Chapter 04: Equities Flashcards
A _________ is one that’s taxed separately from its owners and has an unlimited number of shareholders.
Standard Corporation (Subchapter C)
A C corporation is considered a separate legal entity from its owners (shareholders), which means it can enter into contracts, own assets, and be held liable for its actions independently of its owners
______ Income is taxed twice - first at the corporate level and, if distributed as a dividend to shareholders, It’s then taxed to the shareholder.
C Corporation income.
In many cases, certain senior executives of the corporation,such as the CEO and the president also serve on the board of directors, these. Persons are referred to as _______.
Affiliated directors
The opposite is true of non affiliated directs. These individuals are those who are not otherwise connected to the corporation.
_________ and ________ Refers to the 2 basic methods used by corporations to raise money.
Debt financing an Equity financing.
For _____ investors, their returns are limited to the interest that the corporation pays them for the use of their money
Bond investors
Is (1) the basic unit of corporate ownership, (2) the most widely issued type of stock, and (3) the first type of stock that a corporation issues.
Common stock
____ investor’s provide capital and in turn, receive:
- interest
- principal
- liquidation preference over stockholders
- creditor status
Bond investors
The term _____ refers to the number of shares that have been issued to the public, less stock that has been reacquired by the company (treasury stock)
Outstanding stock
Calculate market capitalization
CMP x #outstanding shares
As specified in a corporation’s Charter and bylaws, all shareholders are provided with certain rights which may include the following
- right to evidence of ownership
- right of transfer
- right of inspection
- right to vote
- right to receive dividends
As with a check, a _____ must be endorsed by the owner when sold to be considered in good delivery form
Stock certificate
Some companies have recently issued classified shares that are referred to as ________ which give key company insiders greater control through the receipt of more than one vote per share
Super-voting stock
For example. This style of stock may have 10, 100, or even 1,000 votes per share.
True or false. The specific number of shares represented by super-voting stock is negotiated between the corporate Insider who receives the share and the board of directors
True.
Keep in mind. The issuance of super-voting shares must be approved by shareholders
What is a tender offer
When an entity offers to buy a corporation’s shares, typically for the purpose of acquiring control of the company
A _________ is defined as the acquisition of a company by primarily using debt to finance the purchase.
Leveraged buyout (LBO)
This type of acquisition allows the __________, which is referred to as a __________, to make the purchase without using much of its own equity.
How?
The assets of the acquired company are generally used as collateral for the borrowed funds
In many circumstances, since a large amount of borrowed funds are used to make the purchase, they’re usually non-investment-grade
(1.) Acquiring company (2.) Private Equity (PE) Firm
Investors who purchase _______ are able to, at their discretion, convert the par value of the preferred stock into a predetermined number of common shares at a specific price - which is the stated conversion price.
Convertible preferred stock
These shares begin with a fixed rate, but after a certain amount of time ( approximately 5 years), they switched to a floating or adjustable rate.
Series K shares
What type of shares have the following characteristics
- they’re depository shares and represent a larger basket of an issuers preferred stock
- they have a wide range of par values
- they generally have no voting rights
- their Dividends are non-cumulative, but are qualified for tax purposes ( text at a maximum rate of 20%)
Series K preferred stock
What is offered to current shareholders so that they may retain their proportion of ownership in a company
Preemptive rights
What is a subscription price
A preset exercise price usually below the current market price in a rights offering
What are the differences between rights and warrants
Rights are issued to existing common stockholders whereas warrants are issued to purchasers of the issuers preferred stock or bonds. Rights are offered during the subscription period usually between 30 and 45 days whereas warrants or long-term and often do not mature for years.
The _____ system is considered a negotiated dealer market.
The NASDAQ system
An ________________ is a type of financial instrument that is not listed on a formal stock exchange, such as the New York Stock Exchange (NYSE) or NASDAQ. Instead, OTC equity securities are traded through a network of dealers who negotiate directly with one another, typically using electronic platforms or telephone communication
An OTC (Over-the-Counter) equity security is a type of financial instrument that is not listed on a formal stock exchange, such as the New York Stock Exchange (NYSE) or NASDAQ. Instead, OTC equity securities are traded through a network of dealers who negotiate directly with one another, typically using electronic platforms or telephone communication
