There are those methods of raising capital

As follows:

1. Borrowing

Enterprises can borrow from banks and non-financial institutions to meet the needs of mergers and acquisitions. This method is simple, the enterprise can obtain the required funds in a relatively short period of time, the confidentiality is also very good. However, the enterprise needs to bear the fixed interest, and must repay the principal and interest when due, if the enterprise can not reasonably arrange the repayment of loan funds will cause the deterioration of the enterprise's financial situation.

2, the issuance of bonds

Bonds make the company to raise capital, issued in accordance with the statutory procedures and bear the obligation to pay a certain amount of interest and repayment of principal within a specified period of time securities. This way and borrowing a lot of **** the same point, but the bond financing a wider range of sources, to raise funds for a greater margin.

3, common stock financing

Common stock is the most basic, the most important shares in the capital structure of the joint-stock company. Ordinary shares do not need to repay the capital, dividends do not need to borrowing and bonds as the same need to pay a regular fixed amount, so the risk is very low. However, the adoption of this method of financing will cause the dispersion of control of the original shareholders.

4, preferred stock financing

Preferred stock combines the advantages of bonds and common stock, neither due to the pressure of principal repayment, and do not have to worry about the dispersion of shareholder control. But this kind of after-tax cost of capital is higher than the after-tax cost of capital of liabilities, and preferred shareholders, although they bear a considerable proportion of the risk, but can only obtain a fixed remuneration, so the issuance effect is not as good as bonds.

5, convertible securities

Convertible securities are bonds or preferred shares that can be converted to common stock by the holder. Convertible bonds have the benefit of conversion into common stock, so its cost is generally lower, and convertible bonds are converted to common stock at maturity, the company does not have to pay back the capital, but to obtain long-term use of capital. However, this method may cause the dispersion of control of the company, and if the stock market rises sharply after maturity and higher than the conversion price will cause the company to suffer financial losses.

6, share option financing

Share option is a long-term option issued by the company, allowing the holder to buy a set number of shares at a particular price, which is generally issued along with the company's long-term bonds, in order to attract investors to buy long-term bonds at interest rates lower than the normal level, in addition to the financial crunch and the company is on the verge of a crisis of confidence, a kind of compensation for investors, encouraging investors to buy the company. compensation to encourage investors to buy the company's bonds, and the difference between convertible bonds.

Convertible bonds do not increase the amount of capital in the company when they are converted to common stock at maturity, while warrants can increase the amount of capital flowing into the company when they are used and the original issue of corporate bonds is not withdrawn.

Expanded:

Motivational Requirements for Capital Raising:

(a) Motivation:

1. Expansion: to increase the scale.

2. Debt servicing.

3, adjust the capital structure: reduce the cost of capital and risk.

4, mixed motives: that is, to expand scale and debt service.

(2) financing principles:

1, the principle of appropriate scale: rationally determine the amount of funds required, and strive to improve the efficiency of financing.

2, the way economic principles: study the direction of investment, improve the effectiveness of investment.

3, the principle of timely financing: timely access to sources of funds to ensure that the funds needed to put.

4, the principle of reasonable capital structure: rational arrangement of capital structure, to maintain appropriate solvency. Make the risk is small, low cost.

5. Reasonable source principle: comply with the relevant state regulations, and safeguard the legitimate rights and interests of all parties.

Financing channels:

1, the state financial funds: is the state's direct investment in enterprises or pre-tax repayment of loans, the formation of a variety of tax relief.

2, bank credit funds: is the bank of various loans to enterprises.

3, non-bank financial funds: is the insurance companies, securities companies, trust and investment companies, leasing companies and other financial services.

4, other enterprise funds: mutual investment between enterprises, commercial credit formation of debt, debt funds.

5, the residents of personal funds: the formation of private sources of funding channels.

6, enterprise retained funds: funds formed within the enterprise, such as, provident fund and undistributed profits.

7, foreign funds: foreign businessmen to invest in domestic enterprises introduced by foreign currency.

Analysis of the cost of funds of several financing methods:

1, the cost of long-term borrowing

Long-term borrowing refers to the borrowing period of more than five years of borrowing, and its cost consists of two parts, that is, the interest on borrowing and borrowing costs. Generally speaking, high interest on borrowing and borrowing costs will lead to high financing costs, but because the interest on borrowing and borrowing costs in compliance with the regulations can be deducted or amortized into the pre-tax costs and expenses, so it can play a role in tax deductions.

For example, if an enterprise obtains a 5-year long-term loan of 2 million yuan with an annual interest rate of 11% and a financing cost rate of 0.5%, the enterprise can pay 366,300 yuan less in income tax because the interest on borrowing and borrowing costs can be deducted or amortized as pre-tax costs and expenses.

2, bond costs

The cost of issuing bonds mainly refers to bond interest and financing costs. The treatment of bond interest is the same as that of long-term borrowing interest, i.e., it can be deducted before income tax and should be calculated on the basis of after-tax cost of debt.

For example, if a company issues 5-year bonds with a total face value of 2 million yuan, with a coupon rate of 11% and an issuance cost rate of 5%, the company can pay 396,000 yuan less in income tax because the bond interest and financing costs can be deducted before income tax. If the bonds are issued at a premium or discount, the actual issue price should be used as the bond financing amount for a more accurate calculation of the cost of capital.

3. Cost of Retained Earnings

Retained earnings are formed after an enterprise pays income tax, and their ownership belongs to shareholders. By retaining this portion of undistributed after-tax profits in the enterprise, the shareholders are essentially making an additional investment in the enterprise.

If the enterprise reinvests the retained earnings at a lower rate of return than the shareholders would have earned if they had made another investment of similar risk, the enterprise should distribute the retained earnings to the shareholders. The cost of retained earnings is more difficult to estimate than the cost of bonds because it is difficult to make an accurate determination of the firm's future growth prospects and the risk premium demanded by shareholders for future risk.

There are many ways to calculate the cost of retained earnings, but the most commonly used is the Capital Asset Pricing Model (CAPM). Since retained earnings are generated after corporate income tax, the use of retained earnings by a company is not tax deductible and does not result in tax savings.

4, the cost of common stock

Enterprises issue stock to raise funds, the cost of common stock is generally calculated in accordance with the "dividend growth model method". The cost of issuing shares is higher and should be considered in the calculation of the cost of capital.

For example, the current market price of a company's common stock is $56, with an estimated annual growth rate of 12% and a dividend of $2 for the current year. If the company issues new stock for $1 million, the rate of financing expense is 10% of the market price of the stock.

The cost of the new stock issue is 16.4 percent. When a corporation issues stock to raise capital, the issuance costs are deductible before corporate income tax, but the capital occupancy costs, i.e., common stock dividends, must be distributed after income tax. The enterprise can save tax by issuing stock 100 × 10% × 33% = 33 (million) dollars.

References:

Baidu Encyclopedia - Fund Raising

Baidu Encyclopedia - Fund Raising Methods