Common-and-Preferred-St课件(PPT 69页).pptx
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- Common-and-Preferred-St课件PPT 69页 Common and Preferred St 课件 PPT 69
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1、ChapterMcGraw-Hill/IrwinCopyright 2008 by The McGraw-Hill Companies,Inc.All rights reserved.Common and Preferred Stock Financing17第1页,共69页。Chapter 17-Outline Common Stock The Voting Right Rights Offering“Rights-on”and“Ex-rights”Poison Pill Preferred Stock Provisions Associated with Preferred Stock R
2、isk and Expected Return Summary and ConclusionsPPT 17-22第2页,共69页。Common Stock Stockholders-Ultimate owners of a firm Legally,stockholder directly controls the business A large creditor may have the power to exert pressure on the firm to meet certain financial performance standards3第3页,共69页。Preferred
3、 Stock Plays a secondary role in financing the corporate enterprise Represents a hybrid security by combining some of the features of debt and common stock Stockholders do not have an ownership interest in the firm Stockholders have a priority of claims to dividends superior to that of common stockh
4、olders4第4页,共69页。Common Stockholders Claim to Income Common stockholders have a residual claim to income These funds can be paid out as dividends or retained by the firm They do not have a legal or enforceable claim to dividends A firm may have several classes of common stock outstanding that carry d
5、ifferent rights to dividends and income5第5页,共69页。Institutional Ownership of U.S.Companies6第6页,共69页。The Voting Right Common stockholders have the right to:Vote in the election of board of directors Vote on all other major issues Assign a proxy or“power to cast their ballot”Companies can have differen
6、t classes of common stock with unequal voting rights Such as“founders shares”Bondholders and preferred stockholders may vote:If a corporate agreement has been violated7第7页,共69页。The Voting RightProxy:assigning shareholders right to vote to another individualMajority Voting:all directors must be elect
7、ed by at least 51%of the vote doesnt allow minority shareholders representation on the board of directorsCumulative Voting:a shareholders votes can all be used to elect 1 person allows minority shareholders representation on board PPT 17-48第8页,共69页。Cumulative Voting ProcessTo determine the number of
8、 shares needed to elect a given number of directors under this method of voting:If the number of minority shares outstanding under cumulative voting is known,the number of directors that can be elected can be determined:9第9页,共69页。The Right to Purchase New Shares Holders of common stock must be given
9、 the first option to buy new shares Ensures that management cannot subvert the position of present stockholders10第10页,共69页。The Use of Rights in Financing Used by many U.S.companies and is popular as fund raising method in Europe Questions to consider:How many rights should be necessary to purchase o
10、ne new share of stock?Rights required Stockholders may choose to sell their rights,rather than exercise them in the purchase of new shares11第11页,共69页。The Use of Rights in Financing(contd)What is the monetary value of these rights?Monetary value of a right two terms When a rights offering is announce
11、d a stock initially trades rights-on The value of the right when a stock is trading rights-on is:Alternate formula:Where:Mo=market value right-on;S=subscription price;N=number of rights required to purchase a new share of stock;Me=market value when trading ex-rights.Ex-rights when you buy a share th
12、ere is no right towards future purchase 12第12页,共69页。Effect of Rights on Stockholders PositionOption 1:Suppose Stockholder A owns 9 shares before the rights offering and has$30 in cash.His holdings would appear as:If he receives and exercises 9 rights to buy one new share at$30:13第13页,共69页。Effect of
13、Rights on Stockholders Position(contd)Option 2:Sell rights in the market and stay with his position of owning only nine shares and holding cash.The outcome would be:As indicated,whether you choose to exercise a rights or not,the stock will still go down a lower value.14第14页,共69页。Three options when p
14、resented with a rights offering Exercise the rights;no net gain or loss sell the rights;no net gain or loss allow the rights to lapse;a loss will be incurred due to the dilution of existing shares that is not offset by value of unsold or unexercised rights.15第15页,共69页。Poison Pills A rights offering
15、made to existing shareholders of a company Used to avoid a takeover Makes hostile takeovers very expensive and unattractive Allows existing shareholders the right to buy additional shares of the stock at a very low price16第16页,共69页。American Depository Receipts Certificates that have a legal claim on
16、 an ownership interest in a foreign companys common stock Also referred to as American Depository Shares(ADSs)Allows foreign shares to be traded in the United States much like common stock17第17页,共69页。Advantages of ADRs for the U.S.Investor Annual reports and financial statements are presented in Eng
17、lish according to GAAP Dividends are paid in dollars and are more easily collected Considered to be:More liquid Less expensive Easier to trade than buying foreign companies stock directly on that firms home exchange18第18页,共69页。Drawbacks of ADRs for the U.S.Investor ADRs are also traded in their own
18、country subjecting investors to currency risk Infrequent reporting of financial results Information lag due to the translation of reports into English19第19页,共69页。Preferred Stock Financing An intermediate or hybrid form of security Lacks the desirable characteristics of debt and common stock Merely e
19、ntitled to receive a stipulated dividend.Receive payment of dividends before common stockholders Rights for annual dividends is not mandatory for corporations Firm may forgo the preferred dividends when deemed necessary20第20页,共69页。Justification for Preferred Stock May be issued to achieve a balance
20、in capital structure A means of expanding the capital base without:Diluting the common stock ownership position Incurring contractual debt obligations A drawback is that interest payments are not tax-deductible21第21页,共69页。Investor Interest Primary purchasers of preferred stock are corporate investor
21、s,insurance companies,and pension funds Under the tax law,the corporate investor must need to add only 30%of preferred or common dividends of another corporation,to its taxable income By contrast,all the interest of bonds are taxable to the recipient except for municipal bond interest22第22页,共69页。Sum
22、mary of Tax Considerations Tax considerations for preferred stock work in two opposite directions:They make the after-tax cost of debt cheaper than preferred stock to the issuing corporation.Interest is deductible to the payer Tax considerations generally make the receipt of preferred dividends more
23、 valuable Since 70%of the dividend is exempt from taxation23第23页,共69页。Cumulative Dividends Cumulative preferred stock have a cumulative claim to dividends This feature makes a corporation aware of its obligations to preferred stockholders A financial recapitalization may occur if a financially troub
24、led firm has missed a number of dividend payments24第24页,共69页。Conversion Feature Preferred stock may be convertible to a specified number of shares of common stock Allows the company to force conversion from convertible preferred stock into convertible debt,Allows company to take advantage of falling
25、 interest rates,OR Allows company to change the preferred dividends into tax-deductible interest payments25第25页,共69页。Call Feature Allows corporations for the retirement of security before maturity At some small premium over par,at the discretion of the corporation A preferred issue carrying a call p
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