Answer these three questions about early-stage corporate finance : Why do very small companies tend to raise money from private investors instead of through an IPO? Why do small, young companies often prefer an IPO to borrowing from a bank or issuing bonds? Who has better information about whether a small firm is likely to earn profits, a venture capitalist or a potential bondholder, and why?

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Answer 1

Textbook Question

Chapter 17, Problem 1SCQ

Answer these three questions about early-stage corporate finance:

Why do very small companies tend to raise money from private investors instead of through an IPO?
Why do small, young companies often prefer an IPO to borrowing from a bank or issuing bonds?
Who has better information about whether a small firm is likely to earn profits, a venture capitalist or a potential bondholder, and why?

Expert Solution

To determine

(a)

The reason for small companies raising funds from private investors instead of IPO is to be determined.

Explanation of Solution

The small companies tend to raise money from private investors instead of through an IPO because of the fact that small companies are new, and they do not have any image in the market as a new entrant. Public will buy shares in IPO only when public knows about the company. Therefore, primarily they approach private investor than they start their business and establish name in the market.

Economics Concept Introduction

Early-Stage Financial Capital: the firms which have just started their business often have an idea for the product and services to sell. Since the firm is new in the market, hence have only a few customers or no customers at all. Thus, firms face difficulties in raising funds at an early stage.

Expert Solution

To determine

(b)

The reason for small and young companies preferring an IPO then borrowing from a bank or by issuing bonds is to be determined.

Explanation of Solution

Prefer an IPO is a low-cost funding as compared to banks or issuing bonds banks will charge high interest rates and issuing bonds will make a permanent liability to pay coupon payment in a period of time. Hence IPO is the Best route.

Economics Concept Introduction

Early-Stage Financial Capital: the firms which have just started their business often have an idea for the product and services to sell. Since the firm is new in the market, hence have only a few customers or no customers at all. Thus, firms face difficulties in raising funds at an early stage.

Expert Solution

To determine

(c)

Whether a venture capitalist or a potential bondholder has better information about whether a small firm is likely to earn profits.

Explanation of Solution

The Venture Capitalist will have better knowledge because he knows all the ins and outs of business model, profitability of operations, intent of the management.

Economics Concept Introduction

Early-Stage Financial Capital: the firms which have just started their business often have an idea for the product and services to sell. Since the firm is new in the market, hence have only a few customers or no customers at all. Thus, firms face difficulties in raising funds at an early stage.

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Answer 2

Textbook Question

Chapter 17, Problem 1SCQ

Answer these three questions about early-stage corporate finance:

Why do very small companies tend to raise money from private investors instead of through an IPO?
Why do small, young companies often prefer an IPO to borrowing from a bank or issuing bonds?
Who has better information about whether a small firm is likely to earn profits, a venture capitalist or a potential bondholder, and why?

Expert Solution

To determine

(a)

The reason for small companies raising funds from private investors instead of IPO is to be determined.

Explanation of Solution

The small companies tend to raise money from private investors instead of through an IPO because of the fact that small companies are new, and they do not have any image in the market as a new entrant. Public will buy shares in IPO only when public knows about the company. Therefore, primarily they approach private investor than they start their business and establish name in the market.

Economics Concept Introduction

Early-Stage Financial Capital: the firms which have just started their business often have an idea for the product and services to sell. Since the firm is new in the market, hence have only a few customers or no customers at all. Thus, firms face difficulties in raising funds at an early stage.

Expert Solution

To determine

(b)

The reason for small and young companies preferring an IPO then borrowing from a bank or by issuing bonds is to be determined.

Explanation of Solution

Prefer an IPO is a low-cost funding as compared to banks or issuing bonds banks will charge high interest rates and issuing bonds will make a permanent liability to pay coupon payment in a period of time. Hence IPO is the Best route.

Economics Concept Introduction

Early-Stage Financial Capital: the firms which have just started their business often have an idea for the product and services to sell. Since the firm is new in the market, hence have only a few customers or no customers at all. Thus, firms face difficulties in raising funds at an early stage.

Expert Solution

To determine

(c)

Whether a venture capitalist or a potential bondholder has better information about whether a small firm is likely to earn profits.

Explanation of Solution

The Venture Capitalist will have better knowledge because he knows all the ins and outs of business model, profitability of operations, intent of the management.

Economics Concept Introduction

Early-Stage Financial Capital: the firms which have just started their business often have an idea for the product and services to sell. Since the firm is new in the market, hence have only a few customers or no customers at all. Thus, firms face difficulties in raising funds at an early stage.

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Answer 3

Textbook Question

Chapter 17, Problem 1SCQ

Answer these three questions about early-stage corporate finance:

Why do very small companies tend to raise money from private investors instead of through an IPO?
Why do small, young companies often prefer an IPO to borrowing from a bank or issuing bonds?
Who has better information about whether a small firm is likely to earn profits, a venture capitalist or a potential bondholder, and why?

Expert Solution

To determine

(a)

The reason for small companies raising funds from private investors instead of IPO is to be determined.

Explanation of Solution

The small companies tend to raise money from private investors instead of through an IPO because of the fact that small companies are new, and they do not have any image in the market as a new entrant. Public will buy shares in IPO only when public knows about the company. Therefore, primarily they approach private investor than they start their business and establish name in the market.

Economics Concept Introduction

Early-Stage Financial Capital: the firms which have just started their business often have an idea for the product and services to sell. Since the firm is new in the market, hence have only a few customers or no customers at all. Thus, firms face difficulties in raising funds at an early stage.

Expert Solution

To determine

(b)

The reason for small and young companies preferring an IPO then borrowing from a bank or by issuing bonds is to be determined.

Explanation of Solution

Prefer an IPO is a low-cost funding as compared to banks or issuing bonds banks will charge high interest rates and issuing bonds will make a permanent liability to pay coupon payment in a period of time. Hence IPO is the Best route.

Economics Concept Introduction

Early-Stage Financial Capital: the firms which have just started their business often have an idea for the product and services to sell. Since the firm is new in the market, hence have only a few customers or no customers at all. Thus, firms face difficulties in raising funds at an early stage.

Expert Solution

To determine

(c)

Whether a venture capitalist or a potential bondholder has better information about whether a small firm is likely to earn profits.

Explanation of Solution

The Venture Capitalist will have better knowledge because he knows all the ins and outs of business model, profitability of operations, intent of the management.

Economics Concept Introduction

Early-Stage Financial Capital: the firms which have just started their business often have an idea for the product and services to sell. Since the firm is new in the market, hence have only a few customers or no customers at all. Thus, firms face difficulties in raising funds at an early stage.

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Answer 4

Textbook Question

Chapter 17, Problem 1SCQ

Answer these three questions about early-stage corporate finance:

Why do very small companies tend to raise money from private investors instead of through an IPO?
Why do small, young companies often prefer an IPO to borrowing from a bank or issuing bonds?
Who has better information about whether a small firm is likely to earn profits, a venture capitalist or a potential bondholder, and why?

Expert Solution

To determine

(a)

The reason for small companies raising funds from private investors instead of IPO is to be determined.

Explanation of Solution

The small companies tend to raise money from private investors instead of through an IPO because of the fact that small companies are new, and they do not have any image in the market as a new entrant. Public will buy shares in IPO only when public knows about the company. Therefore, primarily they approach private investor than they start their business and establish name in the market.

Economics Concept Introduction

Early-Stage Financial Capital: the firms which have just started their business often have an idea for the product and services to sell. Since the firm is new in the market, hence have only a few customers or no customers at all. Thus, firms face difficulties in raising funds at an early stage.

Expert Solution

To determine

(b)

The reason for small and young companies preferring an IPO then borrowing from a bank or by issuing bonds is to be determined.

Explanation of Solution

Prefer an IPO is a low-cost funding as compared to banks or issuing bonds banks will charge high interest rates and issuing bonds will make a permanent liability to pay coupon payment in a period of time. Hence IPO is the Best route.

Economics Concept Introduction

Early-Stage Financial Capital: the firms which have just started their business often have an idea for the product and services to sell. Since the firm is new in the market, hence have only a few customers or no customers at all. Thus, firms face difficulties in raising funds at an early stage.

Expert Solution

To determine

(c)

Whether a venture capitalist or a potential bondholder has better information about whether a small firm is likely to earn profits.

Explanation of Solution

The Venture Capitalist will have better knowledge because he knows all the ins and outs of business model, profitability of operations, intent of the management.

Economics Concept Introduction

Early-Stage Financial Capital: the firms which have just started their business often have an idea for the product and services to sell. Since the firm is new in the market, hence have only a few customers or no customers at all. Thus, firms face difficulties in raising funds at an early stage.

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Answer 5

Textbook Question

Answer 6

Textbook Question

Answer 7

Expert Solution

To determine

(a)

The reason for small companies raising funds from private investors instead of IPO is to be determined.

Explanation of Solution

The small companies tend to raise money from private investors instead of through an IPO because of the fact that small companies are new, and they do not have any image in the market as a new entrant. Public will buy shares in IPO only when public knows about the company. Therefore, primarily they approach private investor than they start their business and establish name in the market.

Economics Concept Introduction

Early-Stage Financial Capital: the firms which have just started their business often have an idea for the product and services to sell. Since the firm is new in the market, hence have only a few customers or no customers at all. Thus, firms face difficulties in raising funds at an early stage.

Expert Solution

To determine

(b)

The reason for small and young companies preferring an IPO then borrowing from a bank or by issuing bonds is to be determined.

Explanation of Solution

Prefer an IPO is a low-cost funding as compared to banks or issuing bonds banks will charge high interest rates and issuing bonds will make a permanent liability to pay coupon payment in a period of time. Hence IPO is the Best route.

Economics Concept Introduction

Early-Stage Financial Capital: the firms which have just started their business often have an idea for the product and services to sell. Since the firm is new in the market, hence have only a few customers or no customers at all. Thus, firms face difficulties in raising funds at an early stage.

Expert Solution

To determine

(c)

Whether a venture capitalist or a potential bondholder has better information about whether a small firm is likely to earn profits.

Explanation of Solution

The Venture Capitalist will have better knowledge because he knows all the ins and outs of business model, profitability of operations, intent of the management.

Economics Concept Introduction

Early-Stage Financial Capital: the firms which have just started their business often have an idea for the product and services to sell. Since the firm is new in the market, hence have only a few customers or no customers at all. Thus, firms face difficulties in raising funds at an early stage.

Answer 8

Expert Solution

To determine

(a)

The reason for small companies raising funds from private investors instead of IPO is to be determined.

Explanation of Solution

The small companies tend to raise money from private investors instead of through an IPO because of the fact that small companies are new, and they do not have any image in the market as a new entrant. Public will buy shares in IPO only when public knows about the company. Therefore, primarily they approach private investor than they start their business and establish name in the market.

Economics Concept Introduction

Early-Stage Financial Capital: the firms which have just started their business often have an idea for the product and services to sell. Since the firm is new in the market, hence have only a few customers or no customers at all. Thus, firms face difficulties in raising funds at an early stage.

Answer 9

Expert Solution

Answer 10

Expert Solution

Answer 11

Expert Solution

Answer 12

To determine

(a)

The reason for small companies raising funds from private investors instead of IPO is to be determined.

Answer 13

Explanation of Solution

The small companies tend to raise money from private investors instead of through an IPO because of the fact that small companies are new, and they do not have any image in the market as a new entrant. Public will buy shares in IPO only when public knows about the company. Therefore, primarily they approach private investor than they start their business and establish name in the market.

Answer 14

Economics Concept Introduction

Early-Stage Financial Capital: the firms which have just started their business often have an idea for the product and services to sell. Since the firm is new in the market, hence have only a few customers or no customers at all. Thus, firms face difficulties in raising funds at an early stage.

Answer 15

Expert Solution

To determine

(b)

The reason for small and young companies preferring an IPO then borrowing from a bank or by issuing bonds is to be determined.

Explanation of Solution

Prefer an IPO is a low-cost funding as compared to banks or issuing bonds banks will charge high interest rates and issuing bonds will make a permanent liability to pay coupon payment in a period of time. Hence IPO is the Best route.

Economics Concept Introduction

Early-Stage Financial Capital: the firms which have just started their business often have an idea for the product and services to sell. Since the firm is new in the market, hence have only a few customers or no customers at all. Thus, firms face difficulties in raising funds at an early stage.

Answer 16

Expert Solution

Answer 17

Expert Solution

Answer 18

Expert Solution

Answer 19

To determine

(b)

The reason for small and young companies preferring an IPO then borrowing from a bank or by issuing bonds is to be determined.

Answer 20

Explanation of Solution

Prefer an IPO is a low-cost funding as compared to banks or issuing bonds banks will charge high interest rates and issuing bonds will make a permanent liability to pay coupon payment in a period of time. Hence IPO is the Best route.

Answer 21

Economics Concept Introduction

Early-Stage Financial Capital: the firms which have just started their business often have an idea for the product and services to sell. Since the firm is new in the market, hence have only a few customers or no customers at all. Thus, firms face difficulties in raising funds at an early stage.

Answer 22

Expert Solution

To determine

(c)

Whether a venture capitalist or a potential bondholder has better information about whether a small firm is likely to earn profits.

Explanation of Solution

The Venture Capitalist will have better knowledge because he knows all the ins and outs of business model, profitability of operations, intent of the management.

Economics Concept Introduction

Early-Stage Financial Capital: the firms which have just started their business often have an idea for the product and services to sell. Since the firm is new in the market, hence have only a few customers or no customers at all. Thus, firms face difficulties in raising funds at an early stage.

Answer 23

Expert Solution

Answer 24

Expert Solution

Answer 25

Expert Solution

Answer 26

To determine

(c)

Whether a venture capitalist or a potential bondholder has better information about whether a small firm is likely to earn profits.

Answer 27

Explanation of Solution

The Venture Capitalist will have better knowledge because he knows all the ins and outs of business model, profitability of operations, intent of the management.

Answer 28

Economics Concept Introduction

Early-Stage Financial Capital: the firms which have just started their business often have an idea for the product and services to sell. Since the firm is new in the market, hence have only a few customers or no customers at all. Thus, firms face difficulties in raising funds at an early stage.

Answer 29

Ch. 17 - Answer these three questions about early-stage...Ch. 17 - From a firms point of view, how is a bond similar...Ch. 17 - Calculate the equity each of these people has in...Ch. 17 - Which has a higher average return over time:...Ch. 17 - Investors sometimes fear that a high-risk...Ch. 17 - What is the total amount of interest from a 5,000...Ch. 17 - If you receive 500 in simple interest on a loan...Ch. 17 - You open a 5-year CD for 1,000 that pays 2...Ch. 17 - What are the- most common ways for start-up firms...Ch. 17 - Why can firms not just use their own profits for...

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Explanation of Solution

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