Coorporate issuers Flashcards
Market factors are
shareholder engagement, shareholder activism and competition and markets
Stronger corporate governance
can have many benefits including; operational efficiency, improved control, better operating and financial performance and lower default risk and cost of debt.
A pull on liquidity is when
> disbursements are paid too quickly or trade credit availability is limited
making payments too early; reduced credit lines from suppliers due to late payments; limits of short-term lines of credit; low liquidity positions
Perquisite consumption refers to
> the level of spending that company executives are allowed to legally spend including on such things as company cars and hospitality.
Higher perquisite consumption will increase equity agency costs.
The pecking order theory suggests
> that managers will prefer to raise capital using the method which revels the least information about the internal operations of the company.
this usually means using internally generated capital first.
issue equity when they believe that it is overvalued by the market. As such investors may take the decision to issue equity as being a negative signal
Higher levels of information asymmetry between managers and investors places investors at greater risk. As such
both providers of debt capital and providers of equity capital will expect higher returns than otherwis
Freemium pricing
allows a certain level of usage or functionality of goods and services without charge
> growth strategy
Penetration pricing
is an approach which uses discounted pricing to gain market penetration
> growth strategy
An aggregator is a type of marketplace
where a company remarkets products such as the computer games under its own branding.
Limited partners cannot replace the
general partner
eu corporations pay
corporate tax + income tax
All of the profits and losses of a general partnership are
collectively shared by the general partners. If one partner is unable to pay their share of the debt, then the remaining partners remain fully liable collectively for the debt.
In a two-tier structure
the management board run the company but are supervised by the supervisory board.
the supervisory board is mainly comprised of non-executive directors whilst the management board is composed of executive directors.
A one-tier board
is comprised of both executive and non-executive directors.
responsibility of the board of directors
Ensuring the effectiveness of the company’s audit and control systems
Ensuring leadership continuity through succession planning
Income is paid to debt holders pre corporation tax but paid to equity holders post corporation tax.
It is senior management that is responsible for implementation of strategy. The Board will, however, oversee the execution of the strategy.
Use the market values if given a choice between market value and par value of debt and equity
The target structure and the optimal structure may be the same, but
> the market values are constantly varying and other factors such as the cost of issuing securities mean that this is often not the case.
companies will keep them within a range.
MM I with corporate taxes states that the
market value of a leveraged company is equal to the value of an unleveraged company plus the value of the debt tax shield.
MM II without corporate taxes states that the
cost of equity is a linear function of the company’s debt to equity ratio.
MM II with corporate taxes states that the cost of equity
is a linear function of the company’s debt-to-equity ratio with an adjustment for the tax rate.
Project NPV with real options
= NPV (based on DCF [discounted cash flow] alone) – Cost of options + Value of options. Calculate the NPV based on expected cash flows.
Sole Proprietorship (Sole trader)
- No legal identity – considered to be an extension of the owner
- Owner-operated business
- Owner retains all returns and assumes all the risk
- Profits from business taxed as personal income
- Operational simplicity and flexibility
- Financed informally through personal means
- Business growth is limited by owner’s ability to finance and personal risk appetite
- Typically, pass-through businesses (for tax)
- Business not taxed at entity level
- Profit / losses passed to sole trader who is taxed personally
- Access to capital limited by sole trader’s ability to raise finance