Questions and Answers
What problem do debentures pose to a company when profits are low?
They have to pay out the fixed interest
What advantage do debenture holders have over shareholders?
They are paid before shareholders
What is the primary reason why a fixed interest rate is attractive to a company when profits are high?
The company retains more of its profits
What was the purpose of the rights issue in 1994 for Eurotunnel?
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What was the total amount of equity funding raised by Eurotunnel in 1987?
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What was the amount of the loan facility agreed with syndicate banks in 1987?
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What was the amount of additional debt raised by Eurotunnel in 1990?
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What was the purpose of the £650 million rights issue in 1990?
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What was the amount of seed corn equity raised by Eurotunnel in 1986?
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What was the amount of loan raised by Eurotunnel from the European Investment Bank in 1990?
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Study Notes
Economic Impact of the Olympics
- A study on the 2004 Athens Olympics showed an economic impact of US$15.9 million and an employment impact of 445,000 jobs.
- To conduct an economic impact assessment (EIA) of the Olympics, it is necessary to calculate spending, aggregate the data, and construct a model to calculate the impact on income and employment.
Techniques for Economic Impact Assessment
- The two main techniques for EIA are input-output (I-O) analysis and computable general equilibrium (CGE) modelling.
- These techniques are used to estimate the economic impact of the Olympics on a region or country.
Time Scales of Olympic Impacts
- The impacts of the Olympics occur on different time scales, including:
- Pre-Games impacts: construction phase, other pre-Games costs, and visitor impacts in the run-up to the Games.
- During-Games impacts: revenues from staging the Games, visitor impacts, and costs of staging the Games.
- Post-Games impacts: legacy visitor impacts and legacy infrastructural impacts.
London 2012 Olympics
- The London 2012 Olympics had an overall positive effect on the UK and London economies.
- The Olympics led to an increase in GDP of £1,936 million and an additional 8,164 full-time equivalent jobs created for the UK over the 2005-2016 period.
Economic Models
- Economic models are built to describe relationships between economic variables and predict the effects of changing these variables.
- Models are simplified abstractions of the real world and have two key components: assumptions and implications or outcomes.
- The term ceteris paribus is used in economic analysis to mean "all other things remaining unchanged".
Financing Eurotunnel
- The financing of Eurotunnel, a rail tunnel built between England and France in the 1990s, involved several stages, including:
- Seed corn equity raised in 1986
- Share placing with institutions in 1986
- Loan facility agreed with 200 syndicate banks in 1987
- Equity funding from public offer in the UK and France in 1987
- Additional debt and rights issues in 1990 and 1994
- The financing of Eurotunnel illustrates several aspects of financing, including debt and equity funding.
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