Bankruptcy and Shareholder Rights Overview

Common stock is considered the most junior security in a bankruptcy proceeding, meaning it has the lowest priority in claiming the company's assets.

Preferred stock holders have a higher priority in claiming assets than common stock holders, but lower than bondholders.

While shareholders have certain rights, they do not directly determine the amount of dividends paid per share. This is decided by the company's board of directors based on various factors.

Dual-class common stock structures involve different voting rights per share, creating unequal power among shareholders.

Preferred stock is technically considered part of equity, similar to common stock, even though it offers certain privileges.

Shareholders have the right to elect the board of directors, who then oversee company management, including dividend decisions.

Shareholders, through their voting rights, can influence executive compensation and other corporate matters impacting the company's performance.

Shareholders can participate in voting for or against mergers or acquisitions through proxy voting, which allows them to delegate their voting power.

Represents a portfolio consisting solely of U.S. Treasury bills, offering a risk-free rate of return.

Standard deviation measures the total risk of an investment, encompassing both systematic and unsystematic risk. Beta, on the other hand, solely captures systematic risk.

Diversification involves spreading investments across a variety of assets to reduce overall risk. By diversifying, some unsystematic risk, which is specific to individual assets, can be eliminated.

Nondiversifiable risk, or systematic risk, is a type of risk that cannot be mitigated through diversification. This is the risk inherent in the overall market and is measured by beta.

Standard deviation measures the volatility of an investment's returns, indicating its overall risk. A higher standard deviation represents greater volatility and thus higher risk.

The Capital Asset Pricing Model (CAPM) determines the expected return of an asset based on its beta, risk-free rate, and market risk premium. It does not consider the asset's standard deviation.

A technique for evaluating a project's potential outcomes by considering different scenarios based on varying input parameters. This helps determine the reasonable range of expectations.

A method that examines how changes in a single variable affect a project's outcome. This helps identify the variable that has the greatest impact on the project's success.

The approach of assigning discount rates to projects based on their perceived risk levels. Higher risk projects receive higher discount rates, while lower risk projects receive lower rates.

The market values of a company's outstanding securities (debt and equity) are used to calculate the weights in the weighted average cost of capital (WACC).

Evaluates the anticipated benefits against the associated costs of a project. This helps determine the project's overall financial viability.

The concept of forgoing an opportunity to pursue another alternative. It's the potential benefits you miss out on by choosing one option over another.

The decrease in sales of existing products due to the introduction of a new product.

Current assets minus current liabilities. It represents the short-term liquidity of a firm.

The risk of a security relative to the market. A beta of 1 means the security's price moves in line with the market. A beta of 2 means it moves twice as much. A beta of 0.5 means it moves half as much.

A graphical representation of the relationship between expected return and risk. It shows the return that investors expect to receive for different levels of risk.

A security that is priced correctly according to the capital asset pricing model (CAPM) will plot on the security market line. It will be fairly priced for its level of risk.

A security that is underpriced, i.e., its expected return is higher than its risk justifies, will plot below the security market line.

The cost of equity is the return required by investors for holding a company's stock. It's calculated using various models like the dividend growth model and the capital asset pricing model (CAPM).

The weighted average cost of capital (WACC) represents the average cost of all the capital (debt and equity) a company uses to finance its operations. It's used to evaluate investment proposals.

The cost of equity for a firm can be determined using different models like the dividend growth model and the CAPM. When there are discrepancies, the average of the estimates from both models is often used.

The weighted average cost of capital (WACC) is a key figure that companies use to make investment decisions. It's the required rate of return for investments that will generate the same risk as the company's existing business.

When the cost of equity or the weighted average cost of capital (WACC) decreases, it becomes less expensive for a company to raise funds for new investments.

The cost of equity represents the expected return investors want for holding a company's stock. It's a key factor in determining a company's overall cost of capital and its ability to fund projects.

The cost of preferred stock is simply the dividend yield on the stock. Preferred stock dividends are typically fixed, so the cost of preferred stock is more straightforward to calculate than the cost of common equity.

The standard deviation of a company's common stock measures the volatility of its stock price and doesn't have a direct impact on the weighted average cost of capital (WACC). WACC focuses on the cost of capital, not the volatility of the stock.

The ex-dividend date is the cutoff date for receiving a dividend. If you buy the stock on the ex-dividend date or after, you will not receive the dividend, because the next dividend will go to the buyer and not the previous owner.

A stock repurchase occurs when a company buys back its own existing shares from shareholders. This reduces the number of shares outstanding, increasing the value of each remaining share.

A targeted repurchase is a specific stock repurchase offer tailored to a certain shareholder or group of shareholders. It is different from a public offer in that it focuses on specific shareholders and often involves a higher price per share than the current market price.

A tender offer is a public offer by a company to buy back a certain number of its shares at a specified price, often a premium to the market price. This is a way for the company to increase shareholder value.

A shareholder's right to vote on dividends is very limited. Dividends are decided by the Board of Directors, not individual shareholders. However, shareholders have the right to vote for the Board of Directors who will make those decisions.