Questions for Part IV “The Financing Decision II: The Financing Vehicles” Chapter 16 Why does the market usually react negatively to security offerings? According to academic research and the author of the article, which hypothesis offers most insights into the pattern of market reactions to new security sales? What are the different ways of marketing a security issue? Why do you think an underwritten offering is the most common one? What is the “Green Shoe Option”? Chapter 17 What are the basic approaches for using finance to increase the value of the firm? How can a company benefit from repackaging future cash flow rights to investors? Why do many firms consider debt financing to be less expensive than equity financing and why is this misleading? What are the ways in which a firm can increase liquidity? What is one of the key costs associated with issuing new securities? What are the benefits of adhering to the financial “pecking order.” What are the three main sources of conflict related to financial policy? What is the problem of overexpansion? What are the key characteristics of implicit claims? What are a few features of rapidly growing companies? What are the differences in tax concerns for growing companies versus mature companies? Discuss the different ways of financing rapidly growing companies? Which is better: equity or debt? How can a new start-up obtain the necessary funds for growth? What are convertibles and how can they be useful? What are their drawbacks? Chapter 18 What are the main factors that influence the choice between using privately placed debt and issuing publicly traded debt? Are corporate bonds and commercial paper close substitutes for bank borrowing for certain types of borrowers? Does the identity of a particular type of private lender matter? If bank loans are good news for stock market investors, why do so many companies issue publicly traded debt? In conclusion: Are bank loans still special? Chapter 19 What are convertible bonds? How does the market usually react to issues of convertible bonds? Convertible bond issues reached a record high in 2001. Can you explain why? What companies can benefit most from issuing convertible bonds? Chapter 21 Using Project Finance to Fund Infrastructure Investments What have been the four principal features of project financing? How is project financing different from traditional lending? What is the benefit of involving the private sector in project financing and/or project management? What are the five main parties involved in project financing? How do contractual arrangements distribute risk among the various parties to a project? Why are projects incorporated in separate companies? Why are the operators and the main contractors of the project typically the main equity-holders in that company? Why are project companies highly leveraged? Why does this leverage take the form of non-recourse financing? When does project financing make sense and when does it not?
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