Corporate Finance
Equity Financing
Equity financing exchanges capital with no fixed maturity for ownership, voting and residual economic rights. This course analyses issue pricing, pre-emption rights, dilution and control.
Course purpose
The decision examined
A rights issue may preserve each shareholder's proportional claim only if the rights are usable or transferable. Economic dilution depends on the issue price, use of proceeds, costs and value of the financed investment.
Objectives
Learning outcomes
- Distinguish ownership dilution from value dilution.
- Calculate a theoretical ex-rights price.
- Analyse participation, control and underwriting.
Concepts
Key concepts
- Rights issue
- Pre-emption right
- Dilution
- Issue price
- Control
- Underwriting
Syllabus
Course structure
- Equity claim
- Issue mechanics
- Rights
- Dilution
- Control
- Execution
Extract
Analytical framework
Connect price and share count
If N0 shares trade at P0 before the transaction and Nn new shares are issued at Ps, the theoretical ex-rights price is:
Theoretical ex-rights price
The relation distributes prior value and new cash across all shares. It does not value the funded project or eliminate issuance costs.
Full course
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