ch6&ch7 - 1 0 ower Point Presentation designed by Dr....

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1 0 Power Point Presentation designed by Dr. Sylvia C. Hudgins for Finance 323 at ODU
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2 General Valuation Book Value Book Value Stated value on the firm’s Balance Sheet Market Value Market Value The price for the asset at any given time that is determined by supply and demand in the marketplace. Asset can be bought or sold at this price. Intrinsic Value Intrinsic Value Present value of the asset’s expected cash flow Investor estimates cash flows Investor determines required rate based on risk of asset and market conditions.
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3 Bonds: Debt Instruments Debt 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 Equity 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 Dividends are not a liability of the firm and stockholders have no legal recourse if dividends are not paid An all equity firm can not go bankrupt
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4 Bond Terminology Par Value/ Face Value Par Value/ Face Value Usually $1,000: the principal paid at maturity Coupon Coupon The stated interest payment made on a bond. Maturity Maturity Time at which the original principal (Par Value) is repaid to the bondholder. Yield or Yield to Maturity Yield or Yield to Maturity The rate required in the market on a bond Coupon Rate: Coupon Rate: The annual coupon divided by the face value. Indenture Indenture Document which details the legal obligation of the corporation to the bondholders.
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5 The Bond Indenture The Bond Indenture The Bond Indenture The bond indenture is a The bond indenture is a three-party contract three-party contract between the bond issuer, the bondholders, between the bond issuer, the bondholders, and the trustee. The trustee is hired by the and the trustee. The trustee is hired by the issuer to protect the bondholders’ interests. issuer to protect the bondholders’ interests.
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This note was uploaded on 01/28/2012 for the course ACCT 303 taught by Professor Staff during the Spring '08 term at CSU Bakersfield.

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ch6&ch7 - 1 0 ower Point Presentation designed by Dr....

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