Financing Sources and Considerations

These flashcards cover key vocabulary and concepts related to financing sources and considerations, as discussed in the lecture notes.

Equity Finance

Raising capital by selling an ownership stake in the organisation.

Share

Represents a proportional unit of ownership in an organisation.

Ordinary Shares

Shares that do not provide a fixed dividend stream and are last in the pecking order upon cessation.

Preference Shares

Shares that provide a fixed dividend stream and rank above ordinary shareholders upon cessation.

Initial Public Offering (IPO)

Shares are sold to the public for the first time.

Rights Issue

Shares sold to existing shareholders, typically at a discount and in proportion to their holding.

Debt Finance

Funds that are borrowed and must be paid back, usually with interest.

Interest

Represents the cost of borrowing funds that must be paid to the debt provider.

Covenants

Rules that must be followed by the borrower if debt is issued.

Cost of Debt

Generally lower than the cost of equity and represents the interest paid on debt finance.

Weighted Average Cost of Capital (WACC)

Represents the average cost of capital and is used for appraising capital projects.

Cost of Equity

Represents the return required by shareholders and is generally higher than the cost of debt.

Tax Benefits of Debt

Interest on debt finance is usually tax-deductible, reducing corporate income tax.

Market Price

The price of securities in the market, excluding interest.

Financial Appraisal

Evaluating the financial feasibility of investment projects through metrics.

Non-Financial Appraisal

Evaluating investment projects based on qualitative factors.