1. How does a company raise money (capital) for their projects? 1) Common Shares
ID: 2646882 • Letter: 1
Question
1. How does a company raise money (capital) for their projects?
1) Common Shares.
2) Preferred Stock.
3) Bounds/Debentures.
2. KOOKIS, Inc., has 3M shares of common stock, $20 per share. What is the market value of common equity?
Common Stock = 3,000,000 x $20 = 60,000,000
Hence, the common stock is $20,000,000.
3. The company has 1M shares of preferred stock, $10 per share. What is the market value of preferred equity?
Preferred stock = 1,000,000 x $10 = $10,000,000
4. A company has 30K units of bond with a par value of $1,000 per unit. The bond is selling at 100% of par value. What is the market value of debt?
Market value of bound = 30,000 x 1,000 = 30,000,000.
Hence, the market value of bounds is $30,000,000.
5. What is the total capital the company raised?
Total capital raised = common stock issued ($20,000,000) + preferred stock issued ($10,000,000) + Bounds issued ($30,000,000).
Total capital raised = $60,000,000
Hence, the total capital raised is $60,000,000.
6. What is a company
Explanation / Answer
1) Common shares: Shares are issued to public at large or prospective investor. Shares can be issued at discount or premium or at par value depending on company's prevailing price of share. Common shareholder get the dividend as the company may declare and entitled for vote at company's various meeting.
2) Preferred stock: Preferred shares are also issued to public at large or prospective investor. These Shares can also be issued at discount or premium or at par value depending on company's prevailing price of share. However these shares get the fixed rate of dividend as given at the time of issue of shares. These shares can be cumulative or non cumulative. These shareholders does not have voting rights.
3) Bond / Debentures: Bond / debentures is a debt fudning for the company. It is issued to raise the funds from public or investors. Bonds can also be issued at par, discount or premium depending on the coupon rate and current market rate. Bond holders get the fixed rate of interest or coupon payment. Cost of debt is tax deductible expenses for the company.
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