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Questions and Answers
What is the primary function of cumulative voting for shareholders?
What is the primary function of cumulative voting for shareholders?
What does the 'coattail' provision do in the context of non-voting shares?
What does the 'coattail' provision do in the context of non-voting shares?
Which of the following types of shares could potentially concentrate voting power among a small group of owners?
Which of the following types of shares could potentially concentrate voting power among a small group of owners?
Which statement best describes the role of warrants and stock options?
Which statement best describes the role of warrants and stock options?
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What is the purpose of using proxies by minority shareholders?
What is the purpose of using proxies by minority shareholders?
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Which of the following best defines 'additional paid-in capital'?
Which of the following best defines 'additional paid-in capital'?
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How can the influence of small common shareholders on a firm’s direction be described?
How can the influence of small common shareholders on a firm’s direction be described?
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Which class of common shares is likely to have fewer voting rights?
Which class of common shares is likely to have fewer voting rights?
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What type of debt ranks below other debt in case of asset claims during a default?
What type of debt ranks below other debt in case of asset claims during a default?
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Which bond feature grants the issuer the right to redeem the bond before maturity?
Which bond feature grants the issuer the right to redeem the bond before maturity?
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In what manner is interest paid on bearer bonds?
In what manner is interest paid on bearer bonds?
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What is a characteristic of convertible bonds?
What is a characteristic of convertible bonds?
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Which of the following describes strip bonds?
Which of the following describes strip bonds?
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What distinguishes a debenture from a bond?
What distinguishes a debenture from a bond?
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What does 'private placement' mean in the context of bonds?
What does 'private placement' mean in the context of bonds?
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What is the result of accumulating savings at an interest rate of 5.75% over five years?
What is the result of accumulating savings at an interest rate of 5.75% over five years?
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What defines the entitlement of preferred shares to dividends?
What defines the entitlement of preferred shares to dividends?
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Which type of preferred shares allows for accrued dividends if missed?
Which type of preferred shares allows for accrued dividends if missed?
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How do participating preferred shares function in terms of dividends?
How do participating preferred shares function in terms of dividends?
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What characteristic is rarely associated with preferred shares?
What characteristic is rarely associated with preferred shares?
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What happens to the dividend rate of floating rate preferred shares when interest rates rise?
What happens to the dividend rate of floating rate preferred shares when interest rates rise?
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In the given valuation of warrants, what is the percentage increase in the warrant value?
In the given valuation of warrants, what is the percentage increase in the warrant value?
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What characterizes the exercise price of the warrants in the provided data?
What characterizes the exercise price of the warrants in the provided data?
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What is the primary condition for payments on preferred shares to occur?
What is the primary condition for payments on preferred shares to occur?
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What is the primary purpose of a sinking fund in bond terms?
What is the primary purpose of a sinking fund in bond terms?
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What is the percentage allocation of Canadian Equity in the Money Market fund?
What is the percentage allocation of Canadian Equity in the Money Market fund?
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What is the risk profile of sinking fund bonds compared to regular bonds?
What is the risk profile of sinking fund bonds compared to regular bonds?
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Which of the following components has the smallest percentage allocation in the Bond Fund?
Which of the following components has the smallest percentage allocation in the Bond Fund?
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How does a company hedge against currency fluctuations when borrowing in a foreign currency?
How does a company hedge against currency fluctuations when borrowing in a foreign currency?
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What amount in Canadian dollars does a company need today to obtain 980,392 Euros at an exchange rate of 1 Euro = $1.494 Cdn?
What amount in Canadian dollars does a company need today to obtain 980,392 Euros at an exchange rate of 1 Euro = $1.494 Cdn?
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In the context of the One-Year Performance, which category shows the highest performance percentage?
In the context of the One-Year Performance, which category shows the highest performance percentage?
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What is the percentage of Fixed Income in the Canadian Equity allocation?
What is the percentage of Fixed Income in the Canadian Equity allocation?
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What total amount will need to be repaid after borrowing $1,464,706 Cdn at an interest rate of 2.5% over 6 months?
What total amount will need to be repaid after borrowing $1,464,706 Cdn at an interest rate of 2.5% over 6 months?
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Which fund has the highest allocation to Cash/ Equivalents?
Which fund has the highest allocation to Cash/ Equivalents?
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What distinguishes sinking fund assets from general assets of a firm?
What distinguishes sinking fund assets from general assets of a firm?
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What is the expected cash flow impact of using a hedged contract for foreign borrowing?
What is the expected cash flow impact of using a hedged contract for foreign borrowing?
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What would be the amount of Euros needed today to match a future value of 1 million Euros in 6 months at a 2% investment rate?
What would be the amount of Euros needed today to match a future value of 1 million Euros in 6 months at a 2% investment rate?
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What is the amount of the Canadian loan that the company will pay off in 6 months?
What is the amount of the Canadian loan that the company will pay off in 6 months?
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What is the forward exchange rate mentioned in the investment description?
What is the forward exchange rate mentioned in the investment description?
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Which of the following is NOT an example of a candidate receivable for securitization?
Which of the following is NOT an example of a candidate receivable for securitization?
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What is meant by the term 'allowance for bad debts' in the context of securitization?
What is meant by the term 'allowance for bad debts' in the context of securitization?
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In the Sources of Funds Summary, which type of shares is categorized under Preferred Shares?
In the Sources of Funds Summary, which type of shares is categorized under Preferred Shares?
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Which of the following mutual funds had the greatest return over a ten-year period?
Which of the following mutual funds had the greatest return over a ten-year period?
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Which of the following describes a key feature of 'Zero Coupon' bonds?
Which of the following describes a key feature of 'Zero Coupon' bonds?
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Which type of borrowing is described as having both hedged and unhedged transactions?
Which type of borrowing is described as having both hedged and unhedged transactions?
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Study Notes
Corporate Finance Overview
- Corporate finance is a field of study focusing on the financial decisions within a company.
Common Shares
- Issued Shares: Represents the total number of shares that a company has issued.
- Outstanding Shares: Indicates the number of shares currently held by investors.
- Authorized Share Capital: Defines the maximum number of shares that a company is permitted to issue.
- Par Value: The nominal value assigned to a share. (Note: Par value often does not reflect the market value).
- Additional Paid-In Capital (Capital Surplus): The amount received above the par value, from the sale of shares.
Special Share Class
- Some companies have multiple classes of common shares.
- Certain voting shares might be held by a small group of owners and not traded.
- Public shares may not have voting rights. (Example: Magna).
Common Shares (Specifics)
- Lack of Direct Organization: Small shareholders lack direct organization, making it hard for them to influence the company's direction.
- Block Ownership Influence: Holders of a significant block of shares (even less than 50%) can exert influence.
- Cumulative Voting: Allows shareholders to cast all their votes for a single director, benefitting minority shareholders.
- Non-Cumulative Voting: Distributes votes among all board members.
- "Coattail" Provision: Non-voting shares are given voting rights if a takeover bid occurs.
- Large Shareholder Groups: Examples include mutual funds, pension funds, and other large investors.
Proxy
- Used by minority shareholders to exert influence.
- Steps include: obtaining a list of shareholders, contacting/advertising to redirect proxies, and using collective authority to influence decisions at an annual meeting.
Warrants and Stock Options
- Warrants represent a potential future commitment by the issuer, giving buyers the right, but not the obligation, to purchase shares at a specific price (exercise price).
- Fluctuation in warrant value often surpasses that of the underlying stock.
Preferred Shares
- Preferred shares are given a higher priority over common shares in dividend payments.
- Dividends on preferred shares are typically fixed.
- Payments are tied to after-tax returns and only paid if declared.
- Common classes include cumulative and regular preferred shares.
- Some companies have participating preferred shares, allowing for extra dividends if profits surpass certain levels.
Income Statement (Preferred Shares included)
- The income statement shows financial information such as sales revenue, costs, and net income.
- Preferred dividends are listed against common shares and participating preferred (if available).
Preferred Share Provisions
- Call and Retraction Provisions: The issuer can buy back or recall shares.
- Convertible Feature: Shares can be converted into common shares.
- Voting Privileges: Usually, preferred shares are non-voting.
- Participating Preferred Shares: Additional to fixed dividends, entitled to share as common stock after common stock has received a fixed dividend.
Floating Rate Preferred Shares
- Dividend rate mirrors the prime lending rate.
- Dividend adjusts when interest rates adjust.
Hierarchy of Entitlement to Income
- A specific order of claims on a company's income. (e.g., interest expense, taxes, preferred dividends, common dividends. ).
Bonds and Debentures
- Covenants: Positive and negative pledges/agreements related to borrowing.
- Bonds: Secured long-term loans.
- Debentures: Unsecured long-term loans.
- Subordinate Debt: Debt ranking below other debt in default scenarios.
- Call Provisions: Some bonds allow the issuer to call back the debt early.
- Strip Bonds: Principal only, no coupons.
- Residuals: Coupon only, no principal.
Terms and Provisions (Bonds)
- Private Placement: Sale of securities to a limited investor group.
- Convertible Bonds: Offer the buyer the option to exchange the bond for common shares at a specified future price.
- Interest Payment Methods: Fully registered and bearer methods.
Investment Term Decisions
- Example showing the calculation for investment decisions over varying time periods.
General Sinking Fund Bond Features
- Annual payments to gradually reduce the bond's principal value.
- Separated assets that guarantee the payments.
Foreign Borrowing (Hedged/Naked Contracts)
- Hedging foreign exchange risk through forward contracts.
Securitization
- Securitization is a way to raise capital by selling secure receivables (credit card payments, rental income).
- The value of the receivables is adjusted for the risk of non-payment.
Sources of Funds Summary
- A table summarizing different funding sources (e.g., common shares, preferred shares, bonds, securitization).
MD Management Mutual Funds
- Data on investment performance for different types of mutual fund, over various time periods.
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Description
Explore the foundational concepts of corporate finance, including common shares, authorized capital, and the distinctions between issued and outstanding shares. This quiz will test your understanding of key terminologies and their implications within a company.
