2.1 Equity: Types and Features Flashcards
Share capital formula
Number of shares * NV
Market cap formula
Number of shares in issue * market price of share
Partly paid share meaning
Not all of nominal value was paid at issue
Cumulative preference shares
Right to receive dividend that is rolled over into next period
Redeemable preference shares
Right for issuer to buy back shares for agreed price in future
Dividend for preference and ordinary
Pref- fixed
ord- variable
What is an ADRs
Used by non-US companies in order to encourage US dollar investors to buy equity stake
ADR form, settlement time, currency
Bearer
T+2
$ denominated and $ dividend
ADR rights issue options
Cant take part, can only receive cash
What is a warrant
Right to subscribe for new shares from a company at a fixed price on a future date
Not part of ordinary share capital
Difference between covered warrant and normal warrant
Warrants issue new shares with maturity more than a year
Covered warrants sold by IB using existing shares
Conversion premium for warrant
warrant price+ exercise price- current share price
A company has net assets of £1,000. The nominal value of its ordinary shares is £1 and there are 500 in issue. The nominal value of its preference shares is also £1 and there are 300 in issue. If wind-up costs are £90 and, just before the company was delisted and liquidation procedures began the preference shares were trading at 120p, how much will be left to pay-off the ordinary shareholders?
Preference shareholders receive the nominal value of the share on winding-up, so the ordinary shareholders receive £1,000 - £300 - £90 = £610.
Which of the following is NOT true of preference shares?
In case of liquidation, holders of preference shares have priority in terms of the payment of dividend arrears over ordinary shareholders
In liquidation, preference shareholders have priority over ordinary shareholders in the repayment of the nominal value. Unless the articles specify otherwise, preference dividends will not usually be paid in liquidation.
The authorised share capital sets out:
The maximum number of shares that can be issued to shareholders, valued at nominal value
Which of the following is the main purpose of authorised share capital?
To place a limit on the amount of share capital that can be issued to existing and new shareholders
Which of the following would give rise to a capital gain only?
Commercial paper
Commercial paper is short-term unsecured debt financing issued by a company. It is similar to Treasury bills. Generally they do not pay any interest and therefore are issued at a discount (like Treasury bills).
All the rest of the financial instruments listed are likely to pay interest, or be dividends which will be subject to income tax or corporation tax.
Which of the following is true of preference shares?
They do not carry pre-emption rights
Explanation
With regards to depositary receipts, what is the longest time period permitted for grey market trading?
3 months
Do ADR carry right to vote
sometimes
How much would be recorded by holders of preference shares in 2013 for dividends under the following scenario?
A company has a 6% non-cumulative preference share in issue. In 2010, 2011, and 2012 no dividends are paid. In 2013 5p is paid for each ordinary share.
These preference shares are not cumulative. Since the company paid ordinary shareholders in 2013, preference share must be paid their fixed dividend of 6%.
