Public V Private Sources Of Raising Capital

Public v. Private Sources of Raising Capital

Public

  • Must be registered according to SEC provisions-everything fully disclosed.
  • in the public market investors don't know with whom they are dealing
  • ex: common stock, preferred stock, corporate bonds
  • more liquid, umlimited investor base, costly registration

Private

  • Exempt from registration
  • Placement under
  • 35 sophisticated investors
  • cannot be traded on public markets
  • ex: bank loans, private investments
  • 144A-institutions with assets exceeding $100 million can trade amont themselves.
  • less liquid, limited investor base, no costly registration, customized terms, allows for confidentiality

Valuing a Right-A company will typically issue one right for each stock already in existence

When the stock is issued trading goes from rights on to rights off.

M'= M - V
New Market Value = Market Price - Value of the Right

S=Subscription Price
N = # of Shares Required to buy 1 right

Rights off V = (M' - S)/ N
Rights on V = (M' - S)/ N+1

Euro - means outside of the country of the currency, large international banks help firms with transactions around the world.

Major trends in raising capital include: globalization, de-regulation, innovation with regard to instruments, technology, securitization