第十四章-长期融资简介

第十四章长期融资简介14.1CommonStockParandNo-ParStockAuthorizedversusIssuedCommonStockCapitalSurplusRetainedEarningsMarketValue,BookValue,andReplacementValueShareholders’RightsDividendsClassesofStockParandNo-ParStockThestatedvalueonastockcertificateiscalledtheparvalue.Parvalueisanaccountingvalue,notamarketvalue.Thetotalparvalue(thenumberofsharesmultipliedbytheparvalueofeachshare)issometimescalledthededicatedcapitalofthecorporation.Somestockshavenoparvalue.Authorizedvs.IssuedCommonStockThearticlesofincorporationmuststatethenumberofsharesofcommonstockthecorporationisauthorizedtoissue.Theboardofdirectors,afteravoteoftheshareholders,mayamendthearticlesofincorporationtoincreasethenumberofshares.Authorizingalargenumberofsharesmayworryinvestorsaboutdilutionbecauseauthorizedsharescanbeissuedlaterwiththeapprovaloftheboardofdirectorsbutwithoutavoteoftheshareholders.CapitalSurplusUsuallyreferstoamountsofdirectlycontributedequitycapitalinexcessoftheparvalue.Forexample,suppose1,000sharesofcommonstockhavingaparvalueof$1eacharesoldtoinvestorsfor$8pershare.Thecapitalsurpluswouldbe($8–$1)×1,000=$7,000RetainedEarningsNotmanyfirmspayout100percentoftheirearningsasdividends.Theearningsthatarenotpaidoutasdividendsarereferredtoasretainedearnings.MarketValue,BookValue,andReplacementValueMarketValueisthepriceofthestockmultipliedbythenumberofsharesoutstanding.AlsoknownasMarketCapitalizationBookValueThesumofparvalue,capitalsurplus,andaccumulatedretainedearningsisthecommonequityofthefirm,usuallyreferredtoasthebookvalueofthefirm.ReplacementValueThecurrentcostofreplacingtheassetsofthefirm.Atthetimeafirmpurchasesanasset,marketvalue,bookvalue,andreplacementvalueareequal.Shareholders’RightsTherighttoelectthedirectorsofthecorporationbyvoteconstitutesthemostimportantcontroldeviceofshareholders.Directorsareelectedeachyearatanannualmeetingbyavoteoftheholdersofamajorityofshareswhoarepresentandentitledtovote.Theexactmechanismvariesacrosscompanies.Theimportantdifferenceiswhethersharesaretobevotedcumulativelyorvotedstraight.CumulativeversusStraightVotingTheeffectofcumulativevotingistopermitminorityparticipation.Undercumulativevoting,thetotalnumberofvotesthateachshareholdermaycastisdeterminedfirst.Usually,thenumberofsharesownedorcontrolledbyashareholderismultipliedbythenumberofdirectorstobeelected.Eachshareholdercandistributethesevotesashewishesoveroneormorecandidates.StraightvotingworkslikeaU.S.politicalelection.Shareholdershaveasmanyvotesassharesandeachpositionontheboardhasitsownelection.Atendencytofreezeoutminorityshareholders.Cumulativevs.StraightVoting:ExampleImagineafirmwithtwoshareholders:Mr.SmithandMs.Wesson.Mr.Smithowns60%ofthefirm(=600shares)andMs.Wesson40%(=400shares).Therearethreeseatsupforelectionontheboard.Understraightvoting,Mr.Smithgetstopickallthreeseats.Undercumulativevoting,Ms.Wessonhas1,200votes(=400shares×3seats)andMr.Smith1,800votes.Ms.Wessoncanelectatleastoneboardmember.ProxyVotingAproxyisthelegalgrantofauthoritybyashareholdertosomeoneelsetovotehisorhershares.Forconvenience,theactualvotinginlargepubliccorporationsisusuallydonebyproxy.DividendsUnlessadividendisdeclaredbytheboardofdirectorsofacorporation,itisnotaliabilityofthecorporation.Acorporationcannotdefaultonanundeclareddividend.Thepaymentofdividendsbythecorporationisnotabusinessexpense.Therefore,theyarenottax-deductible.DividendsreceivedbyindividualshareholdersareforthemostpartconsideredordinaryincomebytheIRSandarefullytaxable.Thereisanintra-corporatedividendexclusion.ClassesofStockWhenmorethanoneclassofstockexists,theyareusuallycreatedwithunequalvotingrights.Manycompaniesissuedualclassesofcommonstock.Thereasonhastodowithcontrolofthefirm.Lease,McConnell,andMikkelsonfoundthemarketpricesofstockswithsuperiorvotingrightstobeabout5percenthigherthanthepricesofotherwise-identicalstockswithinferiorvotingrights.14.2CorporateLong-TermDebt:TheBasicsInterestversusDividendsIsItDebtorEquity?BasicFeaturesofLong-TermDebtDifferentTypesofDebtRepaymentSenioritySecurityIndentureInterestversusDividendsDebtisnotanownershipinterestinthefirm.Creditorsdonotusuallyhavevotingpower.Thecorporation’spaymentofinterestondebtisconsideredacostofdoingbusinessandisfullytax-deductible.Dividendsarepaidoutofafter-taxdollars.Unpaiddebtisaliabilityofthefirm.Ifitisnotpaid,thecreditorscanlegallyclaimtheassetsofthefirm.IsItDebtorEquity?Somesecuritiesblurthelinebetweendebtandequity.Corporationsareveryadeptatcreatinghybridsecuritiesthatlooklikeequitybutarecalleddebt.Obviously,thedistinctionisimportantattaxtime.Acorporationthatsucceedsiscreatingadebtsecuritythatisreallyequityobtainsthetaxbenefitsofdebtwhileeliminatingitsbankruptcycosts.BasicFeaturesofLong-TermDebtThebondindentureusuallylistsAmountofIssue,DateofIssue,MaturityDenomination(Parvalue)AnnualCoupon,DatesofCouponPaymentsSecuritySinkingFundsCallProvisionsCovenantsFeaturesthatmaychangeovertimeRatingYield-to-MaturityMarketpriceDifferentTypesofDebtAdebentureisanunsecuredcorporatedebt,whereasabondissecuredbyamortgageonthecorporateproperty.Anoteusuallyreferstoanunsecureddebtwithamaturityshorterthanthatofadebenture,perhapsunder10years.RepaymentLong-termdebtistypicallyrepaidinregularamountsoverthelifeofthedebt.Thepaymentoflong-termdebtbyinstallmentsiscalledamortization.

Amortizationisusuallyarrangedbyasinkingfund.Eachyearthecorporationplacesmoneyintoasinkingfund,andthemoneyisusedtobuybackthebonds.SenioritySeniorityindicatespreferenceinpositionoverotherlenders.Somedebtissubordinated.Intheeventofdefault,holdersofsubordinateddebtmustgivepreferenceotherspecifiedcreditorswhoarepaidfirst.SecuritySecurityisaformofattachmenttoproperty.Itprovidesthatthepropertycanbesoldineventofdefaulttosatisfythedebtforwhichthesecurityisgiven.Amortgageisusedforsecurityintangibleproperty.Debenturesarenotsecuredbyamortgage.IndentureThewrittenagreementbetweenthecorporatedebtissuerandthelender.Setsforththetermsoftheloan:MaturityInterestrateProtectivecovenants.14.3PreferredStockRepresentsequityofacorporation,butisdifferentfromcommonstockbecauseithaspreferenceovercommoninthepaymentsofdividendsandintheassetsofthecorporationintheeventofbankruptcy.Preferredshareshaveastatedliquidatingvalue,usually$100pershare.Preferreddividendsareeithercumulativeornoncumulative.IsPreferredStockReallyDebt?Agoodcasecanbemadethatpreferredstockisreallydebtindisguise.Thepreferredshareholdersreceiveastateddividend.Intheeventofliquidation,thepreferredshareholdersareentitledtoafixedclaim.Unlikedebt,preferredstockdividendscannotbedeductedasinterestexpensewhendeterminingtaxablecorporateincome.MostpreferredstockintheU.S.isheldbycorporateinvestors.Theygeta70-percentincometaxexemption.ThePreferred-StockPuzzleTherearetwooffsettingtaxeffectstoconsiderinevaluatingpreferredstock:Dividendsarenotdeductedfromcorporateincomeincomputingthetaxliabilityoftheissuingcorporation.Whenacorporationbuyspreferredstock,70percentofthedividendsreceivedareexemptfromcorporatetaxation.Mostagreethat2)doesnotfullyoffset1).Giventhatpreferredstockofferslessflexibilitytotheissuerthancommonstock,somehavearguedthatpreferredstockshouldnotexist.Yetitdoes.14.4PatternsofFinancingInternallygeneratedcashflowdominatesasasourceoffinancing,typicallybetween70and90%.Firmsusuallyspendmorethantheygenerateinternally—thedeficitisfinancedbynew