CHAPTER 11

LONG TERM FINANCING

 1. Bond
- Issued by government or corporation
- Maturity date of more than 10 years

i. Unsecured bond
TYPES OF a. Debenture
LONG-TERM b. Subordinate Debenture
FINANCING c. Income Bond
d. Convertible Bond
e. Bond Issued with Stock Purchase
Warrant
f. Index Bond
g. Zero Coupon Bond
h. Junk Bond
 ii. Secured bond
a. Mortgage Bond

3. Preferred Stock
TYPES OF ◼ The holder generally receives a stated fixed dividend

LONG-TERM payment although the payment is not legally binding

◼ The holder should get first before common stockholder
FINANCING ◼ Riskier than bond but safer than common stock
(CONT.)
4. Common Stock
No maturity date
The holder is said to have an ownership
CHARACTERISTICS OF LONG-TERM
FINANCING

1. Bond
i. Par Value – RM1,000

ii. Coupon Rate – Interest received regularly

iii. Maturity period – tenure of the bond

iv. Trustee- third person who will overseeing the performance of

company to honor their obligations

v. Indenture - agreement

vi. Call Provision – a provision that allows the company to call back the
loan before its maturity
CHARACTERISTICS OF PREFERRED STOCK

Claim on
Cumulative
Par Value assets and
dividends
income

No fixed Conversion
Call feature
maturity date feature
CHARACTERISTICS OF COMMON STOCK

Claim on income

Claim on assets

Voting rights

Pre-emptive rights

Limited liability
 ◼ Cost of bonds
◼ If the bond is selling at par value

◼ Kd = CP/PV x 100

◼ Kd* = Kd (1 – tax rate)

COSTS OF = _____%

LONG-TERM ◼ If the bond is selling at discount or premium

FINANCING ◼ Kd = CP + [PV – SP – FC]

Yrs. to maturity____
[Par + (SP-FC)]
2
= _____%

◼ Kd* = Kd (1 – tax rate)

= _____%
 ◼ Cost of preferred stocks
Kps = D x100%
SP – FC

COSTS OF = ________ %

LONG- TERM Where;

FINANCING
D = Annual dividend
(CONT.)
SP = Selling Price or market price

FC = Floatation cost
 ◼ Cost of common stocks
Kcs = D1 +g x 100%
SP - FC

= %

◼ D1 = Do ( 1 + g)
COSTS OF LONG-
TERM FINANCING Where;
(CONT.) D1 = Dividend for the next year / expected
dividend
Do = Existing / this year / present / resent
dividend
g = growth rate
THANK YOU