Explain how large companies raise capital from the equity and bond Essay

Explain how large companies reverse capital from the equity and bond markets. prove the relevance of the capital asset pricing model ( CAPM) to company seeking evaluate its cost of capital - Essay ExampleThe firm has to decide whether to raise funds through common bear, preferred stock, bonds or hybrid securities or a combination. In the case of common stock, the firm has to decide whether it should it be rights return key or public issue.The company can put on offer its block of securities for sale to the highest bidder or negotiate a deal with the investment banker. Since in the latter, the investment bankers should carry out a substantial investigation, they would do it for best known companies. Otherwise, the prohibitive costs and uncertainty of clinching the deal would make the bidding for lesser known companies unattractive for the investment bankers. Therefore, only the very large companies, about 100 of the largest companies in New York stock exchange have a excerption o f seeking competitive bidding for their offering. Others have only an option of negotiated deal with an investment banker.In case of a negotiated deal, the firm has to select an investment banker. close of the investment banks operate in niches. For instance, older and larger veteran merchant bankers such as Morgan Stanley deal mainly with IBM, AT&T and Exxon and such and Drexel Burnham liter deals with speculative issues. Some investment bankers have penchant for new issues, while some others with a conservative brokerage client base would not stick up speculative and risky issues.In Stage 2, the firms initial decisions will be revisited by the merchant banker. For instance, the merchant banker, after studying the environmental trends, may recommend and convince the management to change their earlier plan of raising $200 million by selling common stock to raising $100 million by common stock and the rest by the issue of bonds.In this stage, the firm and investment banker will co me to a conclusion as to whether the banker will work on the best efforts basis or will underwrite the issue. In the best efforts basis, the banker does not assume