Midterm Review

Midterm Review - Chapter 14 Weighted Average Capital- Two...

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Chapter 14 Weighted Average Capital- Two basic forms of capital, stocks and bonds. Equity and Debt. Cost of Capital - Rate of Return, Hurtell Rate. Cost of Capital, 8%- use 8% as a min. Certain debt might need research. Common Stock---- A) Treasury Stock —Stock that has been repurchased by the company and held in its treasury. B) Issued Shares--- Shares that have been issued by the company. C) Outstanding Shares----- Shares that have been issued by the company and are held by investors D) Authorized Share Capital-- Maximum number of shares that the company is permitted to issue. E) Par Value- Value of Security shown in the company’s accounts. F) Additional Paid-in-capital- Difference between issue price and par value of stock. Also called capital surplus. G) Retained Earnings- Earnings not paid out as dividends .
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H) Par Value accoding to the lecture- Arbitary number, the accounting people put on to have historical cost. Addition to the K. Shareholders or Stockholders- Holds a number of shares of common stock. Retained Earrnings- All the money from profits that is still in the company and NOT paid out. If paid out, it is NOT in the Retained Earnings. Page 398- Classes of Stock - Most companies in the United States issue just one class of common stock. But as few such as Ford Motor and Google, have issued two classes of shares with different voting rights. For example, suppose that a firm needs fresh capital, but its management does not want to give up its controlling interest. The existing shares could be labeled “Class A” and then, “Class B” shares with limited voting rights could be issued to outside investors. Preferred Stock- Stock that takes priority over common stock in regard to dividends. Authorized but never issued, pretty good int rate. Can be given anytime. Preferred stock- Int every 6 months. Corp Debt- However, corporations have limited liability. By this mean that the promise to repay the debt is not always kept. If the company gets into deep water, the company has the right to default on the debt and to hand over the company’s assets to the lenders. Because lenders are not regarded as owners of the firm, they don’t normally have any voting power.Also, the company’s payments of interest are regarded as a cost and are therefore deducted from taxable income. Thus interest is paid out of before tax income, whereas dividends on common and preferred stock are paid out of after-tax income.This means that the government provides a tax subsidy on the use of debt, which it does not provide on stock.
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Chapter- 15 Ventture Capital- Money invested to finance a new firm and it is provided by specialist venture capital firms, wealthy individuals, and investment institutes such as pension funds. Angel Investors-
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Midterm Review - Chapter 14 Weighted Average Capital- Two...

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