Flashcards in Financial Management Deck (41)
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31
What are debenture bonds?
Bonds unsecured by collateral
32
What are subordinated debentures?
Debenture Bonds that will be repaid if any assets are left after liquidation of a company
33
What are Redeemable Bonds?
Provision in Bond contract allows demand of Bond payment under certain circumstances
34
What is a Callable Bond?
Borrower can pay off debt early
35
What is a Convertible Bond?
Lender can demand payment via company stock instead of money
36
What is a Sinking Fund?
Borrower deposits regular sums into an account that will eventually pay off the debt
37
What is the disadvantage of Common Stock in comparison to bonds?
Common Stock is more expensive to issue than debt.
Why? Investors demand a greater ROI than debtors (bondholders)
38
What is the advantage of Preferred Stock?
Hold dividend priority over common stock
39
What is Weighted Average Cost of Capital?
A company uses this to determine the true cost of their capital
Example:
Debt costs 5%; 40% of Cap.
Equity costs 12%; 60% of Cap.
(5% x 40%) + (12% x 60%)
WACC : 9.2%
40
What is CAPM?
A stock's expected performance is based on its beta (risk) compared to that of the stock market.
More risk : more expected return.
41
