EBK FUNDAMENTALS OF CORPORATE FINANCE
EBK FUNDAMENTALS OF CORPORATE FINANCE
3rd Edition
ISBN: 9780133762808
Author: Harford
Publisher: PEARSON CUSTOM PUB.(CONSIGNMENT)
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Chapter 14, Problem 1CC
Summary Introduction

Equity financing:

Equity financing refers to a general method used by firms to raise capital for performing various activities. Firms raise funds by the issuance of common stock to investors at a definite price per share. The investors receive a proportion of ownership interest for the investment made by them in the firm.

A firm requires a lot of additional capital to be invested, so as to expand the business or for the overall growth of the current business. However, at times the required capital may not be available internally. In this case, the firms seek for investors outside the company to raise capital.

To ascertain: The main sources of funding for private companies for raising funds outside equity capital.

Expert Solution & Answer
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Explanation of Solution

The main sources of funding for private companies to for raising funds outside equity capital are angel investors, venture capital firms, and institutional investors.

Conclusion

Hence, the main sources of funding for private companies to for raising funds outside equity capital are angel investors, venture capital firms, and institutional investors.

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Scenario one: Under what circumstances would it be appropriate for a firm to use different cost of capital for its different operating divisions? If the overall firm WACC was used as the hurdle rate for all divisions, would the riskier division or the more conservative divisions tend to get most of the investment projects? Why? If you were to try to estimate the appropriate cost of capital for different divisions, what problems might you encounter? What are two techniques you could use to develop a rough estimate for each division’s cost of capital?
Scenario three: If a portfolio has a positive investment in every asset, can the expected return on a portfolio be greater than that of every asset in the portfolio? Can it be less than that of every asset in the portfolio? If you answer yes to one of both of these questions, explain and give an example for your answer(s). Please Provide a Reference
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