Flashcards
Chapter 14 Cue Cards
Flashcards do conjunto (25)
- 1Define true valuePrice that incorporates all information currently available to investors
- 2Define Authorized Share CapitalMax number of shares which a company is permitted to issue as specified in the firms articles of incorporation
- 3Define Contributed SurplusDifference between issue price and par value of stock
(Par value is value of security shown on certificate) - 4Retained EarningsEarnings not paid out as dividend
- 5Difference between book and market valuesBook value is backward looking (how much capital firm raised from shareholders in the past)
Market is forward looking (measure of value investors place on shares today and expectations) - 6The firm has an obligation to pay dividends T/FFalse.
Decision is up to board of directors - 7Shareholders have the right to vote on appointments to the Board of Directors T/FTRUE!
Board of Directors (agents) manage company in interest of shareholders (principals) - 8Shareholders can vote based on how many shares they own (to determine Directors) T/FTrue
- 9What is corporate governanceShareholders/Owners do not manage. Spread the responsibility
- 10Define Sarbanes Oxley Act (From 2002)Improve internal control - Protects investors from fraudulent financial information.
Independant 3rd party verifies truthful information. - 11Common stock takes priority over preferred stock T/FFalse
Preferred stock takes priority in regard to dividends - 12Define net worth:Book value of a company's common equity plus preferred stock
- 13Preferred equity promises series of fixed payments to investors T/FTrue
- 14What is a floating rate preferred stock?Pays dividends that vary with short-term interest rates
- 15Define Redeemable stockCompany has right to acquire shares at a set amount known as 'Call Price'
- 16What is a convertible stockShares can be converted into another class of shares at predetermined price for certain period of time
- 17What is Default Risk?Likelihood that firm will walk away from its obligation (voluntary OR involuntary)
- 18What is Prime Rate?Benchmark interest rate charged by banks
- 19What does LIBOR Stand for? What is it?London Interbank Offered Rate: Which international banks lend to each other
- 20What is the difference between secured and subordinated debt?Secured debt has first claim on specified collateral during default
Subordinated: May be repaid in bankruptcy only after senior debt is paid - 21What are 'Protective Covenants?"Restriction on a firm to protect bondholders
- 22What is a foreign Bond:Issued in the currency of its country but the borrower is in another country
- 23Three examples of Innovated debt marketsIndexed Bonds
Asset Backed Bonds
Reverse Floaters - 24What do warrants provide to investors?Chance to lock-in a purchase price for a security
- 25What two ways do firms raise money?Internal: Plow earnings back into firm
External: Issuing debt/equity