CHAPTER THIRTEENTHE CORPORATE FORMSlide 3Slide 4Slide 5COMPONENTS OF STOCKHOLDERS’ EQUITYSlide 7Slide 8CASH DIVIDENDSSTOCK DIVIDENDS AND SPLITSSlide 11Slide 12Slide 13Slide 14COMMON STOCK BETASSlide 16Slide 17Slide 18Slide 19Slide 20PowerPoint PresentationCHAPTER THIRTEENCHARACTERISTICS OF COMMON STOCKSTHE CORPORATE FORMFEATURES OF THE CORPORATE FORM•common stock with limited liability•charter issued to begin •stock certificatesownership claimtransfer agent conducts title changeregistrar issues certificatesTHE CORPORATE FORMFEATURES OF THE CORPORATE FORM• votingcumulative voting system does not give majority owner controlmajority voting system: straight voting and allows majority owner controlTHE CORPORATE FORMFEATURES OF THE CORPORATE FORM•takeoversusually done with a tender offer by a bidder to a target firmbidder usually offers to buy at a stated price some or all of the shares held by current stockholdersWHITE KNIGHT is a firm making a better offerGREENMAIL is an attempt to buy share held by bidder at above-market priceTHE CORPORATE FORMFEATURES OF THE CORPORATE FORM•ownership v. controlknow as principal-agent problemstockholder motive is to maximize wealthagent may make decisions for other reasonsa solution:–give management stock options giving incentive to maximize their own wealth as well as stockholdersCOMPONENTS OF STOCKHOLDERS’ EQUITYPar Valuethe value authorized by the charter for initial capital stockCOMPONENTS OF STOCKHOLDERS’ EQUITYBook ValueFormula: Cumulative retained earnings+Capital Contributed in excess of par+Common stockBOOK VALUE OF THE EQUITYCOMPONENTS OF STOCKHOLDERS’ EQUITYReserved and Treasury Stocksome corporations repurchase some of the stock outstandingthis becomes known as treasury stockCASH DIVIDENDSDEFINITION: the portion of profits paid in cash to the stockholders•Process of Paymentdeclaration datedate of recordex-dividend datepayment dateSTOCK DIVIDENDS AND SPLITSSTOCK DIVIDENDS AND SPLITS•Stock Dividendissued in place of a cash paymenta 5% stock dividend results inexample: 5% of 100 shares = 5 sharesSTOCK DIVIDENDS AND SPLITSStock Splitnew shares issued after the splitexample: a 2 for 1 split (par=$1)a 200 share holder receives 400 new sharesat $.50 parthus, there is no dilution of the shareholder’s equity positionSTOCK DIVIDENDS AND SPLITSEX-DISTRIBUTION DATES•similar to ex-dividend date•2 business days before the date of recordSTOCK DIVIDENDS AND SPLITSREASONS FOR STOCK DIVIDEND AND SPLITS•some believe splits signal the stock is undervalued in the market•splits will bring market price to a more desirable (usually lower) range •following a split, research shows investors receive a positive abnormal returnSTOCK DIVIDENDS AND SPLITSPREEMPTIVE RIGHTS•a legal right interpreted differently depending upon the country•in the U.S. the stockholders have an inherent legal right to maintain the proportion of ownership they may control•when new shares are issuedcurrent owners must be given first right of refusalCOMMON STOCK BETASRole of BetaDEFINITION: it is a measure of a stock’s sensitivity to future market movementsCOMMON STOCK BETASCalculation using linear regression the model equation is specifiedri = rIi where ri is the return of stock i is the average return of stock i is the stock i’s beta rIis the return on the index i is the error termCOMMON STOCK BETASthe standard error of beta indicates the extent of standard deviation of the estimatesCOMMON STOCK BETAScorrelation coefficient indicates how closely the stock’s returns were explained by the index returnsCOMMON STOCK BETAScoefficient of determination represents the proportion of variance in the stock’s return to variance in the index’s returnsCOMMON STOCK BETAS1-the coefficient of determination represents the amount of the stock’s variance that cannot be explained by variances in the index returnsi.e. nonsystematic riskEND OF CHAPTER
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