Corporate Financing and Human Behavior in Finance
Internal funds are obtained from the retention of earnings. If firms require external financing, the financial managers can structure equity or debt to finance a firm’s operations. Equity represents ownership interests and can be either common or preferred stock. Debt is money borrowed from creditors.
Intermediaries serve the role of servicing savers and borrowers to achieve their desired pattern of inter-temporal consumption. Instead of savers and borrowers having to deal with each other on an individual basis, they deal with the intermediary. The intermediary realizes a profit by lending at a higher rate than it pays savers (the spread).
For the Scenario below, you are the CFO. Share with us what you explaining to your fellow C suite members and the board of directors.
Scenario:
Boudin Wireline Services, Inc. in Estelle, Louisiana is contemplating an acquisition of Lagniappe Consulting, LLC, a complimentary company based in Lafayette, Louisiana. Boudin is an S Corporation and Lagniappe is a limited liability company. The venture capitalist believes the structure of both companies is not correct to do an initial public offering of $100 million. The venture capital firm has suggested a C corporation. The venture capitalist will be taking an equity kicker in the deal, three board seats, and have expressed their desire to maximize profits. The CFO meets with the other C suite members and the board of directors to explain what is happening.
Required reading:
Fabozzi, F. J. & Peterson Drake, P. (2009). Finance: Capital Markets, Financial Management, and Investment Management. New Jersey: Wiley. Retrieved from EBSCO eBooks in the Touro Library. (See Chapter below).
• 9: Financial Management
Video Links
• Sources of Finance – Mr Rawat (What are the sources of finance?): https://www.youtube.com/watch?v=D1G8Y1Ob3Co
• Voting Rights (Who has the voting rights in a corporation): https://www.youtube.com/watch?v=VNEnCTBSps0&feature=results_main&playnext=1&list=PL325C38DF22F81023
• Bond Market: How Much Is My Savings Bond Worth Today? https://www.youtube.com/watch?v=knSC1TQDi74&feature=relmfu
• Introduction to the Financial Markets – Part 1 (Financial markets): https://www.youtube.com/watch?v=IirWiylabgA&feature=related
• Introduction to the Financial Markets – Part 2 (Financial markets): https://www.youtube.com/watch?v=I0dMO3lUPGA&feature=related
• Financial Institutions, Lecture 01: https://www.youtube.com/watch?v=btdTkebcwSs
• Financial Institutions, Lecture 02: https://www.youtube.com/watch?v=rY2riYCCyt8&feature=related
• Financial Institutions, Lecture 03: https://www.youtube.com/watch?v=2HMjXSvnhcw&feature=related