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Chapter 5: 6DQ (page 493)

Discuss the benefits accruing to a company that is traded in the public securities markets.

Short Answer

Expert verified

A publicly-traded company can develop new products and acquire assets by gathering funds from security markets.

Step by step solution

01

Securities market

Securities market is a place where financial instrumentsare traded. It includes the sale and purchase of debts such as bonds and equity such as stocks

02

Benefits of trading publicly 

A company can enjoy the following benefits of trading publicly:

  • A company can raise funds quickly and can improve its cash flow.
  • The capital raised by the company helps it to reduce its debts.
  • The collection of funds facilitates companies to grow and expand their operations.

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Most popular questions from this chapter

Corporate debt has been expanding very dramatically in the last three decades. What has been the impact on interest coverage, particularly since 1977? (LO16-1)

Explain how the zero-coupon rate bond provides return to the investor. What are the advantages to the corporation? (LO16-2)

How does a leveraged buyout work? What does the debt structure of the firm normally look like after a leveraged buyout? What might be done to reduce the debt?

What are three forms of corporate securities discussed in the chapter?

Using the information in Problem 3, assume that American Health Systems’ 1,700,000 additional share can only be issued at $18 per share.

a. Assume that American Health Systems can earn 6 percent on the proceeds. Calculate earnings per share.

b. Should the new issue be undertaken based on earnings per share?
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