Long-term financing: an introduction
13 important questions on Long-term financing: an introduction
In what 2 ways can companies create more cash for investments?
2. Give up part ownership and issue new equity
Why do unlimited authorised shares not happen often in practice?
2. Authorising a large number may create concern in shareholders, as they can be issued later with the approval of the board of directors but without a vote of the shareholders or supervisory board
What are the rights that shareholders have?
2. The right to vote for directors
3. The right to share proportionally in assets remaining after liabilities have been paid in a liquidation
4. The right to vote on matters of great importance to shareholders (e.g. mergers, etc.)
5. The right to share proportionally in any new equity sold (pre-emptive right)
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What are the 3 most important characteristics of dividends?
2. Payment of dividends is not a business expense (so not tax deductible)
3. Are considered ordinary income by tax authorities, and thus taxed partially or wholly
What 2 types of securities are issued by corporations?
2. Debt securities
What are the 3 differences between equity and debt securities?
2. The payment of interest on debt is a cost of doing business, and is tax deductible
3. Unpaid debt is a liability to the firm --> can lead to financial failure, which can't in case of equity issuance
What is the difference between a debenture and a bond?
What is long-term debt?
What does it mean when a long-term debt is 'callable'?
What 3 sources do firms receive funding from?
2. They can borrow from the banking sector
3. They can issue securities (debt and equity) to the public
How do you calculate internal financing?
What is non-recourse debt?
What is Islamic financing?
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