Equity financing

Question 1

Equity investors get the following benefits (3):

Answer 1

• They share profits of the business
• They have a vote in the affairs of the business
• They benefit from a rise in value of the business

Question 2

What is the par value?

Answer 2

The legal amount per share established by the board of directors

Question 3

What is the issuing value?

Answer 3

Amount per share when the company sells the shares on the stock market

Question 4

What is the market value?

Answer 4

The average future earnings value of all the investors combined

Question 5

What is the book value per share?

Answer 5

Value remaining for shareholders after all assets are liquidated and debtors are paid: total equity/outstanding shares

Question 6

What is the future earnings value?

Answer 6

Present value of all expected future payments to stockholders

Question 7

What is the formula for common stock?

Answer 7

Par value x amount of shares issued

Question 8

What are the two types of shares?

Answer 8

1. Common shares

2. Preferred shares (no voting rights, comes with divided as a fixed percentage, higher priority in dividends)

Question 9

What is the formula for preferred dividends?

Answer 9

Interest rate * preferred stock

Question 10

Name three features of preferred stock:

Answer 10

1. Preferred stock has claims and rights over common shares
2. An investment in preferred shares is less risky than an investment in commons tock
3. Preferred stock owners do not benefit from higher earnings