MGTA01H3 Chapter Notes -Preferred Stock, Dedication 2, Income Statement
14
MGTA01H3 Full Course Notes
Verified Note
14 documents
Document Summary
>long-term loans and bonds carry fixed interest rates and represent a fixed promise to pay, regardless of economic changes. If a firm defaults on its obligations, it may lose assets and go into bankruptcy. B/c of risk of default, debt financing appeals most strongly to companies in industries that have predictable profits and cash flow patterns. Between debt and equity financing is the preferred stock. Hybrid b/c contains features of corporate bonds and features of common stocks. Like bonds, payments on preferred stocks are for fixed amounts. Dividends need not be paid if the company makes no profit. If dividends are paid, preferred shareholders receive them first in preference to dividends on common stock. A major advantage for the issuing corporation is flexibility. It secures funds for the firm without relinquishing control. Partly, financial planning is finding balance between debt and equity financing to meet the firm"s long- term need for funds.
