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Chapter 05 Financial Management

Chapter 05 Financial Management - Financial Management ADM...

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© 2007 Dr. William F. Rentz & Associates, All Rights Reserved 1 Financial Management ADM 2350 Professor: Dr. William F. Rentz
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© 2007 Dr. William F. Rentz & Associates, All Rights Reserved 2 ADM 2350 Chapter 5 This session focuses on the characteristics and valuation of fixed- income securities Long-term debt Preferred shares
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© 2007 Dr. William F. Rentz & Associates, All Rights Reserved 3 Classification of Long-Term (L-T) Debt Mortgage bonds secured Debentures unsecured
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© 2007 Dr. William F. Rentz & Associates, All Rights Reserved 4 Classification of Long-Term (L-T) Debt Subordinated and unsubordinated Also called junior and senior securities Claims of subordinated debt holders are considered only after the claims of unsubordinated debt holders
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© 2007 Dr. William F. Rentz & Associates, All Rights Reserved 5 Characteristics of L-T Debt Indenture covenants Trustee Call feature Call premium
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© 2007 Dr. William F. Rentz & Associates, All Rights Reserved 6 Characteristics of L-T Debt Sinking fund Equity-linked debt convertible warrant Coupon rates Maturity
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© 2007 Dr. William F. Rentz & Associates, All Rights Reserved 7 U.S. Government Debt Securities Treasury bills Maturities of 3, 6, and 12 months Minimum denominations of $1,000 Sold at a discount from maturity value Treasury bonds Minimum denominations of $1,000
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© 2007 Dr. William F. Rentz & Associates, All Rights Reserved 8 Bond Ratings Quality S & P’s Moody’s Highest AAA Aaa High AA Aa Upper Medium A A Medium BBB Baa Junk BB,B,CCC,CC, C Ba,B,Caa,Ca,C Default D D
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© 2007 Dr. William F. Rentz & Associates, All Rights Reserved 9 Ratings
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