chapter 11 part 3

Question 1

what are the two main types of debt financing corporations issue?

Answer 1

mortgage bonds and debentures

Question 2

what are other types of debt instruments corporations use?

Answer 2

bank loans, meduim term notes, callable bonds and convertible bonds

Question 3

what is a due diligence report?

Answer 3

when a corporation and a dealer start negotiations of issuing new securities. they make a due diligence report

Question 4

what is a broker of record?

Answer 4

one a investment dealer and a corporation establish a relationship and history. investment dealer may get a broker of record where they have first dibs on issuing new securities.

Question 5

What are the advantages and disadvantages of a corporation issuing bonds?

Answer 5

advantages
less interest than debentures
marketable to institutions because its back by assets
disadvantages
less flexible because of pledge of assets
difficult during mergers because of assets

Question 6

what are the advantages and disadvantages of issuing debentures?

Answer 6

advantages
flexible
reduction of cost at issue because no assets involved
disadvantages
higher coupon because not secured by assets

Question 7

what are advantages and disadvantages of issuing preffered shares?

Answer 7

advantages
makes debt-equity ratio better
omission of dividend does not trigger default
flexible cause not assets pledged
limited lifespan because can redeem shares
disadvantages
expensive and with dividends and tax’s
not paying dividend can cause privilege of voting for shareholders
a purchase fund can drain companies funds during recession

Question 8

what are advantages and disadvantages of issuing common shares?

Answer 8

advantages
no obligation to pay dividend
no repayment of capital required
makes debt-equity ratio better
market value of company can be established for mergers and takeovers
disadvantages
dilution of equity for shareholders if issuing more shares
dividend if paid is expensive with taxs
underwriting discount higher than with debt issuing

Question 9

what document are protective provisions, trust deed restrictions and covenants part of?

Answer 9

a trust deed

Question 10

what is a private placement when issuing shares?

Answer 10

normally sold to financial institutions, mutual funds, pension funds and insurance companies. normally cost less because no prospectus is required. normally announced after transaction has already happened.

Question 11

what is a public offering when issuing shares?

Answer 11

two types
primary - initial public offering IPO
and secondary

Question 12

what are treasury shares?

Answer 12

when a company buys back shares from the public