Question.3255 - Answer the following questions in at least a paragraph.1. The evidence of IPO sales is varied from issue to issue, but there are three common themes; underpricing, underperformance, and the reasons for going public. Explain these three items and provide at least two examples for each. 2. Different countries have different sources of funds. For example, in the United States, internally generated funds count for over 4/5 of all funds while in Japan, it is about ½ with externally generated funds making up the remainder. The disparities are less in the United Kingdom and Germany, with about 2/3 of funds coming from internal sources. Discuss this disparity and why it might exist. 3. The Neptune Company offers network communications systems to computer users. The company is planning a major investment expansion but is unsure of the correct measure of equity capital as it has no traded equity. Your job is to determine the basis of the equity cost. List and explain the steps you will need to take.
Answer Below:
IPOThe xxxx reasons xxx companies xxxxx for xxx are xx raise xxxx when xxx companies xxx in xxxx of xxxxx Sometimes xxxx the xxxxxxxxxxx of xxx companies xx not xxxx or xxxx there xx cash-crunch xxxx also xxx companies xx for xxx Although xx is x bad xxxxxx to xxxxxxxxx when xx entrepreneur xxxxx his xxx shares xx still xxxxx sense xxx many xxxxxxxxxxxxx to xxxx out xxxx of xxxxx wealth xx diversify xx just xx enjoy xxxx Public xxxxx tend xx have xxxxxx profiles xxxx private xxxxx This xx important xx industries xxxxx success xxxxxxxx customers xxx suppliers xx make xxxxxxxxx commitments xxx example xxxxxxxx requires xxxxxxxx and xx manager xxxxx to xxx software xxxx a xxxx that xxx not xx around xxx future xxxxxxxx improvements xxx fixes xxx Indeed xxx suppliers xxx customers xxxxxxxxxx of xxxxxxx success xx a xxxxx fulfilling xxxxxxxx However xxxxx are xxxx disadvantages xxx companies xxxxx for xxx like xxxxxx needs xx be xxxxxxxxxxx among xxxxx group xx shareholders xxxxx is x loss xx confidentiality xxx the xxxxxxxxx needs xx comply xxxx large xxxxxx of xxxxxxxxxxx and xxx to xxxxxxx large xxxxxxxxx responsibilities xxx there xx a xxxx of xxxxxxx on xxx organization xxxxxxx of xxxxxx companies xxx has xxxx for xxxx are xxxxx Co xxxxx Cascade xx etc xxxxxxxxxx Generated xxxxxxxxx are xxxxx funds xxxxx are xxxxxxxxxx generated xx the xxxxxxxx through xxx day-to xxx operations xx the xxxxxxxx like xxxx reinvested xx the xxxx depreciation xxxx earnings xxx paid xxx as xxxxxxxxx etc xxxxxxxx capital xx a xxxxx source xx funds xxx financing xxxxxxxxx investments xxxx reliance xx self-generated xxxx as x source xx investment xxxxx has xxxxxxxx researchers xx investigate xxx relationship xxxxxxx firm x investment xxxxxxxxx and xxxxxxxx resources xx a xxxxx where xxxxxxx markets xxx perfect xxx all xxxxx have xxxx access xx external xxxxxxx of xxxxxxxxx and xxxxxxxxxx decisions xxxxx be xxxxx solely xx expected xxxxxx profitability xxx thus xxx be xxxxxxxx by xxx availability xx internally xxxxxxxxx funds xxxxxxx in xxx real xxxxx however xxxxxxx market xxxxxxxxxxxxx exist xxxxxx internal xxxxx less xxxxxx and xxxxxxxxx more xxxxxxxxxx than xxxxxxxx funds xxxx reliance xx internal xxxxx should xx stronger xxx firms xxxxxx greater xxxxxxx market xxxxxxxxxxxxx i x firms xx countries xxxxx external xxxxxxx markets xxx less xxxxxxxxx The xxxxxxxxxxx empirical xxxxxxxx that xxxxxx therefore xx whether xxxxxxxxx investments xxx indeed xxxx sensitive xx the xxxxxxxxxxxx of xxxxxxxx funds xxx firms xx less xxxxxxxxx economies xxxx in xxxxxxxxx countries xxxx USA xxxxxxxxxx generated xxxxx count xxx over xx all xxxxx while xx Japan xx is xxxxx with xxxxxxxxxx generated xxxxx making xx the xxxxxxxxx The xxxxxxxxxxx are xxxx in xxx United xxxxxxx and xxxxxxx with xxxxx of xxxxx coming xxxx internal xxxxxxx Cost xx EquityIn xxxxxx companies xx is xxxx easy xx measure xxx cost xx equity xx the xxxxxx price xx the xxxxx is xxxxxx available xx the xxxxxx are xxxxxx traded xx the xxxxxx However xxx unlisted xxx traded xxxxxxxxx it xx difficult xx measure xxx cost xx equity xxxxx are xxxx methods xx valuing xxx cost xx equity xxxx of xxxxxxx quot xx defined xx quot xxx opportunity xxxx of xxx capital xxxxxxxx in xx enterprise xxxx Opportunity xxxx is xxxx you xxxx up xx a xxxxxxxxxxx of xxxx decision xx use x scarce xxxxxxxx in x particular xxx All xxxxxxx invested xx the xxxxx amount xx cash xxxxxxxx into x business xx an xxxxxxxxxx this xxxxxx to xxx fact xxxx we xxx measuring xxx opportunity xxxx of xxx sources xx capital xxxxx include xxxx and xxxxxx Calculation x Company x Weighted xxxxxxx Cost xx Capital xx calculate x company x weighted xxxxxxx cost xx capital xxxxx a xxxx process xxxxx Cost xx capital xxxxxxxxxx First xx calculate xx infer xxx cost xx each xxxx of xxxxxxx that xxx enterprise xxxx namely xxxx and xxxxxx A xxxx capital xxx cost xx debt xxxxxxx is xxxxxxxxxx to xxxxxx or xxxxxxx interest xxxx on xxx company x debt xxxxxxxx for xxx tax-deductibility xx interest xxxxxxxx Specifically xxx after-tax xxxx of xxxxxxxxxxxx The xxxxxxxxxxxxxxxxx on xxxxxxxxx debt x minus xxx marginal xxx rate xx We xxxxx the xxxxxxxx corporate xxx rate xx the xxxxxxxxx quot xxxx quot x Equity xxxxxxx Equity xxxxxxxxxxxx unlike xxxx holders xx not xxxxxx an xxxxxxxx return xx their xxxxxxx However xxxxxx shareholders xx face xx implicit xxxxxxxxxxx cost xxx investing xx a xxxxxxxx company xxxxxxx they xxxxx invest xx an xxxxxxxxxxx company xxxx a xxxxxxx risk xxxxxxx Thus xx infer xxx opportunity xxxx of xxxxxx capital xx can xx this xx using xxx quot xxxxxxx Asset xxxxxxx Model xxxx CAPM xxxx model xxxx that xxxxxx shareholders xxxxxx a xxxxxxx rate xx return xxxxx to xxx return xxxx a xxxxx free xxxxxxxxxx plus x return xxx bearing xxxxx risk xxxx extra xxxx is xxxxx called xxx quot xxxxxx risk xxxxxxx quot xxx is xxxxxxxxxx to xxx risk xxxxxxx of xxx market xx a xxxxx time x multiplier--called xxxx beta xxxx that xxxxxxxx how xxxxx a xxxxxxxx security xx relative xx the xxxxx market xxxx the xxxx of xxxxxx capital xxxxxxxxx Rate xxxx times xxxxxx Risk xxxxxxx Step- xxxxxxx structure xxxx we xxxxxxxxx the xxxxxxxxxx that xxxx and xxxxxx capital xxxxxxxxxx to xxx entire xxxxxxxxxx using xxx market xxxxxx of xxxxx debt xxx equity xx reflect xxx investments xx which xxxxx investors xxxxxx to xxxx a xxxxxxx return xxxxx Weighting xxx components xxxxxxx we xxxxxx the xxxx of xxxx kind xx capital xx the xxxxxxxxxx that xxxx contributes xx the xxxxxx capital xxxxxxxxx This xxxxx us xxxxxxxxxxx Average xxxx of xxxxxxx WACC xxx average xxxx of xxxx dollar xx cash xxxxxxxx in xxx businessMore Articles From Finance
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