Overview of Corporate FinanceNuggets from Chapter 11Sources of FundsCommon StockCommon Stock DividendsVoting Rights on Common StockOther Forms of EquityDebtKey Debt QuestionsFinancial InstitutionsNext ClassOverview of Corporate Finance•Chapter 11 Highlights•Sources of Funds for Corporate Financing–NPV and other techniques tell us what projects to invest in–Now determine how to raise the fundsNuggets from Chapter 11•Use market values wherever possible–Financial models will include errors•Consider economic rents and competitive advantage–Can Google protect its competitive advantage?•Consider how competitors will react•Warren Buffet on the automobile and airlines industries•Look for long term economic advantageSources of Funds•Internal funds–Primary source of funds–Advantages–Concerns•New equity•Debt–How much do firms borrow–How much should firms borrowCommon Stock•Key terms–Authorized share capital–Issued and outstanding–Issued but not outstanding–Par value–Additional paid-in capital•Ownership–Households–Institutions•Pension funds, insurance companies, mutual funds–InternationalCommon Stock Dividends•Not tax deductible by the corporation–Can lead to double taxation•Discretionary–Can be increased, decreased or omitted•Portion of shareholder return–Along with capital gainsVoting Rights on Common Stock•Majority voting•Cumulative voting•Classes of ownership•Voting borrowed sharesOther Forms of Equity•Equity in disguise–Master limited partnerships–Real Estate Investment Trusts (REITs)•Preferred stock–Fixed dividends–Can be omitted, but cannot pay common dividend that period–Cumulative preferred stock–Dividends are not tax deductible by the corporationDebt•Commitment by the corporation to pay interest and principal•Interest is tax deductible by the corporation•Consequences of defaultKey Debt Questions•Long or short term borrowing•Fixed or floating rate•Dollars or other currency•Promises–Senior or junior–Secured with collateral–Covenants•Convertible bondsFinancial Institutions•Types of institutions–Banks–Insurance companies–Pension funds–Mutual funds–Hedge funds•Payment mechanism•Borrowing and lending•Pooling riskNext Class•Case 1 – Ben & Jerry’s–Case is available in IUB on the course packet wall–Be prepared to discuss the case in
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