ch16 - PA R T 6 SPECIAL TOPICS IN MANAGERIAL FINANCE...

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671 P A R T 6 S PECIAL T OPICS IN M ANAGERIAL F INANCE CHAPTERS IN THIS PART 16 Hybrid and Derivative Securities 17 Mergers, LBOs, Divestitures, and Business Failure 18 International Managerial Finance Integrative Case 6: Organic Solutions
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L E A R N I N G G O A L S 672 H YBRID AND D ERIVATIVE S ECURITIES C H A P T E R Across the Disciplines WHY THIS CHAPTER MATTERS TO YOU Accounting: You need to understand the types of leasing arrangements and the general features of convertible securi- ties, stock purchase warrants, and options, which you will be required to record and report. Information systems: You need to understand types of leasing arrangements and of convertible securities in order to design systems that will track data used to make lease-or-purchase and conversion decisions. Management: You need to understand when and why it may make better sense to lease assets than to purchase them. You need to understand how convertible securities and stock pur- chase warrants work in order to decide when using such financing tools is a good decision for the firm. You also need to understand the impact of call and put options on the firm. Marketing: You need to understand leasing because you may want to propose that the firm lease equipment as part of a new project proposal. You also should understand the use of derivative securities as a cost-effective way to add to the marketability of securities and thus provide more funds for new projects. Operations: You need to understand leasing, and what mainte- nance obligations the firm will have for a leased asset, because the firm may choose to obtain operating equipment by this means. Demonstrate the procedures for determining the straight bond value, the conversion (or stock) value, and the market value of a convertible bond. Explain the basic characteristics of stock pur- chase warrants, the implied price of an attached warrant, and the values of warrants. Define options and discuss calls and puts, options markets, options trading, the role of call and put options in fund-raising, and hedging foreign-currency exposures with options. LG6 LG5 LG4 Differentiate between hybrid and derivative secu- rities and their roles in the corporation. Review the basic types of leases, leasing arrangements, the lease-versus-purchase deci- sion, the effects of leasing on future financing, and the advantages and disadvantages of leasing. Describe the basic types of convertible securities, their general features, and financing with convertibles. LG3 LG2 LG1 16
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673 W hen restaurateurs Kai Adams, Brad Monarch, and Timothy Haines opened their Sebago Brewing Company restaurant and brewery in South Portland, Maine, they chose to lease several big-ticket items. After leasing a $30,000 point-of-sale computer system and a $4,000 dishwasher for their first restaurant, they continued to lease equipment as they expanded to other locations.
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