《财务管理专业英语》教学课件08.ppt

8.1 Financial Markets 8.2 Investment Banks 8.3 The Decision to Go Public 8.4 Cost of Capital Concept FINANCIAL MARKETS  The Role of Financial Markets: 1.Help channel funds from suppliers to demanders. 2. Provide a resale market. 3. Set market prices and rates of return. FINANCIAL MARKETS  Types of Financial Markets : 1. Money Markets vs. Capital Markets 2. Primary Markets vs. Secondary markets 3. Private Markets vs. Public Markets INVESTMENT BANKS  Three major services by investment banks: 1. Advising 2. Underwriting 3. Marketing THE DECISION TO GO PUBLIC  Privately held company vs. publicly held company Initial public offering (IPO) ? unseasoned new issue ? seasoned issue THE DECISION TO GO PUBLIC Advantages of Going Public 1. Broaden a firm’s access to capital market; 2. Increase the liquidity of a firm’s stock. 3. Set a value for a firm’s shares. 4. Increase a firm’s ability to attract management. THE DECISION TO GO PUBLIC Disadvantages of Going Public 1. Dilution of control; 2. Costs; 3. Disclosure of operating data; 4. Possible inactive trading. DIFFERENT METHODS OF ISSUING NEW SECURITIES Public offer——the sale of an issue of securities to the public Cash offer Rights offer——also called a privileged subscription, involves initially offering the securities to the firm’s existing stockholders. COST OF CAPITAL CONCEPT “Cost of capital” or “Rate of required return ” The cost of capital is the rate that the firm has to pay, explicitly or implicitly, the investors for their capital or the minimum rate of return required by the suppliers of capital. COST OF CAPITAL CONCEPT Use of the Cost of Capital in two major ways: 1. To help identify the discount rate to be used to evaluate proposed capital investments; 2. To serve as a guideline in developing capital structure and evaluating financial alternatives.Use COST OF CAPITAL CONCEPT Capital Components various types of debt preferred stock common s