Financial Accounting
3rd Edition
ISBN: 9780078025549
Author: J. David Spiceland, Wayne M Thomas, Don Herrmann
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 10, Problem 1RQ
Corporations typically do not first raise capital by Issuing stock to the general public. What are the common stages of equity financing leading to an initial public offering (IPO)?
Expert Solution & Answer
To determine
To identify: The common stages of equity financing leading to an initial public offering.
Explanation of Solution
Initial public offering (IPO):
Rising of a corporations’ capital through offering fresh stock to the general public for the first time is known as initial public offering.
Equity financing:
Equity financing is a wide range of activity to raise finance by selling the shares of the company.
The following are the common stages of equity financing leading to an initial public offering:
- As a first step, companies sells its stock to the founder of the business,
- Second step, companies sells its stock to the family and friends of the founder of the business,
- Third step, companies raise capital through selling its stocks to angel investors and venture capital firms.
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- ✓ Angel investors: Angel investors are wealthy individual investors who usually willing to invest in a risky but promising business venture.
- ✓ Venture capital firms: Venture capital firms meant for providing additional financing in millions, but they hold some percentage of ownership in the investee company.
- If the company’s equity financing needs more than $20,000,000, then as a last step they will go for issuing stocks to the public through IPO.
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Students have asked these similar questions
Corporations typically do not first raise capital by issuing stock to the general public. What are the common stages of equity financing leading to an initial public offering (IPO)?
Which of the following statements is FALSE?
O A. Public companies typically have access to much larger amounts of capital through the public markets.
B. The two advantages of going public are greater liquidity and better access to capital.
OC. The process of selling stock to the public for the first time is called a seasoned equity offering (SEO).
Which is false about long-term sources of a firm’s capital?
a. Preferred shares are securities whose intrinsic value is based on prospective earnings
b. Some types of bank loans may require collateral from potential debtors
c. Retained earnings are internal sources of funding that can be utilized for expansion
d. All types of corporations may issue equity securities to the public
Chapter 10 Solutions
Financial Accounting
Ch. 10 - Corporations typically do not first raise capital...Ch. 10 - What is the difference between a public and a...Ch. 10 - Prob. 3RQCh. 10 - Which form of business organization is most...Ch. 10 - Prob. 5RQCh. 10 - Prob. 6RQCh. 10 - 7.Explain the difference between authorized,...Ch. 10 - Prob. 8RQCh. 10 - Prob. 9RQCh. 10 - What are the three potential features of preferred...
Ch. 10 - Prob. 11RQCh. 10 - Prob. 12RQCh. 10 - How is the accounting for a repurchase of a...Ch. 10 - Prob. 14RQCh. 10 - Prob. 15RQCh. 10 - Prob. 16RQCh. 10 - Prob. 17RQCh. 10 - 18.What happens to the par value, the shares...Ch. 10 - Prob. 19RQCh. 10 - Prob. 20RQCh. 10 - Prob. 21RQCh. 10 - Prob. 22RQCh. 10 - Prob. 23RQCh. 10 - Prob. 10.1BECh. 10 - Prob. 10.2BECh. 10 - Record issuance of common stock (LO102) Western...Ch. 10 - Prob. 10.4BECh. 10 - Prob. 10.5BECh. 10 - Recognize preferred stock features (LO103) Match...Ch. 10 - Prob. 10.7BECh. 10 - Prob. 10.8BECh. 10 - Prob. 10.9BECh. 10 - Record cash dividends (LO105) Divine Apparel has...Ch. 10 - Prob. 10.11BECh. 10 - Prob. 10.12BECh. 10 - Indicate effects on total stockholders equity...Ch. 10 - Prepare the stockholders equity section (LO107)...Ch. 10 - Prob. 10.15BECh. 10 - Prob. 10.1ECh. 10 - Prob. 10.2ECh. 10 - Prob. 10.3ECh. 10 - Prob. 10.4ECh. 10 - Record common stock, preferred stock, and dividend...Ch. 10 - Prob. 10.6ECh. 10 - Prob. 10.7ECh. 10 - Record cash dividends (LO105) On March 15,...Ch. 10 - Prob. 10.9ECh. 10 - Record stock dividends and stock splits (LO106) On...Ch. 10 - Prob. 10.11ECh. 10 - Prob. 10.12ECh. 10 - Indicate effects on total stockholders equity...Ch. 10 - Prob. 10.14ECh. 10 - Prob. 10.15ECh. 10 - Prob. 10.16ECh. 10 - Prob. 10.1APCh. 10 - Prob. 10.2APCh. 10 - Indicate effect of stock dividends and stock...Ch. 10 - Prob. 10.4APCh. 10 - Prob. 10.5APCh. 10 - Prob. 10.6APCh. 10 - Prob. 10.7APCh. 10 - Match terms with their definitions (LO101 to 108)...Ch. 10 - Prob. 10.2BPCh. 10 - Prob. 10.3BPCh. 10 - Prob. 10.4BPCh. 10 - Prob. 10.5BPCh. 10 - Prob. 10.6BPCh. 10 - Prob. 10.7BPCh. 10 - Prob. 10.1APCPCh. 10 - Prob. 10.2APFACh. 10 - Prob. 10.3APFACh. 10 - Prob. 10.4APCACh. 10 - Ethics Put yourself in the shoes of a company...Ch. 10 - Written Communication Preferred stock has...Ch. 10 - Prob. 10.8APEM
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- Which of the following is not a way that a firm might seek to raise new capital?a. Initial Public Offering (IPO)b. Rights issuec. Stock splitd. Seasoned Equity Offering (SEO)e. All of the above are ways that a firm might seek to raise new capitalarrow_forwardWhat is the impact on stockholders equity when a company uses equity financing as a source of funding?arrow_forwardWhy might a stock dividend or a stock split be of limited value to an investor? What about a stock repurchase? Does it make sense for a corporation to repurchase its own stock?arrow_forward
- Discuss the benefits and drawbacks, to the shareholders of a company, of a public listing on a stock exchange compared to private equity finance as a way of disposing their shares.arrow_forwardBriefly explain the term initial public offering (IPO). Why would a company choose to go public?arrow_forwardWhen a company decides to issue capital on the stock market what is the process called? (a) An Initial Public Offering (b) A Rights Issue (c) A Bond Issue (d) An Investment Trustarrow_forward
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