16-6c.- LT Financing

16-6c.- LT Financing - Long Term Financing Ramesh Rao 1...

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Ramesh Rao 1 FEx06 Long Term Financing
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Ramesh Rao 2 FEx06 Organization 1. LT Financing Alternatives 2. Common Stock 3. Preferred Stock 4. Bonds 5. Financing Trends
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Ramesh Rao 3 FEx06 1. Long Term Financing Alternatives Common Stock: No preference in dividends or bankruptcy Preferred Stock: Preference over common stock holders in dividends and proceeds of liquidation Short-Term Debt: Mainly to meet routine operational requirements such as accts payable Long-Term Debt: Typically notes, debentures, and bonds Could be secured or unsecured Debt with no maturity is a consol
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Ramesh Rao 4 FEx06 2. Common Stock Stated value or par value Total par value is dedicated capital Articles of incorporation state number of shares authorized Authorized shares can be issued without board approval Voting rights to shareholders Voting: Cumulative, Straight, Proxy Other Rights: Right to share dividends/liquidation proceeds, preemptive right
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Ramesh Rao 5 FEx06 Example of Cumulative Voting Data: 2 Board Seats Total 420 shares You own 120 shares Cumulative Voting How many shares do you need to own to guarantee yourself 1 seat?
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Ramesh Rao 6 FEx06 Answer Rule: You need 1/(N+1) of total shares, where N is number of board seats Thus, you need 1/(2+1)= 1/3 of 420 shares = 140 shares You thus need to buy 20 more shares (You’ll then have 140 shares with 280 votes; others will have 840-280= 560 votes)
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16-6c.- LT Financing - Long Term Financing Ramesh Rao 1...

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