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Raising Funds How a business manages its finances is a key factor in whether or not that business succeeds. Where do bus

Raising Funds How a business manages its finances is a key factor in whether or not that business succeeds. Where do businesses find the money to get started?. Lesson Objective Calculate the selling expenses and the net proceeds from an issue of stocks or bonds. Content Vocabulary. stocks.

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Raising Funds How a business manages its finances is a key factor in whether or not that business succeeds. Where do bus

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  1. Raising Funds How a business manages its finances is a key factor in whether or not that business succeeds. Where do businesses find the money to get started?

  2. Lesson Objective Calculate the selling expenses and the net proceeds from an issue of stocks or bonds. Content Vocabulary • stocks stocks Share of ownership in a corporation. bonds A written pledge from a business or government that indicates the holder has lent the issuer money and will be repaid, with interest, after a certain amount of time. underwriting commission An amount of money paid to an investment banker who a business hires to distribute stocks or bonds. prospectus A formal written document that gives the facts about a new offering of securities. • bonds • underwriting commission • prospectus

  3. Example 1 The Landover Company is planning a major expansion program. To finance the program, Landover plans to sell an issue of 300,000 shares of stock at $41,50 per share. The underwriting commission will be 6.5 percent of the value of the stocks. Accounting fees, legal fees, and other expenses are estimated to be $112,050. If all the shares of the stock are sold, what net proceeds will Landover Company receive?

  4. Example 1 Answer: Step 1 Find the value of issue. Price per Share × Number of Shares $41.50 × 300,000 = $12,450,000

  5. Example 1 Answer: Step 2a Find the underwriting commission. Value of Issue × Percent of Underwriting Commission Underwriting commission: $12,450,000 × 6.5% = $809,250 Other expenses: = $112,050

  6. Example 1 Answer: Step 2b Find the total selling expenses. $809,250 + $112,050 = $921,300

  7. Example 1 Answer: Step 3 Find the net proceeds. Value of Issue – Total Selling Expenses $12,450,000 – $921,300 = $11,528,700

  8. Formula Cost per Share = Total Selling Expenses ÷ Total Number of Shares

  9. Example 2 What is the cost per share for the Landover Company in Example 1?

  10. Example 2 Answer Step: Find the cost per share. Total Selling Expenses ÷ Total Number of Shares $921,300 ÷ 300,000 = $3.071

  11. Practice 1 Find the net proceeds. Value of stock: $23,000,000 Commission: 4.5% of the value of the stock Other selling expenses: 0.4% of the value of the stock

  12. Practice 1 Answer $21,873,000

  13. Practice 2 Find the cost per share. Number of shares: 1,200,000 Total selling expenses: $1,487,000

  14. Practice 2 Answer $1,239

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