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28 Cards in this Set
- Front
- Back
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3 capital components to raise capital
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debt/preferred stock/common stock (equity)
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Which capital components are fixed cost/income and are variable cost/income?
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na
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what is the main purpose of an investment bank?
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to raise capital
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what is total return?
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yield plus capital gains.
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two components of total return
ie bond/stock usage |
yields in terms of bonds relate to interest payments/the price paid for bond. Capital gains is both in same.
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Calculate yield
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dividend/price
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major advantage- Debt
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low tax cost
increased earnings per share possible firm has greater control |
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major disadvantage- Debt
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Increased financial risk- obligated to pay back
restrictions placed on firm by lenders |
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major advantage-preferred
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flixeible
increased financial leverage corporate tax advantage |
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major disadvantage-preferred
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high after tax cost
dividends are not tax deductible |
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major advantage- Common Stock
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flexible
reduces financial leverage |
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major disadvantage-common stock
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risk and higher cost than debt
dilutes eps high issuance costs |
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what is the official bond contract, and key provisions
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called Indenture:
--details nature of the debt issue --specifies how it will be repaid |
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bond ratings two rating companies
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Stand and Poors
Moodys |
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Moodys High/Low ratings
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high- Aaa- min risk
low-C-low quality,w/ little prospect of recovery |
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Stand Poor High/Low ratings
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High- AAA high cap to meet obligation
low- D- Payments are in default due to bankruptcy |
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how do bond ratings change impact interest rates (required rate of return) changes and ultimately bond prices
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+lowering bod rating=increase in risk, thus increase in returns
+The higher bond rating the lower the interest rate and lower risk +the lower bond higher interest rate and higher risk |
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what is the basic relationship between interest rates and bond/stock prices?
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rate down value up, rate up val down
interest rate up=val down +more risk interest rate down = val up and less risk |
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what type of company uses preferred stock most and why?
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utility companies because regulatory allow them to count dividends as an expense as part of their rate structure
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What is WACC and how is it calculated
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formula 60
debt prefered stock and common stock |
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What are 3 factors required to determine true cost borrowing
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na
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know basic features of commerical paper
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short term promissory note. Max maturity of 270 days
requires collateral |
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Commercial paper- factoring when and for what
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you selling accounts receivable to a company for factor
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how is the total market value of equity computed?
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na
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what are the 3 components of common stockholder's equity?
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na
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what are the 5 c's of credit?
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capital
character capacity collateral conditions |
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What are the sources of info for evaluating creditworthiness?
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na
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What are two of the basic inventory mgmt models
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Economic order quantitiy
just in time inventory |
