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PREPARED BY :
NORAINI BINTI HARUN (812921)
TEW CHOON POH (816302)
Topics :-
Financing.
Purpose of Long term
Financing.
Factors Determining Long
Term Sources of Financing.
Sources / Forms of Long
Capital
- Long term vs. short term(working capital) funds
requirements.
To finance the Growth and Expansion of a
business
- For modernization, expansion, diversification; huge
quantities requirements, irreversible decision
Technology used :
Ordinary Shares
Equity shareholders are the owners of the
Ordinary Shares
( continue )..
Authorised, Issued, Subscribed and Paid
up capital
Market Value
ORDINARY SHARES
PREFERENCE SHARES
Preference shares have some attributes
PREFERENCE SHARES
Hybrid form of Financing.
Ordinary shares Features:
PREFERENCE SHARE( S
continue).
Example :
The Board of Directors of Octagon
announced that Octagon Consolidated
Berhad, Green Energy and Technology
Sdn. Bhd. (GreenTech) and KNM
Renewable Energy Sdn. Bhd.
(KNMRE) had on 6th December 2011
entered into a Share Subscription
Agreement for GreenTech to issue
10 million of Redeemable Convertible
Preference Shares (RCPS) to KNMRE
for a total cash consideration of RM 10
million of RM 1.00 per RCPS.
PREFERENCE SHARES
TYPES OF OFFERINGS :
Primary Offerings :
The new shares are sold in the IPO in order
to raise new capital.
Secondary Offerings :
The existing shares are sold by the current
shareholders as part of their exit strategy.
Best-Efforts IPO :
The underwriter does not guarantee that the
stock will be sold, but instead tries to sell the
stock for the best possible price. It applies for
smaller IPOs.
INTERNAL ACCRUALS
Retained
Earnings
Depreciation
Charges
INTERNAL ACCRUALS
Retained Earnings :
The retained earnings make a portion of
INTERNAL ACCRUALS
TERM LOAN
A term loan is a monetary loan that is repaid in
regular payments over a set period of time.
Provided by commercial bank / Financial Institutes.
Bonds :
Intermediate to long term debt
Debenture :
Subordinated Debenture:
Floating-rate bonds:
Floating-rate bonds are like the regular bullet bonds except that
coupon rate is tied to some variable rate benchmark . Example :
LIBOR: London Interbank Offered Rate.
Zero coupon bond:
Zero coupon bond is sold at substantial discounts from par buy pay no
current interest
Investors earn their rate of interest from interest accreting as bond
approaches maturity.
Example : Treasury bills.
Call Provisions:
Call Provisions defines as the issuing corporation has the right
to call in bond for retirement prior to maturity
Normally, it may not be called until some number of years after
the original issue and must be called at a premium above par
value
Sinking Fund:
Sinking fund establishes procedure for orderly retirement of a
bond over life of issue
Requires periodic (usually annual) repurchase of stated
percentage of outstanding bonds
Repurchasing corporation may either buy bonds in open market
or call in bonds for redemption
Bonds to be called are determined by lottery based on serial numbers of
bonds
When high interest rates drive bond prices down, open-market
purchases at discounts from par value are more attractive
Bonds (continue)
Lease Financing
Leasing is a form of debt financing which consist
Capital Lease :
Title is transferred to lessee at end of
lease term.
Lease contains bargain purchase option
(an option to buy asset at very low
price).
Term of lease is greater than or equal to
75% of estimated economic life of asset.
Present value of minimum lease payment
is greater than or equal to 90% of fair
value of leased property.
Operating
It
Lease :
Venture Capital
Venture capital is the form of the financial capital
which provided to early-stage, high potential, high
risk and the growth startup of the companies.
The venture capital fund makes money by owing
equity in the companies it invests in, which usually
have a novel technology or business model in high
technology industries such as biotechnology, IT and
software.
A business arrangement in which two or more
parties agree to pool their resources for the purpose
of accomplishing a specific task , i.e. new project or
any other business activity. Each of the participants
is responsible for profits, losses and costs
associated with it.