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4. Advantages of Public Financing Advantages of Private Financing Types of Private Financing Deals: Going Private and Leveraged Buyouts Comparing Public and Private Financing Obtaining Capital: Methods of Long-Term Financing > Comparing Public and Private Financing Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance?campaign_content=book_192_section_112&campaign_term=Finance&utm_campaign=powerpoint&utm_medium=di rect&utm_source=boundless

5. The magnitude of funding available from public financing is its chief advantage. An initial public offering is when a private company converts to a public company by selling shares of its stock publicly. A company can sell further shares of stock in secondary offerings. A company can also sell debt, in the form of bonds, in public exchanges. Advantages of Public Financing Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance/textbooks/boundless-finance-textbook/obtaining-capital-methods-of-long-term-financing-14/comparing-public-and- private-financing-112/advantages-of-public-financing-472- 3454?campaign_content=book_192_section_112&campaign_term=Finance&utm_campaign=powerpoint&utm_medium=direct&utm_source=boun dless Public Financing View on Boundless.com Obtaining Capital: Methods of Long-Term Financing > Comparing Public and Private Financing

6. One advantage of private financing is that private investors may infuse the company with more capital than was available to it from public financing. Private financing also saves on administrative costs of being a publicly traded company. Private financing can improve incentives for management, and increase investor involvement. Advantages of Private Financing Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance/textbooks/boundless-finance-textbook/obtaining-capital-methods-of-long-term-financing-14/comparing-public-and- private-financing-112/advantages-of-private-financing-473- 5679?campaign_content=book_192_section_112&campaign_term=Finance&utm_campaign=powerpoint&utm_medium=direct&utm_source=boun dless Private financing View on Boundless.com Obtaining Capital: Methods of Long-Term Financing > Comparing Public and Private Financing

7. The acquiring party borrows money in addition to using its own funds to meet the purchase price of the target. LBOs can also occur to public companies, such as in public to private (PtP) transactions. The term typically applies to a deal in which a financial sponsor acquires a company. In this instance, the sponsor uses debt to increase its return on equity. LBOs are appealing to the acquiring company because debt typically carries a lower cost of capital than equity, which means that by employing more debt, the acquiring party magnifies returns. Types of Private Financing Deals: Going Private and Leveraged Buyouts Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance/textbooks/boundless-finance-textbook/obtaining-capital-methods-of-long-term-financing-14/comparing-public-and- private-financing-112/types-of-private-financing-deals-going-private-and-leveraged-buyouts-474- 4236?campaign_content=book_192_section_112&campaign_term=Finance&utm_campaign=powerpoint&utm_medium=direct&utm_source=boun dless Financing deal View on Boundless.com Obtaining Capital: Methods of Long-Term Financing > Comparing Public and Private Financing

8. Free to share, print, make copies and changes. Get yours at www.boundless.com Appendix

9. Key terms incentive Something that motivates, rouses, or encourages. insolvency The condition of being insolvent; the state or condition of a person who is insolvent; the condition of one who is unable to pay his debts as they fall due, or in the usual course of trade and business; as, a merchant's insolvency. investor A person who invests money in order to make a profit. leverage The use of borrowed funds with a contractually determined return to increase the ability of a business to invest and earn an expected higher return (usually at high risk). overleveraged Subject to excessive leverage security proof of ownership of stocks, bonds, or other investment instruments.W Stock The capital raised by a company through the issue of shares. The total of shares held by an individual shareholder. Free to share, print, make copies and changes. Get yours at www.boundless.com Obtaining Capital: Methods of Long-Term Financing

10. Financing deal An LBO is a type of financing deal. Free to share, print, make copies and changes. Get yours at www.boundless.com Flickr. "All sizes | Handshake | Flickr - Photo Sharing!." CC BY http://www.flickr.com/photos/aidan_jones/3575000735/sizes/m/in/photostream/ View on Boundless.comCC BYhttp://www.flickr.com/photos/aidan_jones/3575000735/sizes/m/in/photostream/View on Boundless.com Obtaining Capital: Methods of Long-Term Financing

11. 1903 stock certificate of the Baltimore and Ohio Railroad Normally stocks are traded publicly, except in the instance of private stocks, which are only offered and traded by internal stakeholders such as founders, employees, etc. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikipedia. "B&O RR common stock." Public domain http://en.wikipedia.org/wiki/File:B%2526O_RR_common_stock.jpg View on Boundless.comPublic domainhttp://en.wikipedia.org/wiki/File:B%2526O_RR_common_stock.jpgView on Boundless.com Obtaining Capital: Methods of Long-Term Financing

12. Private financing Private financing can offer advantages over public. Free to share, print, make copies and changes. Get yours at www.boundless.com Flickr. "All sizes | Private | Flickr - Photo Sharing!." CC BY http://www.flickr.com/photos/holster/195031415/sizes/m/in/photostream/ View on Boundless.comCC BYhttp://www.flickr.com/photos/holster/195031415/sizes/m/in/photostream/View on Boundless.com Obtaining Capital: Methods of Long-Term Financing

13. Public Financing Public financing offers immediate access to large amounts of funding. Free to share, print, make copies and changes. Get yours at www.boundless.com Flickr. "All sizes | Stock Market | Flickr - Photo Sharing!." CC BY http://www.flickr.com/photos/76657755@N04/7027607705/sizes/m/in/photostream/ View on Boundless.comCC BYhttp://www.flickr.com/photos/76657755@N04/7027607705/sizes/m/in/photostream/View on Boundless.com Obtaining Capital: Methods of Long-Term Financing

14. Free to share, print, make copies and changes. Get yours at www.boundless.com Obtaining Capital: Methods of Long-Term Financing Which of the following is the main advantage for a company to go public? A) The company can diversify its equity base. B) The company can attract and retain better managers and employees. C) By being publicly traded, the company has greater access to capital. D) The company has more opportunities for acquiring other businesses.

15. Free to share, print, make copies and changes. Get yours at www.boundless.comwww.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/CC BY-SA 3.0http://www.boundless.com/ Obtaining Capital: Methods of Long-Term Financing Which of the following is the main advantage for a company to go public? A) The company can diversify its equity base. B) The company can attract and retain better managers and employees. C) By being publicly traded, the company has greater access to capital. D) The company has more opportunities for acquiring other businesses.

16. Free to share, print, make copies and changes. Get yours at www.boundless.com Obtaining Capital: Methods of Long-Term Financing Which of the following is a reason a public company might decide to go private? A) All of these answers. B) Private investors can offer expert knowledge and oversight, where public investors generally cannot. C) Privately financed companies generally have lower administrative costs. D) Generally private companies are owned by the managers, which incentivizes them to improve performance.

17. Free to share, print, make copies and changes. Get yours at www.boundless.comwww.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/CC BY-SA 3.0http://www.boundless.com/ Obtaining Capital: Methods of Long-Term Financing Which of the following is a reason a public company might decide to go private? A) All of these answers. B) Private investors can offer expert knowledge and oversight, where public investors generally cannot. C) Privately financed companies generally have lower administrative costs. D) Generally private companies are owned by the managers, which incentivizes them to improve performance.

18. Free to share, print, make copies and changes. Get yours at www.boundless.com Obtaining Capital: Methods of Long-Term Financing Which of the following statements regarding leveraged buyouts (LBOs) is correct? A) An LBO is an acquisition that is financed by debt secured by the cash flows of the target company. B) LBOs mostly occur in public companies. C) In an LBO, the junior debt is secured with the assets of the target company. D) All of these answers.

19. Free to share, print, make copies and changes. Get yours at www.boundless.comwww.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/CC BY-SA 3.0http://www.boundless.com/ Obtaining Capital: Methods of Long-Term Financing Which of the following statements regarding leveraged buyouts (LBOs) is correct? A) An LBO is an acquisition that is financed by debt secured by the cash flows of the target company. B) LBOs mostly occur in public companies. C) In an LBO, the junior debt is secured with the assets of the target company. D) All of these answers.

20. Attribution Wikipedia. "Public company." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Public_companyCC BY-SA 3.0http://en.wikipedia.org/wiki/Public_company Wikipedia. "Initial public offering." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Initial_public_offering#Reasons_for_listingCC BY-SA 3.0http://en.wikipedia.org/wiki/Initial_public_offering#Reasons_for_listing Wiktionary. "security." CC BY-SA 3.0 http://en.wiktionary.org/wiki/securityCC BY-SA 3.0http://en.wiktionary.org/wiki/security Wikipedia. "Leveraged buyout." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Leveraged_buyoutCC BY-SA 3.0http://en.wikipedia.org/wiki/Leveraged_buyout Wikipedia. "Public company." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Public_companyCC BY-SA 3.0http://en.wikipedia.org/wiki/Public_company Wiktionary. "insolvency." CC BY-SA 3.0 http://en.wiktionary.org/wiki/insolvencyCC BY-SA 3.0http://en.wiktionary.org/wiki/insolvency Wiktionary. "overleveraged." CC BY-SA 3.0 http://en.wiktionary.org/wiki/overleveragedCC BY-SA 3.0http://en.wiktionary.org/wiki/overleveraged Wiktionary. "leverage." CC BY-SA 3.0 http://en.wiktionary.org/wiki/leverageCC BY-SA 3.0http://en.wiktionary.org/wiki/leverage Wikipedia. "Privately held company." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Privately_held_companyCC BY-SA 3.0http://en.wikipedia.org/wiki/Privately_held_company Wiktionary. "investor." CC BY-SA 3.0 http://en.wiktionary.org/wiki/investorCC BY-SA 3.0http://en.wiktionary.org/wiki/investor Wikipedia. "Stock." CC BY-SA 3.0 http://en.wikipedia.org/wiki/StockCC BY-SA 3.0http://en.wikipedia.org/wiki/Stock Wiktionary. "incentive." CC BY-SA 3.0 http://en.wiktionary.org/wiki/incentiveCC BY-SA 3.0http://en.wiktionary.org/wiki/incentive Free to share, print, make copies and changes. Get yours at www.boundless.com Obtaining Capital: Methods of Long-Term Financing