Fundamentals of Corporate Finance Chapter 14 Introduction to Corporate Financing
1) Companies use what to forms to raise funds? Provide examples of each.
2) On average which do companies use more debt (loans) or equity (sell common stock)?.
3) What is another source of funding besides debt or equity?.
4) What are example of companies that had high debt ratios and fell into financial distress?
5) What is common stock? Define the associated accounts (Treasury stock, Issued shares, etc).
6) Charles Products has one stock issue in which it sold 10,000 shares to the public at $20 per
share. Fill in the following table Common shares ($1 par value per share) _____________
Additional paid-in capital ___________ Retained earnings _____________ Net common equity
$450,000.
7). What are stockholders entitled to, have control over and have approval on?
8) Describe the voting procedures. Include information on \"super majority\" and proxy voting.
9) What are the different classes of stock? How many classes do most companies have?
10). what is preferred stock? What is its characteristics?
11) Debt comes in many forms. Name and describe some of them.
12). Define prime rate.
13). what is a protective covenant?
14) Why is bundling and selling loans important?.
15) Name and describe two types of convertible securities.
Solution
1) Company can raise funds by issuing the Debt (loans) or issuing the shares or equity on the
financial markets. For e.g. Company X issues $10 million value, 10% coupon, 10 year maturity
Long term Bonds to raise the capital in the bond markets and issue new shares of value $10
million in the capital markets to raise funds in the amount desired of $ 20 million.
2) On an average the companies uses more equity as compared to the bonds because there is no
obligation to pay in equity as is required in the bonds.
3) Preferred share can also be used to raise funds. They provide regular dividends with lower
required return than equity.
4)American Airlines,Eastmen Kodak.
5) A common stock is a security that represents ownership in the organisation which is issuing
this common stock. Treasury stock is common stock repurchased by the issuer and is intended
for retirement or resale to the public. Outstanding shares are the stock being purchased by the
investors and held by them. Issued shares are the stock being issued by the firm and its equal to
the sum of outstanding shares and Treasury stock.
6) Common shares: $10,000
Additional paid-in capital: $190,000
Retained earnings: $450,000-$200,000=$250,000
7) Stockholders are entitled to Dividends in addition they have voting power on major issues in
the firm, have approval in the appointments of the Board of Directors, has right to sue for
wrongful acts..
Fundamentals of Corporate Finance Chapter 14 Introduction to Corpora.pdf
1. Fundamentals of Corporate Finance Chapter 14 Introduction to Corporate Financing
1) Companies use what to forms to raise funds? Provide examples of each.
2) On average which do companies use more debt (loans) or equity (sell common stock)?.
3) What is another source of funding besides debt or equity?.
4) What are example of companies that had high debt ratios and fell into financial distress?
5) What is common stock? Define the associated accounts (Treasury stock, Issued shares, etc).
6) Charles Products has one stock issue in which it sold 10,000 shares to the public at $20 per
share. Fill in the following table Common shares ($1 par value per share) _____________
Additional paid-in capital ___________ Retained earnings _____________ Net common equity
$450,000.
7). What are stockholders entitled to, have control over and have approval on?
8) Describe the voting procedures. Include information on "super majority" and proxy voting.
9) What are the different classes of stock? How many classes do most companies have?
10). what is preferred stock? What is its characteristics?
11) Debt comes in many forms. Name and describe some of them.
12). Define prime rate.
13). what is a protective covenant?
14) Why is bundling and selling loans important?.
15) Name and describe two types of convertible securities.
Solution
1) Company can raise funds by issuing the Debt (loans) or issuing the shares or equity on the
financial markets. For e.g. Company X issues $10 million value, 10% coupon, 10 year maturity
Long term Bonds to raise the capital in the bond markets and issue new shares of value $10
million in the capital markets to raise funds in the amount desired of $ 20 million.
2) On an average the companies uses more equity as compared to the bonds because there is no
obligation to pay in equity as is required in the bonds.
3) Preferred share can also be used to raise funds. They provide regular dividends with lower
required return than equity.
4)American Airlines,Eastmen Kodak.
5) A common stock is a security that represents ownership in the organisation which is issuing
this common stock. Treasury stock is common stock repurchased by the issuer and is intended
for retirement or resale to the public. Outstanding shares are the stock being purchased by the
investors and held by them. Issued shares are the stock being issued by the firm and its equal to
2. the sum of outstanding shares and Treasury stock.
6) Common shares: $10,000
Additional paid-in capital: $190,000
Retained earnings: $450,000-$200,000=$250,000
7) Stockholders are entitled to Dividends in addition they have voting power on major issues in
the firm, have approval in the appointments of the Board of Directors, has right to sue for
wrongful acts.
