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RAISING CAPITAL & LEASING
Venture capital firms IPO
Clear Water Inc. has 1 million shares outstanding, selling at $20 per share.
To finance the development of a new well, Clear Water plans a rights issue, allowing 1 new share to be purchased for each 10 shares currently held.
The purchase price will be $10 per share.
1. How much money will be raised?
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2. What will the stock price be after the rights issue?
3. What is the value of 1 right?
4. Show the impacts on 2 shareholders, each with 50,000 shares: Jack exercises his rights and Jill sells her rights. LEASING
? Discuss the different types of leases;
? Operating leases.
? Financial leases.
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? Focus on the evaluation of financial leases by:
? Identifying the relevant incremental cash flows; and,
? Using discounted cash flow analysis to compare the value added to the firm by leasing as compared to buying.
TYPES OF LEASES
A LEASE is a rental agreement that extends for a year or more and involves a series of fixed payments.
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Our focus will be on leasing by firms as an alternative to buying capital equipment.
The LESSEE is the user of the asset who makes periodic payments to the LESSOR, who is the owner of the assets.
There are 2 principal types of leases:
An OPERATING LEASE is usually a shorter-term lease where the lessor is responsible for insurance, taxes and
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maintenance. Operating leases can typically be cancelled on short notice.
Because the lessor can cancel on short notice, the lessor assumes the risk of obsolescence and the risk that the asset cannot be leased to another lessee. This risk will have to be reflected in comparatively high lease charges, particularly for specialty assets or those facing rapid technological change.
A FINANCIAL LEASE is a longer-term lease that is differentiated from an operating lease by 3 essential characteristics:
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武汉大学公司管理系统金融课件（十）
