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1、14-0,CHAPTER,14,Long-Term Financing:An Introduction,14-1,Chapter Outline,14.1 Common Stock 14.2 Corporate Long-Term Debt: The Basics 14.3 Preferred Stock 14.4 Patterns of Financing 14.5 Recent Trends in Capital Structure 14.6 Summary and Conclusions http:/highered.mcgraw-,14-2,14.1 Common Stock,Par
2、and No-Par Stock Authorized versus Issued Common Stock Capital Surplus Retained Earnings Market Value, Book Value, and Replacement Value Shareholders Rights Dividends Classes of Stock,14-3,Par and No-Par Stock,The stated value on a stock certificate is called the par value. Par value is an accountin
3、g value, not a market value. The total par value (the number of shares multiplied by the par value of each share) is sometimes called the dedicated capital of the corporation. Some stocks have no par value.,14-4,Authorized vs. Issued Common Stock,The articles of incorporation must state the number o
4、f shares of common stock the corporation is authorized to issue. The board of directors, after a vote of the shareholders, may amend the articles of incorporation to increase the number of shares. Authorizing a large number of shares may worry investors about dilution because authorized shares can b
5、e issued later with the approval of the board of directors but without a vote of the shareholders.,14-5,Capital Surplus,Usually refers to amounts of directly contributed equity capital in excess of the par value. For example, suppose 1,000 shares of common stock having a par value of $1 each are sol
6、d to investors for $8 per share. The capital surplus would be ($8 $1) 1,000 = $7,000,14-6,Retained Earnings,Not many firms pay out 100 percent of their earnings as dividends. The earnings that are not paid out as dividends are referred to as retained earnings.,14-7,Market Value, Book Value,and Repla
7、cement Value,Market Value is the price of the stock multiplied by the number of shares outstanding. Also known as Market Capitalization Book Value The sum of par value, capital surplus, and accumulated retained earnings is the common equity of the firm, usually referred to as the book value of the f
8、irm. Replacement Value The current cost of replacing the assets of the firm. At the time a firm purchases an asset, market value, book value, and replacement value are equal.,14-8,Shareholders Rights,The right to elect the directors of the corporation by vote constitutes the most important control d
9、evice of shareholders. Directors are elected each year at an annual meeting by a vote of the holders of a majority of shares who are present and entitled to vote. The exact mechanism varies across companies. The important difference is whether shares are to be voted cumulatively or voted straight.,1
10、4-9,Cumulative versus Straight Voting,The effect of cumulative voting is to permit minority participation. Under cumulative voting, the total number of votes that each shareholder may cast is determined first. Usually, the number of shares owned or controlled by a shareholder is multiplied by the nu
11、mber of directors to be elected. Each shareholder can distribute these votes as he wishes over one or more candidates. Straight voting works like a U.S. political election. Shareholders have as many votes as shares and each position on the board has its own election. A tendency to freeze out minorit
12、y shareholders.,14-10,Cumulative vs. Straight Voting: Example,Imagine a firm with two shareholders: Mr. Smith and Ms. Wesson. Mr. Smith owns 60% of the firm ( = 600 shares) and Ms. Wesson 40% ( = 400 shares). There are three seats up for election on the board. Under straight voting, Mr. Smith gets t
13、o pick all three seats. Under cumulative voting, Ms. Wesson has 1,200 votes( = 400 shares 3 seats) and Mr. Smith 1,800 votes. Ms. Wesson can elect at least one board member.,14-11,Proxy Voting,A proxy is the legal grant of authority by a shareholder to someone else to vote his or her shares. For con
14、venience, the actual voting in large public corporations is usually done by proxy.,14-12,Dividends,Unless a dividend is declared by the board of directors of a corporation, it is not a liability of the corporation. A corporation cannot default on an undeclared dividend. The payment of dividends by t
15、he corporation is not a business expense. Therefore, they are not tax-deductible. Dividends received by individual shareholders are for the most part considered ordinary income by the IRS and are fully taxable. There is an intra-corporate dividend exclusion.,14-13,Classes of Stock,When more than one
16、 class of stock exists, they are usually created with unequal voting rights. Many companies issue dual classes of common stock. The reason has to do with control of the firm. Lease, McConnell, and Mikkelson found the market prices of stocks with superior voting rights to be about5 percent higher than the prices of otherwise-identical stocks with inferior voting rights.,14-14,Multiple choices,1.There are 3 directors seats up for election. If you own 1,000 shares of stock and you can cast 3,000
