2. Participation Rights Contractual rights of security holders to receive dividends or returns from the security issuer’s profits, cash flows, or returns on investments. 3. Preferred Stock A security that has preferential rights compared to common stock. C. What information about securities must companies disclose?
Secured bonds - is secured by a specific collateral of the company. 3. Convertible bond- or convertible note is a bond that can convert into a specified number of shares of common stock. 4. Callable bond- bonds which can be redeemed at the option of the issuing company before the bond reaches its date of maturity.
Questions 1. a. Discuss the specific items of capital that should be included in the WACC. The capital that should be included in the WACC is the common stock, preferred stock, bonds and any other long-term debt b. The comptroller currently finds the weights for the weighted average cost of capital (WACC) from information from the balance sheet shown in Table 2. Compute the book value weights that the comptroller currently uses for the company’s capital structure.
The meaning and implications of using FIFO, LIFO, and weighted average cost-flow assumptions. 6. How to calculate depreciation using the straight-line method. 7. The journal entry for the issuance of bonds (at par, discount, or premium) and for the issuance of stock (at par or above par).
Callable preferred stock permits the corporation at its option to redeem the outstanding preferred shares at stipulated prices. T13. The laws of some states require that corporations restrict their legal capital from distribution to sh. F14. The SEC requires companies to disclose their dividend policy in their annual report.
Evaluate the two offers in Exhibit 7. What explains the two structures? In each case, what is the value to MCI shareholders? 3. Merger arbitrage (or risk arbitrage) funds speculate on the completion of stock and cash mergers, typically buying the target and hedging the risk of the acquirer’s shares accordingly to exchange ratio in stock mergers.
This includes the cost of debt to debt holders and cost of equity (including preferred stock and common stocks) to shareholders. WACC is calculated considering the relative weights of each component of the capital structure- debt and equity, and is used to see if the investment is worth taking. So it is the minimum return that shareholders and creditors require for their investments with the company. Moreover, the WACC is calculated using the following equation: WACC = (Percentage of equity) x (Cost of equity) + (Percentage of debt) x (Cost of debt) WACC = [E/ (E + D)] x (Cost of equity) + [D/ (E + D)] x (Cost of debt) x (1-t) It is important to estimate a firm’s cost because it affects the capital budgeting, financing methods and the performance of the firm. For each one the WACC has different importance.
To make it matches with chosen Rf rate the appropriate measure of risk premium is Spread between S&P 500 Composite Returns and Long-term U.S . Government Bond Returns. The market risk premium is estimated as the difference between the arithmetic average of annual holding period returns on a market and the arithmetic average of annual holding returns on a portfolio of government securities. Thus, it will be 7.43%. β = Beta of the Asset: The case provides equity beta: 0.97.