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59 Cards in this Set

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How does a company raise money from investors?
Issue Stocks and Issue Bonds
What does the Articles of Incorporation or Corporate Charter contain?
1) Name, purpose & nature of business.

2) Names & addresses of original directors.

3) Duties of corporate officers.

4)Authorized shares.
What 2 entities are associated with the issuance of corporate securities?
1) Transfer Agent

2) Registrar
Transfer Agent
-Responsible for recording changes in stock ownership

-Sends dividends & proxies

-Typically a BANK
Registrar
-Makes sure the corporation doesn't issue more shares than itscharger allows

-Must always be independentof corporation
Par Value
-Arbitrary value printed on certificate

-Never Changes

-Used for book keeping purposes

-Does not effect the market value
Book Value
-Net worth of the corporation divided by the # of outstanding shares.

-Actual Market Value may be above, below or equal to Book Value
What are the 6 rights of Commom Shareholders?
1) Right to vote

2) Right to receive limited financial information about the company

3) Pre-emptive rights

4) Right to share in corporate profits

5) Right to transfer ownership

6) Right to liquidation if corporation fails
Right to Vote
-Changes to Corporate
-Mergers & acquisitions
-Financial regorganizations
-Stock splits
-Issuing convertible bonds or preferred stock
-Issuing stock options to officers on a preferential basis
-Board of directors
Right to receive limited financial information
Quarterly incomes statements and balance sheets
Pre-emptive rights
Current shareholders have the opportunity to purchase new shares tokeep their ownership mercentage the same.
Right to share in corporate profits
-Dividend
-Shareholders do NOT vote for dividend declarations
-Declared with Board of Directors
Right to transfer ownership
Right to buy & sell their shares.
Right to liquidation if corporate fails
Entitled to any monies left after a liquidation of corporation's assets. Common stockholders are last priority though
Authorized Shares
Shares the corporation is allowed to issue based on the Corporate Charter
Unissued Shares
Portion of authorized shares NOT yet sold to the public.
Issued Shares
Portion of authorized shares which have been sold to the public.
Treasury Stock
-Portion of Issued Shares that are repurchased by the company.
-Have NO votiing rights
-NOT entitled to dividends
Why a company buys Treasury Stock?
-Avoid takeover
-Use for Employee Stock Ownership Plans
-Increase demand for shares
-Use as collateral to borrow money
Outstanding Shares
Portion of Issued Shares that are owned by the public
Outstanding Formula
Issued - Treasury = Outstanding
Statutory Voting
Each share represents one vote for each position in the Board Of Directors.

Also called "REGULATORY"
Cumulative Voting
Each share controls as many votes as there are Board Of Directors.

Voting is Best for Smaller companies.
Regular Way Settlement
Settle on the THIRD BUSINESS DAY AFTER THE TRADE DATE.

(T + 3)
Cash Settlement
Settle on the same day if done before 2:30 PM, E.S.T.
Seller's Option
Settlements may take place up to 180 business days after trade date, but no sooner than 4 business days after the trade date.
Type of Dividend forms
-Cash
-Property
-Stock Dividends
-Products of the company
Declaration Date
-Set by Board of Directors
-Day Dividend is announced
Ex-Dividend Date
-Set by Exchanges

-1st day stock trades withOUT a dividend

-2 business days prior to the record date

-If stock is purchased on or after this date, then the new stock owner will not be entitled to the dividend.
Record Date
-Set by the Corporation's Board of Directors

-The day that shareholder must be listed on the transfer agent's books as owner, to be eliglible to receive the dividend

-If trade settles on or before the Record Date, new owner will receive dividend.
Pay Date
-Set by Corporation's Board of Directors

-Day dividend will be paid
Ex-Dividend Date Price Adjustments
Take the amount of the dividend and then subtract that ammount from the prior day's closing price.

Closing price - Dividend = New price
Stock Dividend
-Percentage of a share.

-Ownership ratio and portfolio value must always remain the same
How to find the value of a stock dividend?
-Put the dividend percentage into fractional terms.

-Find the total # of shares after the split multiply by the fraction

-Find the new stock price multiply the old price by the reciprocal of the dividend fraction.
Stock Split
-Must be approved by investors
-Does NOT change ownership %
-Does NOT change overall portfolio value, but price per share will be effected
Forward split
-Increases shares outstanding
-Lowers market price

-Multiply the original # of shares by the split's fraction to find the total amount of shares.

-Multiply the old price by the reciprocal of the split's fraction to find the new price.
"Two for One" (2:1)
For every one share owned, you now have two, but the market price per share would be reduced
Reverse split
-Reduces shares outstanding
-Increases market price

-Multiply the original number of shares by the split's fraction.

-Multiply the old price by the reciprocal of the split's fraction
"One for Two" (1:2)
For every two shares owned, you have one, but the market value per share would be increased.
What are the effect of splits on the stock certificates?
-Investor does NOT have to send anything in

-Company sends shareholders certificates for additional shares.

-Company sends stickers to shareholders to change the par value on the old certificates.
Preemptive Rights Offerings
-Investors maintain proportional ownership in a corp by puchasing new shares @ a discount

-"Right of first refusal"

-Short term, 30-90 days

-One right per share

-Handled by a Transfer Agent
Stand-by Underwriting
If there are shares left over, a brokerage firm may purchase the unsold shares from the issuer @ a discount, and then resell them to the public.
Formula: How many rights are needed to purchase one new share?
# of rights issued / # of new shares being issued
Cum Rights
Old shares trading with rights
Formula: Cum Rights
(Market Value of Stock - Subscription Price) / (# of rights needed to buy one new share + 1)

(M-S) / (N + 1)
Ex-Rights
Rights can be sold separately from the old shares.
Formula: Ex-Rights
(M - S) / N
American Depository Receipts (ADRs)
-Facilitate trading of foreign securities in US Markets

-US Bank registers the ADR w/SEC US laws

-Bank pays dividends in US dollars

-ADR holders have no voting rights or pre-emtive rights

-Investors can NOT receive the company's certificate

-Market price is influenced by company performance & currency rates
Sponsored ADRs
-Company selects a US Bank, which is stationed in their country.

-All quarterly reports are published in English

-Exchange traded
Unsponsored ADRs
-Many banks/brokerage firms.

-Quarterly reports are published in the language of the corp's country

-Only trade OTC
Warrants
-"Sweetner", making the offering more attractive

-Allows investors to buy additional shares @ a fixed price.

-Price is set @ a premium to the new issue market price.

-Each is good for one share.

-Marketable & trade like stock

-Long term

-No voting rights or dividends

-When stock & warrants are issued together in an IPO, it's a "UNIT".
Preferred Stock
-Pays a fixed cash dividend

-Par value = $100

-Annual dividend is expressed as a percentage par

-Have no voting or pre-emptive rights
Cumulative Preferred
All present & past due dividends must be paid to preferred stock holders before the corporation can pay a dividend to common shareholders
Non-cumulative Preferred
Past due dividends do NOT have to be paid prior to the payment of a common dividend, but present dividends must be paid.
Participating Preferred
If the corporation has exceptional earnings, the preferred shareholder can receive additional dividend payments above the stated percentage
Callable Preferred
Corp is allowed to buy back the preferred stock @ any time at a fixed price. Pays a higher dividend than a non-callable.
Convertible Preferred
Shareholder is allowed to convert the preferred shares into common stock of the corp @ any time and at a predetermined rate
Adjustable Rate Preferred
Corp is allowed to adjust the interest rate on the preferred. Due to the adjustment of the interest rate, the market price would tend to stay stable @ par.
What are the special tax breaks on dividends for corporate buyers fof preferred stock?
1) 70% exclusion if they own less than 20% of outstanding shares.

2) 80% exclusion if they own 20% or more of outstanding shares.