initial financing for most firms.. - ANStypically comes from a firm's original founders in the form
of a common stock investment.
3 ways to 'go public' for a firm - ANSPublic offering, rights offering, private placement
Public offering - ANSWhen a firm offers its shares for
sale to the general public.
Rights offering - ANSWhen a firm sells new shares to existing shareholders
Private placement - ANSthe firm sells new securities directly to an investor or a group of
investors.
Find price of a stock by: - ANSdiscounting all future cashflows at an appropriate rate of return.
What are the future cash flows? - ANSDividends
Appropriate rate of return - ANSRisk of those dividends
Covenants - ANSConditions lenders place on firms that seek long-term debt financing. Written
into a bond.
Tax treatment - ANSinterest paid to bond holders vs. dividends to stock holders
Tax credit - ANSAn amount subtracted directly from the tax owed
Tax deductible - ANSable to be deducted from taxable income when calculating income tax due.
Lowers your tax burden.
What happens when a company buys its own shares - ANSDrives up price/demand for shares.
3 reasons people buy/sell stocks - ANSIncome (dividends)
Diversify (portfolio)
Pure speculation (thinking it will be worth more)
The more risky the dividends - ANSThe higher the rate of return
3 models for dividend growth rate - ANS0 growth
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