Managers may sit on boards of directors of other

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Managers may sit on boards of directors of other group companies, and a ‘president’s council’ of chief execs meets regularly 2. Each company in group holds shares in many of their companies 3. Companies generally borrow from the keiretsu’s bank or from elsewhere within group 2. PREFERRED STOCK Preferred Stock Preferred Stock: stock that takes priority over common stock in regard to dividends Net worth: BV of common shareholders’ equity plus preferred stock 12. Useful for financing in mergers and certain other special situations 13. Almost like debt where there’s a promise to pay serious of fixed payments to investors and with rare exceptions preferred dividends are paid in full and on time No common stock can be paid until preferred dividend has been paid If company goes out of business, PS get in queue after debt-holders but before common shareholders Page 33 of 42
Fundamentals of Corporate Finance (Brealey) Weiting Xu Professor: Andreanne Tremblay Chapter Reading Notes FINE 2000 It can be: 1. Arrears – company may not pay dividends on CS or redeem any PS until all arrears are paid. Non-cumulative . Do not accrue on non-cumulative PS. 2. Redeemable – company has right to acquire shares at a set amount ( call price ) 3. Retractable – investor can force company to buy back share at a specified date 4. Convertible – shares can be converted into another class of shares, usually common shares, at predetermined price ( exercise price ) and for a certain period of time * When PS are listed on the TSX, stock symbol ends in “PR” - PR usually doesn’t have voting shares which is why it’s good as it doesn’t dilute ownership Company cannot deduct preferred dividends when calculating taxable income however dividend income is generally not taxed when received by Canadian corporations and is taxed at reduced rates when received by individuals who are eligible to a dividend tax credit 3. CORPORATE DEBT Corp. have limited liability. The promise to repay the debt is not always kept. If company get into deep water, the company has right to default on debt and hand over company’s assets to lenders Company will choose bankruptcy only if value of assets < amount of debt Interest is paid out of before-tax income, whereas dividends on common and PS are paid out of after-tax income; gov’t provides tax subsidy on use of debt which does not provide on stock Debt Comes in Many Forms Interest Rate 14. The interest payment, on most LT loans is fixed at 15. Floating interest rate: offered a loan at 1% over pri Prime Rate: benchmark inte charged by banks to large cu good to excellent credit 16. It is adjusted up a with general leve rates 17. Not always tied t (often tied to rate international ban one another: Interbank Offered Maturity Funded Debt: debt with more than one year remaining to m - debt due in less than a year is called unfunded CL * SH is unfunded debt; LT is funded - There might be bonds that survive forever (perpetual deben Repayment Provisions Sinking Fund:

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