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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.

________ 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.

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 bonds ________ ________ .

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 .

________ a Bond Discount

The two methods of computing the

________ of a bond discount are:
Straight-line _____
________ ________ ________ method, sometimes

called the ________ method

Both methods ________ the same total

amount of ________ over the ________ of
the bonds.

Amortizing a Bond Discount

o The ________ ________ ________ method is

required by generally accepted accounting

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
.

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 .

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.

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 worthof a

________ sum of ________ or stream of ________

flowsgiven 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