Capital Budgeting Process Assignment Example | Topics and Well Written Essays - 1000 words

Capital Budgeting Process - Assignment Example The foremost reason for going public is to raise additional capital by issuing shares to the general investing public. This means other funding sources such as internally generated profits or financing through bank loans had been considered and set aside in favor of an IPO. Owners of private companies will now have to contend with the fact that they will lose some control by the issuance of new shares but they have other compensation in return for doing it such as new funds for expansion (new products and new markets), increased liquidity for the current shareholders by creating an active market for the stock to trade and change hands, the stock itself can become a valuable currency to fund new acquisitions (some mergers are made using company stock instead of cash payment), increase employee motivation through stock options to compensate good performance and in general enhance a companys reputation via a well-executed IPO process from start to end. Preparations are made long before the actual IPO itself and it involves three main participants: the issuing firm, the underwriter and the public. The initial public offering can become a difficult and contentious issue if not handled properly because of the conflicting claims and interests of the three main parties mentioned. An important factor that determines if an IPO is successful is correct timing. As they say, timing is everything, from setting an ideal price range that maximizes the funds that will be generated to the market's reception of the offering. If a decision had been made to go through with the IPO, there are two considerations to be made regarding correct timing: firstly is the stage of the firm's development.