m r e T g n : o s L e i t i l i b a i d L n 4 a 1 s r d e t n p o s a B e t h C No
Lear n i O bj e n g ctive
Com p long ute the -term pote ntial borr impa owin g on ct of earn ings per s h ar e.
1
________ Corporations
o Corporations finance their ________ using the following sources:
Short-term ________ , such as ________ ________
or ________ on ________ .
Long-term ________ , such as ________ ________
or ________ ________ .
Equity, such as ________ ________ or ________
________ .
Financing Corporations
o A ________ is a form of an ________ -
________ note. Like a note, a ________ requires periodic ________ payments, and the ________ amount must be repaid at the ________ date.
Financing Corporations Huckadee Corporation is considering the following plans to issue debt and equity:
Financing Corporations
o In deciding among financing plans, the effect on ________ per ________ is often considered.
o ____ ___ _____(EPS) measures the ________
earned by each ________ of common stock. It is computed as follows:
Earnings per Share =
Lear n i O bj e n g Desc ctive ribe th e term cha in ract olog erist y of ics a bond nd s pa yabl e.
2
Bond Characteristics and Terminology
o The underlying contract between the
company ________ bonds and the bondholders is called a ________ ________ .
Bond Characteristics and Terminology
o Usually, the ________ ________ of each
bond, called the principal, is $1,000, or a ________ of $ ________. Interest on bonds may be payable ________ , ________ , or ________ . Most pay interest ________ .
Bond Characteristics and Terminology
o When all bonds of an issue mature at the same time, they are called ________ ________.
o If they mature over several dates, they are called ________ ________.
o Bonds that may be exchanged for other ________ are called ________ ________.
Bond Characteristics and Terminology
o Bonds that a corporation ________ the
________ to redeem ________ their maturity are called callable ________.
o Bonds issued on the basis of the general
credit of the corporation are called _______ ________.
Proceeds from Issuing Bonds
o When a corporation issues bonds, the
proceeds ________ for the bonds depend on: The ________ amount of the bonds, which is the
amount ________ at the ________ date.
The ________ rate on the bonds. The ________ rate of interest for ________ bonds.
Proceeds from Issuing Bonds
o The ________ amount and the interest
________ on the bonds are identified in the bond ________ .
o The ________ ________ to be paid on the
________ ________ of the bond is called the contract rate or ________ ________.
Proceeds from Issuing Bonds
o The ________ ________ of interest, or
________ ________ of interest, is determined by transactions between ________ and ________ of similar bonds.
o The market rate of interest is affected by a variety of factors, including investors’ expectations of ________ and ________ ________ conditions.
Proceeds from Issuing Bonds
o Summary If the market rate equals the ________ ________ ,
bonds will sell at the ________ ________.
If the selling price of the bonds is less than the
face amount, the bonds are selling at a ________.
If the selling price of the bonds is more than the
________ amount, the bonds are ________ at a ________.
Proceeds from Issuing Bonds
o The ________ of a bond is quoted as a
________ of the bond’s ________ ________ . A $ 1,000 bond quoted at 98 could be ________
or sold for $ ________ ($ ________ x 0.___).
A $ 1,000 bond quoted at 109 could be
purchased or sold for $ ________ ($ ________ x __.__).
Lear n i O bj e n g ctive Journ alize e ntrie s for bo n d s paya bl e .
3
________ a Bond Discount
o
The two methods of computing the ________ of a bond discount are: Straight-line _____ ________ ________ ________ method, sometimes
called the ________ method
o
Both methods ________ the same total amount of ________ over the ________ of the bonds.
Amortizing a Bond Discount
o The ________ ________ ________ method is
required by generally accepted ing principles.
o However, the ________ - ________ method may be used if the results ________ ________ ________ significantly from the interest method.
Bond ________
o A corporation may ________ , or redeem,
bonds before they ________ . ________ bonds can be ________ by the ________ corporation within the period of ________ and at the ________ stated in the bond ________ . Normally, the ________ price is ________ the ________ value.
Bond Redemption
o The ________ ________ of bonds payable is
the ________ amount of the bonds less any ________ ________ or plus any ________ ________ .
Bond Redemption
o A gain or loss may be ________ on a bond redemption as follows:
A ________ is recorded if the ________ paid for
the ________ is below the bond ________ amount.
A ________ is recorded if the ________ paid for
the ________ is above the ________ amount.
Lear n i O bj e n g c t ive D e acco scrib unti e an ing f or
nd il insta lustrat e th llme e nt n otes .
4
Installment Notes
o An ________ ________ is a debt that requires the ________ to make equal ________ payments to the lender for the ________ of the note. Unlike bonds, a note payment includes the following: Payment of a portion of the amount ______
________ , called the ________
Payment of ________ on the ________ balance
Installment Notes
o Installment notes are often used to
purchase specific assets, such as ________ , and are often ________ by the purchased asset.
o When a note is secured by an ________ , it is called a ________ note.
o If the ________ fails to pay a ________ note, the lender has the ________ to take ________ of the ________ asset.
Lear n i O bj e n g c t i v De s c e repo r i b ea r ti ng o nd i l f inclu long-t lustrate erm ding liabi the b o nd lities s an d no p ay a t e s bl e .
5
Lear n i O bj e n g c Desc tive ribe nu m and be r ill o a lustr are e f tim arne es in ate h ow t d is com t e r e us ed he s t ch p a ny a ’s fin to r a nci e v a l u a g e s al co t n d it e a ion.
6
Number of Times ______ Charges are ________
o Analysts ________ the risk that bondholders
will not receive their ________ payments by computing the ________ of ________ ________ ________ are ________ during the year as follows: Number of Times Interest Charges are = Earned
: 1 x i d s t n p e e nc b l e o p C Apresent VaBlouneds Paya P g icin r P and
Present Value Concept/ ________ Bonds ________
o When a corporation issues bonds, the
price that ________ are willing to ________ for the bonds depends on the following: The ________ amount of the bonds, which is the
amount due at the ________ ________ .
The ________ interest to be ________ on the
bonds.
The ________ rate of ________ .
________ ________ Concept o The time value of ________ concept recognizes
that an amount of cash _______ ________ is worth more than the same amount of ________ to be ________ in the ________ .
o ________ value is the current worth of a
________ sum of ________ or stream of ________ flows given a ________ rate of ________ .
o The amount to be ________ in the ________ if you make a deposit now is the ________ ________.
Present Value of the ________ ________
o A ________ of equal cash receipts spaced ________ in time is called an ________ .
o The ________ ________ of an annuity is the
sum of the ________ ________ of each cash receipt.
: 2 x i d n te a e R t p s f e p r o e d t A ctive In Metho tion a e Eff
z i t r Amo
Effective ________ ________ Method
o The ________ ________ ________ method of amortization, sometimes called the ________ method, provides for a ________ rate of interest over the ________ of the bonds.
m r e T g n : o s L e i t i l i b a i d L n d a n s E d e n h o s T B e t No