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Chapter 5: Q8DQ (page 493)

If a company were looking for capital by way of a private placement, where would it look for funds?

Short Answer

Expert verified

A company may raise capital by way of a private placement through insurance companies, pension, and mutual funds.

Step by step solution

01

Private placement

Private placement refers to the approach adopted by companies in which they do not sell their stock in theopen market and trade with pre-selected investors

02

Sources of funds in private placement

Companies often raise capital in a private placement through insurance companies, pension funds, mutual funds, and wealthy investors.

Such sources fulfill the capital requirement of the companies, and companies save their time and money from open market trading.

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Most popular questions from this chapter

Question: The management of Mitchell Labs decided to go private in 2002 by buying in all 2.80 million of its outstanding shares at \(24.80 per share. By 2006, management had restructured the company by selling off the petroleum research division for \)10.75 million, the fiber technology division for \(8.45 million, and the synthetic products division for \)20 million. Because these divisions had been only marginally profitable, Mitchell Labs is a stronger company after the restructuring. Mitchell is now able to concentrate exclusively on contract research and will generate earnings per share of $1.10 this year. Investment bankers have contacted the firm and indicated that if it reentered the public market, the 2.80 million shares it purchased to go private could now be reissued to the public at a P/E ratio of 15 times earnings per share.

b. What is the total value to the company from (1) the proceeds of the divisions that were sold, as well as (2) the current value of the 2.80 million shares (based on current earnings and an anticipated P/E of 15)?

What cost of capital is generally used in evaluating a bond refunding decision? Why?

In which foreign industry has privatization been most important?

Discuss the reason for the differences between underwriting spreads for stocks and bonds.

The Pioneer Petroleum Corporation has a bond outstanding with an \(85 annual interest payment, a market price of \)800, and a maturity date in five years. Find the following:

a. The coupon rate.

b. The current rate.

c. The yield to maturity
See all solutions

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