Important points for shareholders and creditors, Finance Basics

Important Points for Shareholders and Creditors

1. In raising capital, the borrowing firm will constantly question the financial securities in form of preference shares, ordinary shares, debentures, bond etc.

2. In case of bondholders and shareholders the agent is the shareholder who must ensure such the debt capital borrowed is effectively operated without decrease in the wealth of the bondholders. Such bondholders are the principal whose wealth is influenced through the number of the bond and the value of bonds held.

3. Wealth of bondholders = Market value of bonds x No. of bonds /debentures held.

4. An agency conflict or problem of interest between the shareholders (agents) and the bondholders (principal) will arise whenever shareholders take action that will decrease the market value of the bond and through extension, the wealth of the bondholders.

Posted Date: 1/29/2013 1:44:24 AM | Location : United States

Related Discussions:- Important points for shareholders and creditors, Assignment Help, Ask Question on Important points for shareholders and creditors, Get Answer, Expert's Help, Important points for shareholders and creditors Discussions

Write discussion on Important points for shareholders and creditors
Your posts are moderated
Related Questions
1. Each project has RM 10,000, and the cost of capital for each project is 12%. The projects' expected cash flows are as follows: Expected Net Cash Flows YEAR

Louis Futon Co. is currently an all-equity firm. The current market value of the company is $80 million. The corporate tax rate is 35%. What is the new value of the company if Loui

Cash Cycle and Cash Turnovers Cash Cycle refers to the amount of time which elapses from the point whenever the firms create a cash outlay to purchase raw materials to the poi

Marginal cost of finance This is cost of new finances or additional cost a company has to pay to raise and use additional finance is given by: (Total cost of marginal finan

Advantages of Investment in Shares 1. Income in form of dividends When you contain shares of a company then you become a part-owner of such company and hence you will be

Trial and Error Method a) Select any rate of interest on random and employ it to compute NPV of cash inflows. b) If rate selected produces NPV lower than the cost, want a l

Paper on Estate Planning (3–5 pages) Evaluate the tools commonly used in estate planning, including trusts, life insurance, and annuities. Compare the tools as to how they would a

Disadvantage of Joint Stock Companies Difficult to reconstruct the capital Many formalities in forming the company Heavy initial capital outlay. Loss of secrec

High Potential Venture An organization begins with the intent of growing quickly to annual sales of at least $30 to 50 million in 5 years. It also has the potential to have a f

Trading Mechanism 1. An investor approaches brokers who obtain his bid or prefer to the trading floor. 2. At the trading floor, the selling and buying brokers meet and sea