SUMMARY7
issue prior to maturity. If interest rates rise and cause a bond’s price to fall, it would
Describe the features of common stock.
Explain the impact of retaining earnings versus paying cash dividends on a corporation’s balance sheet.
Identify the important dates for the distribution of a cash dividend.
Compare the impact of a cash dividend, stock dividend, and stock split on a company’s balance sheet.
List the features of preferred stock.
Describe the general characteristics of bonds.
Explain the relationship between changes in interest rates and the price of preferred stocks and bonds.
List the types of corporate bonds.
Explain how a country’s debt-to-GDP ratio could influence the borrowing costs for the country.
The Saudi Construction Corporation (SCC) wants to issue new bonds. SCC’s credit rating has changed from AA to AA+.
Saudi Construction Corporation (SCC) earns SAR 9 per share, sells for SAR 90, and pays a SAR 6 per share dividend. SCC has the following balance sheet:
Saudi Construction Corporation (SCC) has issued a SAR 1,000 fixed rate bond paying 3.5% when the inflation rate is 2.5%.
Why might SCC consider issuing bonds instead of preferred stock?
The owners of a corporation elect the board of directors.
Preferred stock shares are often purchased by investment firms rather than individuals.
Match the terms listed with their definitions. Write the letters of the correct definitions.
9. Coupon
Prospectus
Price of stock after the split = Stock’s price before the split x Reciprocal of the terms of the split.
Company Stock Issues
Describe the implications for the company of issuing common stock to the public.
Make a recommendation for or against paying dividends to common stockholders over the next four years.
When the company is profitable after expansion, evaluate the advantages and disadvantages of issuing cash dividends versus share dividends.
Preferred vs Common Stock
Provide Ziad with the advantages and disadvantages for an investor in purchasing common stock.
Provide Ziad with the advantages and disadvantages for an investor in purchasing preferred stock.
Justify a recommendation you would give to Ziad.
Bonds
1. Outline for management the advantages and disadvantages of issuing bonds.
Describe the different types of bonds the company could issue. What does a rating of BBB+ mean?
Outline the advantages of retiring or calling the issued bonds.
CASE STUDY: SOURCES OF FUNDING
Combine any two of the six given sources, and explain the advantages and disadvantages of your combination.
What is your funding recommendation for Fatimah’s company regarding your chosen combination?
How could the risk of this new expansion impact Fatimah’s funding plans?
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