FIN3004_2015_lecture08 (2).ppt

FIN3004_2015_lecture08 (2).ppt - FIN 3004 Corporate Finance...

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1 FIN 3004 Corporate Finance Lecture 8 The Many Kinds of Debt
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2 Learning Outcomes Describe the basic features of common and preferred stock. Understand the different types of bonds and how bond characteristics impact the required yield.
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3 Lecture Outline Some Features of Common and Preferred Stock Corporate Long-Term Debt Some Different Types of Bonds Long-Term Syndicated Bank Loans International Bonds Patterns of Financing Recent Trends in Capital Structure
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4 Features of Common Stock Voting rights (Cumulative vs. Straight) Proxy voting Classes of stock Some Common Features of Common and Preferred Stock
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5 Features of Common Stock Other rights Share proportionally in declared dividends Share proportionally in remaining assets during liquidation Preemptive right first shot at new stock issue to maintain proportional ownership if desired Some Common Features of Common and Preferred Stock
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6 Features of Preferred Stock Stated dividend must be paid before dividends can be paid to common stockholders. Dividends are not a liability of the firm, and preferred dividends can be deferred indefinitely. Some Common Features of Common and Preferred Stock
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7 Features of Preferred Stock Most preferred dividends are cumulative any missed preferred dividends have to be paid before common dividends can be paid. Preferred stock generally does not carry voting rights. Some Common Features of Common and Preferred Stock
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8 Equity Ownership interest Common stockholders vote for the board of directors and other issues Dividends are not considered a cost of doing business and are not tax deductible Corporate Long Term Debt
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9 Equity Dividends are not a liability of the firm, and stockholders have no legal recourse if dividends are not paid An all-equity firm cannot go bankrupt Corporate Long Term Debt
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10 Debt Not an ownership interest Creditors do not have voting rights Interest is considered a cost of doing business and is tax deductible Creditors have legal recourse if interest or principal payments are missed Excess debt can lead to financial distress and bankruptcy Corporate Long Term Debt
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11 The Bond Indenture Contract between the company and the bondholders that includes: The basic terms of the bonds The total amount of bonds issued A description of property used as security, if applicable Sinking fund provisions Call provisions Details of protective covenants Corporate Long Term Debt Call price = Call premium + par value
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