39 - Overview of Equity Securities Flashcards
Two seats on a board of directors are to be elected. A voting system in which the owner of 100 shares may cast 100 votes in each of the board elections is a:
In a statutory voting system, a shareholder can vote in each separate board election based on the number of shares she owns. Under cumulative voting, the shareholder may choose to cast her total number of votes (200 in this example) for a candidate in one of the elections.
Two seats on a board of directors are to be elected. A voting system in which the owner of 100 shares may cast 100 votes in each of the board elections is a:
In a statutory voting system (also knows as straight voting), a shareholder can vote in each separate board election based on the number of shares she owns. Under cumulative voting, the shareholder may choose to cast her total number of votes (200 in this example) for a candidate in one of the elections.
Requiring the firm to pay any scheduled dividends that have been missed, before paying any dividends to common equity holders, is a feature of:
Cumulative preference shares (cumulative preferred stock) must receive any dividends in arrears before the firm may pay any dividends to common shareholders. Not all preference shares are cumulative. Participating preference shares may receive extra dividends if the firm’s profits are greater than a predetermined level.
In case of a liquidation of the firm, the value of cumulative preference shares will be higher than non-cumulative preference shares.
Cheryl Brower and Todd Sutter each own 100 shares of Hills Company stock. In a recent proxy vote, Brower had 100 votes but Sutter had 10 votes. The most likely reason for this difference in voting rights is that:
Companies may issue classes of stock (e.g., Class A and Class B shares) that differ in aspects such as voting rights, dividends, or priority of claims in liquidation.
(Module 39.1, LOS 39.b)
Participating preference shares most likely:
Participating preference shares receive extra dividends if firm profits exceed a predetermined threshold. Convertible preference shares can be exchanged for common stock at a conversion ratio determined at issuance. Putable common shares give the shareholder the right to sell the shares back to the firm at a specific price.
(Module 39.1, LOS 39.a)
Dividends on non-participating preference shares are typically:
Similar to the interest payments on a debt security, dividends on non-participating preference shares (preferred stock) are typically fixed. Unlike the interest payments on a debt security, the company is not contractually obligated to pay preferred dividends. Preferred dividends are typically higher than a firm’s common dividends.
Two investors, Craig Tower and Erin Gray, own 100 shares each of the same company. Tower receives a quarterly dividend while Gray does not. This is most likely because Tower:
Different classes of common stocks can have different features with respect to dividends, stock splits, voting power and seniority if the firm’s assets are liquidated. If Gray owns preferred shares, she would be more likely to receive a dividend than Tower’s common shares. If Gray had purchased shares before an ex-dividend date and Tower purchased the same class of shares after that ex-dividend date, Gray would receive a dividend that Tower did not.
(Module 39.1, LOS 39.b)
Private equity securities most likely:
Private equity securities are illiquid and do not trade in public securities markets. Holders of private equity must negotiate with other investors to sell the securities. Private equity securities are typically issued to qualified institutional investors.
(Module 39.1, LOS 39.c)
A basket of listed depository receipts (BLDR) is best described as a(n):
A basket of listed depository receipts (BLDR) is an exchange traded fund (ETF) that represents a portfolio of depository receipts.
Hodges Fund provides mezzanine stage financing to private companies. In which type of private equity investing is Hodges Fund most likely involved?
Venture capital providers invest in firms that are early in their life cycles. Stages of venture capital financing include seed stage, early stage, and mezzanine financing. In a leveraged buyout, an investor purchases all of a public firm’s equity, taking the firm private. In a private investment in public equity (PIPE), an investor purchases private equity issued by a public firm.
