1. B Class #5
BM6 chapters , 15.1
Based on slides created by Matthew Will
Modified 10/10/2001 by Jeffrey Wurgler

2. Slides by Matthew Will, Jeffrey Wurgler
Principles of Corporate Finance
Brealey and Myers Sixth Edition
An Overview of Corporate Financing
Slides by
Matthew Will, Jeffrey Wurgler
Chapter
Irwin/McGraw Hill
The McGraw-Hill Companies, Inc., 2000

3. Topics Covered Patterns of Corporate Financing Common Stock
Preferred Stock

4. Patterns of Corporate Financing
Two ways to finance investment:
Raise equity or debt (external finance)
Plow back profits rather than distribute them to shareholders (internal finance) 20

5. Patterns of Corporate Financing

6. Patterns of Corporate Financing20

7. Patterns of Corporate Financing
How to define “debt ratio” (aka “leverage ratio”) ? 20

8. Patterns of Corporate Financing

9. Common Stock Mobil Book Value Equity (12/97)
Shares Issued = 894 million, Outstanding = million 9

10. Common Stock Mobil Market Value (12/97)
Total Shares outstanding = million 10

11. Common Stock Typical common shareholder rights:
Right to vote for director candidates
If own 100 shares, and 5 directors to be elected
Majority voting: have 500 votes, can only apply 100 to any one candidate
Cumulative voting: can apply all 500 votes to one candidate
Right to vote in “proxy contests” (e.g. control contests)
May be multiple “classes” of common stock w/different voting rights
Can get control of firm without buying all shares

12. Preferred Stock
Preferred Stock – Another form of equity (i.e. directors can choose not to pay a dividend)
Differences with common stock:
Promises (doesn’t guarantee) fixed dividend stream
Dividends (if declared) must go to preferred before common
Preferred has only limited voting rights
Tax advantages and disadvantages 14

13. Slides by Matthew Will, Jeffrey Wurgler
Principles of Corporate Finance
Brealey and Myers Sixth Edition
How Corporations Issue Securities
Chapter
15.1
Slides by
Matthew Will, Jeffrey Wurgler
Irwin/McGraw Hill
The McGraw-Hill Companies, Inc., 2000

14. Topics Covered
Venture Capital

15. Equity invested to finance a new firm
Venture Capital
Venture Capital
Equity invested to finance a new firm
Since success of a new firm is highly dependent on the effort of the managers, restrictions are placed on management by the venture capital company and funds are usually disbursed in stages, after certain milestones are achieved. 4

16. Venture Capital 5

17. Venture Capital 6