Unformatted text preview: e bond.
Instead of selling bonds, AT&T could
issue stock to raise money. Remember that a
share of stock is a claim on the assets of the
corporation that gives the purchaser a share
of the ownership of the corporation.
Whereas the buyer of a corporate bond is
lending funds to the corporation, the buyer
of a share of stock is acquiring an ownership right in the corporation. So, if you buy
a bond from a corporation, you are a lender,
not an owner. If you buy shares of stock in a
corporation, you are an owner, not a lender.
The key difference between bondholders
and stockholders is that the corporation is
under no legal obligation to pay stockholders. Bond purchasers have lent money to the
corporation, so the corporation must repay
these loans, along with extra payments (such
as the $800 Quentin received each year), to
the bond purchasers for the use of their
money. Stockholders do not lend funds to
the corporation; instead, they buy a part of
it. If the corporation does well, the value of
its stock will rise, and they will be able to sell
it at a price higher than the price they paid
for it. However, if the corporation does not
do well, the value of their stock will fall, and
they will most likely have to sell it for less
than the purchase price. 07 (154-185) EMC Chap 07 11/17/05 5:14 PM Page 167 The board of directors are elected to their positions by a vote of the stockholders. What do you
think are the major responsibilities of the board of directors? The Franchise
QUESTION: I’d like to go back to the example of Quentin buying the bond. He
buys the bond in 2006 and the bond
matures in 2016—10 years later.
Suppose Quentin wants to get the money
out of the bond before the 10 years have
passed. Can he do this?
ANSWER: Yes, he can sell the bond (to
anyone willing to buy it) at any time
after he purchased it. He does not have to
wait for the full 10 years before cashing
in the bond. Nothing guarantees,
though, that Quentin will sell his bond
for the price he paid for it or for more.
He might have to sell the bond for less
than the purchase price. Why? Because
new bonds might have a higher coupon
rate than the coupon rate on the (old)
bond that Quentin purchased. So he will
have to sell his bond for less to compete
with the new bonds that are offering a
higher coupon rate. The franchise is a form of business organization that has become more common in
the last 25 years. A franchise is a contract by
which a firm (usually a corporation) lets a
person or group use its name and sell its
goods or services. In return, the person or
group must make certain payments and
meet certain requirements. For example,
McDonald’s Corporation offers franchises.
Individuals can buy the right to use
McDonald’s name and to sell its products, as
long as they meet certain requirements. The
corporation, or parent company, is called
the franchiser; it is the entity that offers the
franchise. The person or group that buys
the franchise is called the franchisee. A few
well-known franchises are McDonald’s,
Burger King, Wendy’s, Pizza Hut, Domino’s
Pizza, and Taco Bell. How It Works
The franchise agre...
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This document was uploaded on 01/16/2014.
- Winter '14