 1-3 Debt Markets .................................
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...1.0 Introduction Capital markets are a major source of finance for large companies engaging in investment projects. Successful investment projects can bring tremendous returns to shareholders in the form of dividend payment and increased share value. However, the source of finance affects a company’s overall cost of capital and by extension its dividends to shareholders. This report addresses the importance of the capital market and the efficient market hypothesis theories. The various source of finance available to large companies and the related cost. As well as the importance of the dividend decision and its possible affect on the company’s share price. [pic] 2.0 The role and importance of capital markets and efficient market hypothesis (EMH) [pic] The Role and Importance of Capital Markets A capital market is a market for the trading of long term securities such as, but not limited to debt and equity securities. A capital market which includes bond markets and stock exchanges serves two major functions. Firstly, it acts as a primary market for issuing new equity and debt capital. This means that companies[1] who want to raise new financing for investment projects or business expansion can source funding via this market. Secondly, it also acts as a secondary market for trading (that is to say buying and selling) of existing securities. The secondary market also serves as a source of pricing information for the primary market. Capital markets provide important...
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...Savings and loan associations have traditionally concentrated in mortgage lending, while commercial banks have concentrated in commercial lending. Savings and loan associations are now allowed to diversify their asset portfolio to a greater degree and will likely increase their concentration in commercial loans (but not to the same degree as commercial banks). Classify the types of financial institutions mentioned in this chapter as either depository or nondepository. Explain the general difference between depository and nondepository institution sources of funds. Depository institutions include commercial banks, savings and loan associations, and credit unions. These institutions differ from nondepository institutions in that they accept deposits. The source of funds: Commercial Banks and Savings Institutions- Deposits from households, businesses, and government agencies. Credit Unions-Deposits from Credit Union members Nondepository institutions include finance companies, mutual funds, insurance companies, pension funds, and Money market funds. Sources of funds: Finance companies sell securities to households and businesses to obtain funds Mutual Funds (Dominant in total assets) –sell shares to households, businesses, and government agencies Insurance companies receive insurance premiums and earning from investments Pension funds receive employee/employer contributions. Money Market...
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...study of the management of funds‘ and the management of funds as the system that includes the circulation of money, the granting of credit, the making of investments, and the provision of banking facilities. Therefore, Finance is defined as the procurement of funds and their effective utilization in business concerns. The concept of finance includes capital, funds, money, and amount. But each word has a unique meaning. Studying and understanding the concept of finance become has an important part of the business concern. 1.2 Corporate Finance Financial Management or corporate finance, deals with procurement of funds and their effective utilization in the business entities. Financial management is the broadest of the three areas of finance and is important in all types of businesses including banks, financial institutions, industrial concerns, and retail firms, governmental institutions such as schools, hospitals and even local governmental departments. Corporate finance is concerned with budgeting, financial forecasting, cash management, credit administration, and investment analysis and fund procurement of the business concern. Other areas of finance include: a) Investments- focus on behaviour of financial markets and the pricing of securities. b) Financial Institutions - They deal with banks and other firms that specialize in bringing the suppliers of funds together with the users of funds. 1.3 Financial Management Decisions The financial...
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