Chapter 06 Financial Management

Chapter 06 Financial Management - Financial Management ADM...

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1 Financial Management ADM 2350 Professor: Dr. William F. Rentz
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2 ADM 2350 Chapter 6 This session describes the characteristics of common shares It develops the valuation models for common shares
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3 Common Shares Common shares (C/S) are the permanent long-term financing of a firm Represents the true residual ownership of a firm Shareholders elect the board of directors
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4 Balance Sheet Accounts Associated With C/S Par value of C/S Contributed capital in excess of par Additional paid in capital Capital surplus
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5 Balance Sheet Accounts Associated With C/S Retained earnings (R/E) Book value per share equity # shares outstanding =
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6 Rights of Common Shareholders Dividend rights Asset rights Preemptive rights Voting rights
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7 Voting for the Board of Directors Majority voting requires more than 50 percent of the votes to elect a director Cumulative voting Shareholders may concentrate votes on a few candidates
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8 Voting for the Board of Directors Proxy signing over your voting rights to someone else Proxy Fight Hostile takeover
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9 Features of C/S C/S classes Voting and nonvoting Specific ownership Stock dividends Transfer from R/E account to the C/S and additional paid-in capital accounts
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10 Features of C/S Stock repurchases Disposition of excess cash Financial restructuring Future corporate needs Reduction of takeover risk Stock splits Reverse stock splits
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11 C/S Advantages Flexible Reduced financial leverage Lower cost of capital
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12 C/S Disadvantages Diluted EPS Expensive
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13 Valuation of C/S Capitalized value of the shares’ expected
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Chapter 06 Financial Management - Financial Management ADM...

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