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:tada:ADVANCED CORPORATE FINANCE :tada: (AWADULLAH & KAMALIA)…

- - - - Financial Strength
      - References
      - Contacts
      - Style
      - Exit Strategy
  - - - Seasonal Equity Offering (SEO)
        A new equity issue of securities by a company that has previously issued securities to the public.
      - Initial Public Offering (IPO)
        A company's first equity issue made available to the public.
    - - "Rights" are given to the shareholders
        
        Specify time frame
        
        Specify number of shares that can be purchase
        
        Specify purchase price
- - - - Bottom Up Approach
      - Tax Shield Approach
- - - - M&M proposition I and taxes
        
        it states that Vu=VL, if no cash effect
        
        Vu =[ (EBIT x (1 - Tc) ] / Ru
        
        Ru = cost of unlevered firm
        
        VI = Vu + (Tc x D)
      - M&M proposition II and taxes
        
        WACC with tax effect = WACC (RA) = (E/V) RE + (D/V) (RD) (1 - Tc)
        
        to find the WACC, we need to find new RE which can use the formula RE = Ru + (Ru - RD) (D/E) (1 - Tc)
        
        WACC (RA) = (E/V) RE + (D/V)RD and by rearrange it we can get RE = RA + (RA - RD)(D/E) where WACC will not change whatever the composition between equity and debt. But the more you support your capital with debt, the riskier it will be to the s/h (RE).
    - - 1) Required rate of return on the firm's assets (Ra)
      - 3) Debt/Equity ratio of the firm (D/E)
      - 2) Cost of debt of the firm (Rd)
- - - - Base Case Scenario
      - Best Case Scenario
      - Worst Case Scenario
    - - Useful to pinpoint areas where forecasting is especially severe
      - Freeze all variables except one > see how sensitive NPV estimates to changes in that one variable
  - - - Accounting breakeven
        
        Net income = 0
      - Financial breakeven
        
        Sales level that results in 0 NPV
      - Cash breakeven
        
        Sales level that results in 0 OCF
  - - - Units in business are allocated a certain amount of financing for capital budgeting
      - If we faced SR = try to get a larger allocation
    - - Business cannot raise financing for a project under any circumstances
- - - - Informational = accuracy and speed which security prices react to arriving information
      - Operational = accuracy and speed at which orders are processed
    - - Stocks take a random and unpredictable path that makes all methods of predicting prices meaningless in the long run
      - Movement of stock prices is random (skewed positive over the long term)
      - Past Movement or trend of a stock prices or markett CANNOT be used to predict its movement
    - - Hypothesis comes in different length depending on the information available to investors
      - Information is reflected on prices - the more information that is incorporated into prices, the more efficient the market becomes based on these three form
        
        Weak Form EMH
        
        Current prices full reflect all the past market data
        
        Semi-Strong EMH
        
        Reflecting all publicly available information including past information
        
        Strong EMH
        
        Stock prices incorporated all information both public and private information (Insider trading)
      - High Risk, High Return
  - - - Attitudes towards risk
      - Beliefs abot probabilities
      - Indivisual are too conservative
      - Overconfidence
    - - Mental Accounting
      - Anchoring
      - Self-Attribution
      - Emotional Gap
      - Herd Behaviour
- - - - Will benefit temporary from undervalue stock
      - Want to free up profit may be for other reason :
        
        Eg: Pay executive compensation
      - Consolidate the ownership
- - - - No meetings and No vote required
      - Deal directly using a tender offer
  - - - Acquiring Firm
      - Acquired Firm