Chapter 14 14.1 Creating Value With Financing Decisions Large firms use many different kinds of securities.

. Look at the variety of securities issued by George Weston Limited LTD Equity Common Stock Preferred Stock Exchangeable Debentures Debt Debenture Medium-Term Notes Notes Payable 14.2- Common Stock Issued Shares Shares that have been issued by the company Outstanding Shares Shares that have been issued by the company and are held by investors Authorized Share Capital Maximum number of shares that the company is permitted to issue as specified in the firms articles of incorporation Par Value Value of security shown on certificate Additional Paid- In Capital Difference between issue price and par value of stock also called spiral surplus. Retained Earnings Earnings not paid out as dividends Majority Voting Voting system in which each director is voted on separately Cumulative Voting Voting system in which all the votes one shareholder is allowed to cast can be cast for one candidate for the board of directors Proxy Contest Takeover attempt in which outsiders compete with management for shareholders votes 14.3 Preferred Stock Preferred Stock Stock that takes priority over common stock in regard to dividends

Net Worth Book value of common shareholders equity plus preferred stock Like debt, most preferred stock promises a series of fixed payments to the investors, and with relatively rare exceptions preferred dividends are paid in full and on time.

Retractable preferred share can force the company to buy back the share Redeemable preferred share company has the right to acquire the shares at a set amount known as the call price Floating-rate preferred Preferred stock paying dividends that vary with short term interest rates 14.4 Corporate Debt The interest payment, or coupon, on most long-term loans is fixed at the time of issue Company will choose bankruptcy only if the value of the assets is less than the amount of debt That is why the money for the debt owed is deducted on the before tax income as it is a cost to the company The dividends and common/preferred stock are paid out on the after tax income Prime Rate - Benchmark interest rate charged by banks Funded Debt Debt with more than one year remaining to maturity Sinking Fund Fund established to retire debt before maturity Callable Bond Bond that may be repurchased by the firm before maturity at a specified call price Refunding Replacing an old bond issue with a new one by the firm. Often done when interest rates decline, and the firm can save on the interest cost of the new issue. Subordinated Debt Debt that may be repaid in bankruptcy only after senior debt is paid Secured Debt Debt that has first claim on specified collateral in the event of default Eurodollars Dollars held on deposit in a bank outside of the United States

Eurobond Bond that is denominated in the currency of one country but issued to investors in other countries Foreign Bond Bond issued in the currency of its country but the borrower is from another country Private Placement Sale of securities to a limited number of investors without a public offering Protective Covenant- Restriction on a firm to protect bondholders Lease Long-term rental agreement Asset Back Securities the borrower sets aside a group of assets and the income from these assets is ten used to service the debt 14.5 Convertible securities Warrant Right buying 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 Internally generated funds Cash reinvested in the firm: depreciation plus earnings not paid out as dividends Summary Securities likely to be fairly priced Shareholders equity account breaks down the book value of equity into paidin capital and retained earnings. The total number of shares issued as well as shares repurchased by the company is also shown Companies look for internally generated funds (new trend)