Raising money from a corporate investor

1. What are some of the alternative sources from which private companies can raise equity capital?

2. What are the advantages and the disadvantages to a private company of raising money from a corporate investor?

3. What are the main advantages and disadvantages of going public?

1. You happen to be checking the newspaper and notice an arbitrage opportunity. The current stock price of Intrawest is $20 per share and the one-year, risk-free interest rate is 8%. A one-year put on Intrawest with a strike price of $18 sells for $3.33, while the identical call sells for $7. Explain what you must do to exploit this arbitrage opportunity.

2. We know that equity in a company that borrows is analogous to a call option. Using put-call parity, express the position of equity holders in terms of a portfolio that includes put options.

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