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

Explain how large companies raise ceiling from the equity and bond markets. hold forth 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 strain, 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 stretch out or public issue.The company can put on offer its block of securities for sale to the highest bidder or negotiate a traverse with the investment banker. Since in the latter, the investment bankers should carry out a upstanding 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, simply the very large companies, about 100 of the largest companies in new York stock exchange have a choice of 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. about 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 Lambert deals with speculative issues. Some investment bankers have orientation for new issues, while some others with a conservative brokerage client base would not entertain 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 centering 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 invest ment banker will come 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