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1、,Irwin/McGraw-Hill,Chapter 13,Fundamentals of Corporate FinanceThird Edition,An Overview of Corporate Financing,Brealey Myers Marcusslides by Matthew Will,Irwin/McGraw-Hill,The McGraw-Hill Companies, Inc.,2001,Topics Covered,Common StockPreferred StockCorporate DebtConvertible SecuritiesPatterns of
2、Corporate Financing,Common Stock,Treasury StockStock that has been repurchased by the company and held in its treasury,Issued SharesShares that have been issued by the company.,Outstanding SharesShares that have been issued by the company and held by investors.,Common Stock,Authorized Share Capital
3、Maximum number of shares that the company is permitted to issue, as specified in the firms articles of incorporation.,Par ValueValue of security shown on certificate.,Retained EarningsEarnings not paid out as dividends.,Common Stock,Book Value vs. Market ValueBook value is a backward looking measure
4、. It tells us how much capital the firm has raised from shareholders in the past. It does not measure the value that shareholders place on those shares today. The market value of the firm is forward looking, it depends on the future dividends that shareholders expect to receive.,Common Stock,Example
5、 - H.J. Heinz Book Value vs. Market Value (4/99)Total Shares outstanding = 358 million,Common Stock,Example - H.J. Heinz Book Value vs. Market Value (4/99)Total Shares outstanding = 358 million,Common Stock,Example - No-name News can be established by investing $10 million in a printing press. The n
6、ewspaper is expected to generate a cash flow of $2 million a year for 20 years. If the cost of capital is 10 percent, is the firms market or book value greater?,Common Stock,Example - No-name News,Preferred Stock,Preferred Stock - Stock that takes priority over common stock in regards to dividends.
7、Net Worth - Book value of common shareholders equity plus preferred stock.Floating-Rate Preferred - Preferred stock paying dividends that vary with short term interest rates.,Corporate Debt,Debt has the unique feature of allowing the borrowers to walk away from their obligation to pay, in exchange f
8、or the assets of the company.“Default Risk” is the term used to describe the likelihood that a firm will walk away from its obligation, either voluntarily or involuntarily. “Bond Ratings”are issued on debt instruments to help investors assess the default risk of a firm.,Corporate Debt,Prime Rate - B
9、enchmark interest rate charged by banks.Funded Debt - Debt with more than 1 year remaining to maturity.Sinking Fund - Fund established to retire debt before maturity.Callable Bond - Bond that may be repurchased by firm before maturity at specified call price.,Corporate Debt,Subordinate Debt - Debt t
10、hat may be repaid in bankruptcy only after senior debt is repaid.Secured Debt - Debt that has first claim on specified collateral in the event of default. Investment Grade - Bonds rated Baa or above by Moodys or BBB or above by S&P.Junk Bond - Bond with a rating below Baa or BBB.,Corporate Debt,
11、Eurodollars - Dollars held on deposit in a bank outside the United States.Eurobond - Bond that is marketed internationally.Private Placement - Sale of securities to a limited number of investors without a public offering.Protective Covenants - Restriction on a firm to protect bondholders.Lease - Lon
12、g-term rental agreement.,Convertible Securities,Warrant - Right to buy shares from a company at a stipulated price before a set date.Convertible Bond - Bond that the holder may exchange for a specified amount of another security.Convertibles are a combined security, consisting of both a bond and a c
13、all option.,Patterns of Corporate Financing,Firms may raise funds from external sources or plow back profits rather than distribute them to shareholders.Should a firm elect external financing, they may choose between debt or equity sources.,Patterns of Corporate Financing,Patterns of Corporate Financing,