Process & Project Management, Globalization, Financial Risk Management, Decisions, & Valuation Flashcards Preview

BEC - CPA > Process & Project Management, Globalization, Financial Risk Management, Decisions, & Valuation > Flashcards

Flashcards in Process & Project Management, Globalization, Financial Risk Management, Decisions, & Valuation Deck (11):
1

Common Stock

-Equity security that conveys ownership.
-It does not require any payment, it does not mature and because it increases equity while having no effect on debt, it decreases the debt equity ratio & increases the credit-worthiness of the firm.

2

Floating-rate

Floating-rate bonds would automatically adjust the return on a financial instrument to produce a constant market value for that instrument.

3

What would be the primary reason for a company to agree to a debt covenant limiting the percentage of its long-term debt?

To reduce the coupon rate on the bonds being sold.

4

Debt Security

-Debt holders DO NOT have ownership interest.
-debt obligations require a periodic interest payment.

5

Equity Security

-They have ownership interest.
-Equity securities only pay income to their holders when dividends are declared at the discretion of the Board of Directors.

6

Short-term vs. long-term financing options

ST = result in lower interest rates but higher interest rate risks b/c rates will fluctuate more dramatically for ST issues than LT.
LT= credit risk will decrease b/c the company will seek refinancing less frequently & thereby have less credit risk/opportunity that the rates associated with debt will be changed unfavorably/financing will be denied together.

7

Formula for Price:

Price = Dividend/rate of return

8

PEG ratio

PEG = (Po/Eo) / (G x 100)

9

Compute dividend in subsequent year:

Step 1: Pt = D(t+1)/(R-G)

10

Projected Stock price formula:

Po = PEG x E1 x G

11

Economic rate of return on common stock - formula

(dividends + change in price) divided by beginning price.