Financing a Company
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Questions and Answers

What is a characteristic of a shareholder?

  • Shares risk with the company (correct)
  • Has no voting rights
  • Doesn't own any of the company capital
  • Has a predefined repayment contract

    • A debtholder has voting rights in a company.

    False

    What is the purpose of rating agencies?

    To provide credit ratings to companies

    _____________________ are investment funds that finance nascent companies.

    <p>Venture capitalists</p> Signup and view all the answers

    Match the types of equity investors with their characteristics:

    <p>Business angels = Invest up to 100,000 Euros Seed funds = Invest between 100,000 to 2,500,000 Euros Venture capitalists = Invest up to 1,000,000 Euros and offer advice</p> Signup and view all the answers

    What is a characteristic of a debtholder?

    <p>Has a predefined repayment contract</p> Signup and view all the answers

    Corporate Venture Capital refers to investment funds that invest in large public companies.

    <p>False</p> Signup and view all the answers

    What is the primary objective of Corporate Venture Capital?

    <p>To understand the ecosystem in which the startup operates</p> Signup and view all the answers

    What is the main difference between Private Equity and Venture Capital?

    <p>PE chooses more mature companies, while VC chooses startups</p> Signup and view all the answers

    An Initial Public Offering (IPO) is used to finance the development of a company.

    <p>True</p> Signup and view all the answers

    What is the main objective of a Private Equity fund?

    <p>To participate in financing, development, and recovery of more or less mature companies</p> Signup and view all the answers

    Bank loans are often used for financing because they can be obtained ___________ and offer flexible conditions.

    <p>swiftly</p> Signup and view all the answers

    What is the primary risk for bond investors or banks in the case of a bank loan?

    <p>The company's default</p> Signup and view all the answers

    Bonds typically have a shorter maturity period than bank loans.

    <p>False</p> Signup and view all the answers

    Match the following financing options with their characteristics:

    <p>Bank Loan = Negotiated with a bank Bond = Sold directly on the financial market IPO = Selling shares to raise capital Private Equity = Investing in more mature companies</p> Signup and view all the answers

    What is the nominal value of a bond?

    <p>The initial capital borrowed divided by the number of bonds issued</p> Signup and view all the answers

    The coupon of a bond represents the ___________ interest payments to bondholders.

    <p>periodic</p> Signup and view all the answers

    Listed bonds are traded on the financial market, while unlisted bonds are not.

    <p>True</p> Signup and view all the answers

    What is a disadvantage of crowdfunding for companies?

    <p>It has a significant cost, with platforms charging commissions of up to 4 to 12% of the funding obtained</p> Signup and view all the answers

    Crowdfunding campaigns do not allow donors or lenders to give their opinion on the project.

    <p>False</p> Signup and view all the answers

    What can happen to participants in a successful crowdfunding campaign?

    <p>They can become true ambassadors for the project.</p> Signup and view all the answers

    One type of crowdfunding is __________________, where investors are co-producers and receive royalties.

    <p>Community Production</p> Signup and view all the answers

    Match the types of crowdfunding with their descriptions:

    <p>Donations without Consideration = Participation without expectation Gift with consideration = Will receive consideration, advertising, gifts or something else Loan or Crowdlending = Borrowing money from many people at once Microcredit or solidarity microcredit = Internet users give small sums to promote development, very common in developing countries</p> Signup and view all the answers

    What is the main reason why investors may opt for shorter-term bonds?

    <p>To anticipate an increase in interest rates</p> Signup and view all the answers

    The bond price is determined by its coupon rate and term to maturity.

    <p>True</p> Signup and view all the answers

    What are the three main risks that bond investors are exposed to?

    <p>Interest rate risk, inflation risk, and default risk.</p> Signup and view all the answers

    The interbank rate in Europe is composed of two structures: the __________ and the Euribor.

    <p>Eonia</p> Signup and view all the answers

    What is the purpose of the €STR rate?

    <p>To replace the Eonia and Euribor rates</p> Signup and view all the answers

    Central banks have no impact on the risk-free rate curve.

    <p>False</p> Signup and view all the answers

    Match the following types of bonds with their characteristics:

    <p>Short-term bonds = 1 to 5 years Intermediate-term bonds = 5 to 12 years Long-term bonds = 12 to 30 years</p> Signup and view all the answers

    The credit rating agencies evaluate borrowers' ability to __________ debts.

    <p>repay</p> Signup and view all the answers

    What is the highest credit rating issued by credit rating agencies?

    <p>AAA</p> Signup and view all the answers

    What is the graphical representation of the returns offered at each maturity date in a given country?

    <p>The government bond yield curve.</p> Signup and view all the answers

    What is the primary goal of the finance department when forecasting cash flow?

    <p>To minimize borrowing length</p> Signup and view all the answers

    Issuing equity is a quick and easy way to raise finance.

    <p>False</p> Signup and view all the answers

    What is the term to maturity in the context of bonds?

    <p>The time between when the bond is issued and when it matures</p> Signup and view all the answers

    Debt holders require compensation in the form of a ______________ to investors.

    <p>risk premium</p> Signup and view all the answers

    Match the following financial concepts with their descriptions:

    <p>Coupon payment = The periodic payment made by the borrower to the lender Yield to maturity = The market rate of interest Par value = The face value of a bond Term to maturity = The time between when the bond is issued and when it matures</p> Signup and view all the answers

    What is the main reason why companies consolidate cash demands into a single bond?

    <p>To reduce advisor and arrangement fees</p> Signup and view all the answers

    BMW's credit rating is A2.

    <p>False</p> Signup and view all the answers

    What is the face value of the bond BMW aims to issue?

    <p>€100.00</p> Signup and view all the answers

    The formula to evaluate a bond is: =6*(1-(1+)^-15)/+(100/(1+_______)^15)

    <p>0.08, 0.08, 0.08</p> Signup and view all the answers

    What is the result of a downgraded rating for a borrower?

    <p>Increased financing costs</p> Signup and view all the answers

    Crowdfunding is only used for financing cultural projects.

    <p>False</p> Signup and view all the answers

    What is the primary difference between a donation without consideration and a gift with consideration in crowdfunding?

    <p>A donation without consideration is a disinterested contribution, whereas a gift with consideration receives a reward or incentive.</p> Signup and view all the answers

    Crowdfunding is a form of _______________, where individuals or companies raise funds from a large number of people through digital platforms.

    <p>disintermediation</p> Signup and view all the answers

    What is the purpose of equity crowdfunding?

    <p>To allow individuals to become shareholders in a project</p> Signup and view all the answers

    Microcredit is only used for financing large-scale projects.

    <p>False</p> Signup and view all the answers

    Match the following types of crowdfunding with their descriptions:

    <p>Loan or Crowdlending = Multiple individuals lend money to a borrower through a digital platform. Equity Crowdfunding = Individuals become shareholders in a project. Donation without Consideration = Disinterested contribution to a project.</p> Signup and view all the answers

    What advantage does crowdfunding provide for companies, beyond simple financial participation?

    <p>It allows for community collaboration and can be used for market research.</p> Signup and view all the answers

    Crowdfunding platforms have specialized in areas such as _______________________, energy transition crowdfunding, and student loans.

    <p>real estate</p> Signup and view all the answers

    Study Notes

    Financing a Company

    • A company can be financed through equity or debt
    • Equity financing involves sharing risk with the company and does not require repayment
    • Debtholder financing involves a predefined repayment contract and does not provide ownership or voting rights

    Equity Financing

    • Personal contributions: cash contributions to shareholder equity
    • Love money: investments from friends and family with no expectation of profit
    • Types of equity investors:
      • Business angels: invest in early-stage companies with high risk (€1,000 to €100,000)
      • Seed funds: invest in early-stage companies (€100,000 to €2,500,000)
      • Venture capitalists: invest in nascent companies and provide advice (up to €1,000,000)
      • Corporate venture capital: invest in large private companies with strategic and organizational objectives
      • Private equity: invest in mature, non-publicly listed companies
      • Investment funds: specialized in sectors, e.g. real estate, energy transition
      • Initial public offering (IPO): selling shares on the financial market to raise capital

    Debt Financing

    • Bank loans: negotiated with a bank, with fixed terms and conditions
    • Bond loans: issued directly on the financial market, with a predefined rate and maturity
    • Characteristics of bonds:
      • Maturity: life of the bond, usually 3-7 years for companies and up to 100 years for states
      • Coupon: periodic interest payments to bondholders
      • Nominal value: initial capital borrowed divided by the number of bonds issued
      • Issue price: price at which the bond is issued
      • Redemption price: repayment amount at maturity

    Risk for Bond Investors

    • Primary risk: company default
    • Coupon or loan payments must be made regardless of company performance, with bankruptcy being the exception

    Evaluating a Bond

    • Yield to maturity: the total return on investment, including coupon and capital repayment
    • Face value: the bond's par or face value
    • Coupon rate: the periodic interest payment
    • Maturity: the time to repayment
    • Risk premium: compensation for riskier companies with a lower credit rating

    Bond Price Calculation

    • Formula: C = (F - (F / (1 + r)^n)) / r
    • Where: C = coupon payment, F = face value, r = yield to maturity, n = time periods

    Crowdfunding

    • A financing method that disintermediates banks, using a digital platform with multiple people
    • Types of crowdfunding:
      • Donation without consideration: disinterested participation
      • Gift with consideration: participation with a reward
      • Loan or crowdlending: borrowing from multiple lenders
      • Equity crowdfunding: investors become shareholders
      • Community production: investors are co-producers and receive royalties
      • Microcredit or solidarity microcredit: small sums of money to promote development

    Advantages of Crowdfunding

    • Financing a project without bank support
    • Community collaboration and support
    • Indirect market research and feedback

    Disadvantages of Crowdfunding

    • Significant costs, including platform commissions of up to 4-12% of funding obtained

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    Description

    This quiz covers the different ways of financing a company, including equity and debt, and the roles of shareholders and debtholders. It also explores the concepts of risk-free rate and rating agencies.

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