Pertemuan 8

28 November 2012

RAISING CAPITAL

Raising Capital

• How a firm raises capital depends a great deal on the size of the firm, its life cycle stage and its growth prospects

• Early Stages Venture Capital • Selling Securities

– General cash offer – Rights offer

• First time selling securities to public IPO • Underwriters

– Intermediaries between a company selling securities and the investing public

Rights

• Preemptive right the firm must first offer any new issue of common stock to existing shareholders

• How much rights needed to raise a required capital investment? – Subscription price the price that existing

shareholders should pay when they exercise the right

– Ex right price share’s price after exercising rights

• Calculate the number of new shares

• 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑛𝑒𝑤 𝑠ℎ𝑎𝑟𝑒𝑠 = 𝐹𝑢𝑛𝑑𝑠 𝑡𝑜 𝑏𝑒 𝑟𝑎𝑖𝑠𝑒𝑑

𝑠𝑢𝑏𝑠𝑐𝑟𝑖𝑝𝑡𝑖𝑜𝑛 𝑝𝑟𝑖𝑐𝑒

• 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑟𝑖𝑔ℎ𝑡𝑠 =𝑂𝑙𝑑 𝑠ℎ𝑎𝑟𝑒𝑠

𝑁𝑒𝑤 𝑆ℎ𝑎𝑟𝑒𝑠

• 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑜𝑛𝑒 𝑟𝑖𝑔ℎ𝑡 = 𝑜𝑙𝑑 𝑝𝑟𝑖𝑐𝑒 −𝑛𝑒𝑤 𝑝𝑟𝑖𝑐𝑒

Ilustrasi

• National Power wants to raise $5 million in new equity. Suppose the subscription price is set at $10 per share. Current market price is $20 per share.

Dilution

• Refers to a loss in existing shareholder’s value

– Dilution of percentage ownership

– Dilution of market value

– Dilution of book value and earning per share

• Can be avoided by using rights offering