Answer to Question #98163 in Microeconomics for Princess Joy

Question

Peter harry plc is in need of funds from the capital market. Outline and discuss the different methods of raising funds from the capital market

Answer 1

(a)  RIGHTS OF ISSUE. This is done by selling securities in primary market by issuing shares to existing shareholders.

(b)  PRIVATE PLACEMENT. Here the capital issue is sold directly to small group of investors.

(c)  PUBLIC ISSUE. The company is able to borrow funds from primary market by way of public issue of shares of debentures.

(d)  OFFERS OF SALE. The company sells the entire issue of shares or debentures to an issue house or merchant banker at an agreed price, which is normally below the par value.

(e)  VENTURE CAPITAL. Mainly apply to technology-based industries and new projects that find it difficult to raise funds directly from capital market.

(f)   BONDS. These are bonds issued by financial institutions which include; retirement bonds, growth bonds, index bonds etc.

(g)  INTERNATIONAL ISSUES. This includes raising funds from international markets.