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Capital Structure Notes

Law Notes > Banking Law Notes

This is an extract of our Capital Structure document, which we sell as part of our Banking Law Notes collection written by the top tier of King's College London students.

The following is a more accessble plain text extract of the PDF sample above, taken from our Banking Law Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:

Aims and Objectives:
● Basic understanding of finance and finance theory; and
● Its significance for the law of credit and security.
○ The interdependence between funds, funds theory, and funds law.
○ E.g. How can a bank minimise the risk that it incurs in making a loan? By taking security over the borrower's assets.
What is finance?
● How to value things, and, in particular, financial assets.
○ E.g. shares, bonds, companies, investment projects, etc.
○ Valuation.
● How to allocate resources accordingly.
○ Role of Chief Financial Officer = Identifying viable financial projects + Deciding whether or not to invest in these projects.
○ Also, thinking of how to raise the necessary capital for these purposes.
Identifying what the cheapest possible source of funding is.
● A hybrid of:
○ Economics — making choices under constraint and assessing the profitmaking capacity of each project;
○ Statistics — dealing with risks and randomness; and
○ Accounting — the language of business.
How can a company raise capital?
● Equity vs Debt financing.
○ Equity = Issuing shares in the company.
○ Debt = Borrowing money.
● This course focuses on the legal structure that support debt financing (and all its various variations and emanation).
● Do not confuse:
○ Securities: Negotiable instruments tradable in financial markets (e.g. shares,
bonds, notes, and commercial papers); and
○ Security interests: Proprietary interests in assets in order to ensure repayment of debt (e.g. pledge, fixed and floating charges, mortgages).
Course Overview:
● Building blocks of finance and finance theory:
○ Capital structure and financial statements;
○ Compounding and Discounting; and
■ Valuation of how much I would be paying for this particular cash flow if I invest in something.
○ Capital budgeting and Net Present Value.

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