财务管理ppt英文课件Chapter20

1、chapter 20copyright 2001 prentice-hall, inc.fundamentals of financial management, 11/e by van horne and wachowicz. slides prepared by wu xiaolan1chapter objectiveslexplain the characteristics of debt.lidentify the different types of debentures.loutline the provisions of a bond covenants.ldiscuss the

2、 different features of both preferred stock and common stock.copyright 2001 prentice-hall, inc.fundamentals of financial management, 11/e by van horne and wachowicz. slides prepared by wu xiaolan2solution for chateau teyssier chateau teyssier, an english vineyard, was seeking cash to purchase some a

3、dditional vines and to modernize its production facilities. their solution is to issue 375 bonds, each costs 2,650 british bonds. the issue raised nearly 1 million pounds, which is roughly $1.5 million. what makes these bonds interesting is that, instead of getting paid with money, the bonds pay the

4、ir investors with wine. each june until 2002, when the bonds mature, investors will receive their “coupons.” between 1997 and 2001, each bond will provide six cases of the vineyards rose or claret. starting in 1998 and continuing through maturity in 2002, investor will also receive four cases of its

5、 prestigious saint emilion grand cru. then, in 2002, they will get their money back. copyright 2001 prentice-hall, inc.fundamentals of financial management, 11/e by van horne and wachowicz. slides prepared by wu xiaolan3maturitylbillzero-coupon debt security with one year or less to maturity at the

6、maturity date. lnotemedium-term debt security with maturity at issue of 1 to 10 years. lbonda long-term debt instrument with a final maturity generally being 10 years or more.copyright 2001 prentice-hall, inc.fundamentals of financial management, 11/e by van horne and wachowicz. slides prepared by w

7、u xiaolan4methods of classifying long-term debt maturityshort-term: billsintermediate-term: noteslong-term: bondsonly long-term debt is part of a corporations capitalization seniorityrank in priority of claims to assets and cash flow. senior versus subordinated debt interest payment method floating

8、or fixed rate debtcopyright 2001 prentice-hall, inc.fundamentals of financial management, 11/e by van horne and wachowicz. slides prepared by wu xiaolan5methods of classifying long-term debt callability firms could retire and reissue debt if interest rates fall.most us corporate debt is callable by

9、firm. security is debt secured by explicit collateral?mortgages: secured by real estateequipment trust receipts:secured by transportation equipmentdebentures: no explicit collateralcopyright 2001 prentice-hall, inc.fundamentals of financial management, 11/e by van horne and wachowicz. slides prepare

10、d by wu xiaolan6methods of classifying long-term debtmethod of principal repaymentbullet loans: principal repaid in a lump sum at maturityamortized loans: equal periodic principal and interest paymentssecurity versus loan productcapital market instruments:bonds, notes, bills are securitiessyndicated

11、 bank loans: the most important loan productscopyright 2001 prentice-hall, inc.fundamentals of financial management, 11/e by van horne and wachowicz. slides prepared by wu xiaolan7bond covenantslbond covenants (also called bond indenture): the rules that specify the rights of the lender and the rest

12、rictions on the borrower. lprovisions included in the indenture lwhy do we need covenants? copyright 2001 prentice-hall, inc.fundamentals of financial management, 11/e by van horne and wachowicz. slides prepared by wu xiaolan8bond covenants (cont.)lmajor kinds of bond covenants:assets covenants divi

13、dend covenantsfinancing covenants bonding covenantsfinancial ratio covenantssinking fund covenants.lnot all of these types of covenants are included in every bond. copyright 2001 prentice-hall, inc.fundamentals of financial management, 11/e by van horne and wachowicz. slides prepared by wu xiaolan9b

14、ond covenants (cont.)lassets covenantsgovern the firms acquisition, use, and disposition of assets.ldividend covenantrestrict the payment of dividends. if the shareholders/managers pay themselves dividends, the claims of the bondholders become less secure. copyright 2001 prentice-hall, inc.fundament

15、als of financial management, 11/e by van horne and wachowicz. slides prepared by wu xiaolan10financing covenants ldescribe the amount of additional debt the firm can issue and the claims to assets that this additional debt might have in the event of default. lsuch covenants generally specify that an

16、y new debt has to have a subordinated claim to the assets. lit prevents the firm from promiscuously issue new debt, which would dilute the claims of existing bondholders to the firms assets. copyright 2001 prentice-hall, inc.fundamentals of financial management, 11/e by van horne and wachowicz. slid

17、es prepared by wu xiaolan11bonding covenants ldescribe the mechanism for enforcement of the covenants. lfor example, the mechanism includes an independent audit of the companys financial statements and appointment of a trustee to represent the bondholders and monitor the firms compliance with bond c

18、ovenants. copyright 2001 prentice-hall, inc.fundamentals of financial management, 11/e by van horne and wachowicz. slides prepared by wu xiaolan12bond covenants (cont.)lfinancial ratio covenantsminimum value for net working capital interest coverage ratio lsinking fund covenantsa common covenant rel

19、ated to financing. it requires that a certain portion of the bonds be retired before maturity. copyright 2001 prentice-hall, inc.fundamentals of financial management, 11/e by van horne and wachowicz. slides prepared by wu xiaolan13optionsloptions: bond features that allow both buyers and sellers to

20、terminate the bond agreement, often requiring the party exercising the option to make certain payments or take on different risks. lmajor types of options:callable bondconvertible bondexchangeable bondputable bondcopyright 2001 prentice-hall, inc.fundamentals of financial management, 11/e by van hor

21、ne and wachowicz. slides prepared by wu xiaolan14types of optionslcallable bondcallable bond allows the issuing firm to retire the bonds before maturity by paying a pre-specified price. lconvertible bondconvertible bond gives the bondholder the option to convert bond into another security, typically

22、 the common stock of the firm issuing the convertible bond.copyright 2001 prentice-hall, inc.fundamentals of financial management, 11/e by van horne and wachowicz. slides prepared by wu xiaolan15convertible bondlconversion price - the price per share at which common stock will be exchanged for a con

23、vertible security. it is equal to the face value of the convertible security divided by the conversion ratio. lconversion ratio - the number of shares of common stock into which a convertible security can be converted. it is equal to the face value of the convertible security divided by the conversi

24、on price.copyright 2001 prentice-hall, inc.fundamentals of financial management, 11/e by van horne and wachowicz. slides prepared by wu xiaolan16convertible bondlconversion value - the value of the convertible security in terms of the common stock into which the security can be converted. it is equa

25、l to the conversion ratio times the current market price per share of the common stock. lpremium over conversion value - the market price of a convertible security minus its conversion value; also called conversion premium.copyright 2001 prentice-hall, inc.fundamentals of financial management, 11/e

26、by van horne and wachowicz. slides prepared by wu xiaolan17convertible bond values020406080100conversion valuevalueconvertible bond valueno conversion valuestock pricecopyright 2001 prentice-hall, inc.fundamentals of financial management, 11/e by van horne and wachowicz. slides prepared by wu xiaola

27、n18putable bondlputable bond gives the bondholder the right to sell the bond back to the firm. for example, if the value of the outstanding bonds falls (perhaps owing to a proposal to leverage the firm much more highly), bondholder could force the firm to buy back the outstanding bonds at a higher p

28、rice. copyright 2001 prentice-hall, inc.fundamentals of financial management, 11/e by van horne and wachowicz. slides prepared by wu xiaolan19exchangeable bondlexchangeable bond gives the issuing firm the right to exchange the bond for a bond of a different type. for example, the firm might be able

29、to exchange a bond with floating-rate payments for one with fixed-rate payments. copyright 2001 prentice-hall, inc.fundamentals of financial management, 11/e by van horne and wachowicz. slides prepared by wu xiaolan20preferred stocklshares with dividend priority over ordinary shares, normally with a

30、 fixed dividend rate, sometimes without voting rights.lcumulative vs non-cumulative dividends.lirredeemable vs redeemable shares.lnon-participating vs participating shares.most preference shares issued are cumulative, irredeemable and non-participating.copyright 2001 prentice-hall, inc.fundamentals

31、of financial management, 11/e by van horne and wachowicz. slides prepared by wu xiaolan21reasons for issuing preferred stock lredeemable preference shares can be used to enhance the balance sheet by increasing the equity base.lthey can be used to avoid the threat of bankruptcy that exists for debt.l

32、companies unable to take advantage of the tax deductibility of debt favor preference shares.la means of raising equity without surrendering control.copyright 2001 prentice-hall, inc.fundamentals of financial management, 11/e by van horne and wachowicz. slides prepared by wu xiaolan22preferred stocks

33、 (cont.)lmain buyers - corporations and institutional investorspriority claim on earnings and assets tax consideration: the corporate investor is attracted to preferred stock as generally 70% of dividends can be excluded from taxes.lcommon stock dominates preferred stock by a wide margin more than 8

34、0 percent of equity financing is in common stock copyright 2001 prentice-hall, inc.fundamentals of financial management, 11/e by van horne and wachowicz. slides prepared by wu xiaolan23voting rights in special situationslpreferred stockholders are not normally given a voice in management unless the

35、company is unable to pay preferred stock dividends during a specified period.lif such a situation presents itself, the class of preferred stockholders would be entitled to elect a specified number of directors.lany situation in which the company defaults under restrictions in the agreement (similar

36、to bond indenture) may lead to voting power for preferred shareholders.lpreferred shareholders cannot force the immediate repayment of obligations (like debt obligations).copyright 2001 prentice-hall, inc.fundamentals of financial management, 11/e by van horne and wachowicz. slides prepared by wu xi

37、aolan24common stockslownership shares in a publicly held company. claim on earnings and assets stock certificate limited liabilitycopyright 2001 prentice-hall, inc.fundamentals of financial management, 11/e by van horne and wachowicz. slides prepared by wu xiaolan25common stocktreasury stockstock th

38、at has been repurchased by the company and held in its treasuryissued sharesshares that have been issued by the company.outstanding sharesshares that have been issued by the company and held by investors.copyright 2001 prentice-hall, inc.fundamentals of financial management, 11/e by van horne and wa

39、chowicz. slides prepared by wu xiaolan26shareholding rightlvoting rightmajority votingcumulative votinglthe right to participate in firms earnings lpreemptive right. lthe right to inspect and copy records.lthe right to suit the firm for misconduct. copyright 2001 prentice-hall, inc.fundamentals of financial management, 11/e by van horne and wachowicz. slides prepared by wu xiaolan27dual-class shares loriginally designed for family-owned firmsclass a and class b ldifferences between class a and class bvoting right (ownership right): class a is usually t