Ch 16 Financing a Business
short-term debt
must be repaid with interest within a year
Dividends =
Shares x face value of a share
security
Something of value pledged as assurance of the fulfillment of an obligation.
Retained earnings
profits that owners do not take out of the business. earnings reinvested in the business to replace equipment, add new facilities, or serve as financial protection
preferred stockholders
typically do not have voting privileges in a business
sale of stock
Corporations can raise additional funds through the _________________________________,
mortgage bond
A bond secured by specific long-term asset of the issuer.
convertible bond
A bond that allows a bondholder to exchange bonds for a prescribed number of shares of common stock
debenture
A bond that is not secured by assets but based upon the faith and credit of the corporation that issues it.
factor
A firm that specializes in lending money to businesses based on the business's accounts receivable.
ESOP (employee stock ownership plan)
A plan that allows employees to become owners of the company they work for through the purchase of stock.
crowdfunding
A strategy for funding a business idea with small amounts of money from many people.
investment bank
An organization that helps businesses raise capital through the sale of stocks and bonds.
owner capital exceeds debt capital
Banks and other types of lending institutions usually will not loan money to a business unless
issuing bonds
a way to obtain long-term debt capital
2/10, net 30
Credit terms offered by a business that indicate a bill must be paid in full within 30 days and offers a 2% discount for paying a bill within 10 days
sales finance company
Firm that provides capital to a business based on installment sales contracts.
Personal assets invested and not invested in the business, and mortgaged personal property
If a sole proprietorship fails, these assets will be lost
Equity capital
The investment made in a business by its owners is called
Book Value per share =
Net worth / shares of stock outstanding
line of credit
The authorization to borrow up to a maximum amount for a specified period of time.
term loans
a common method to purchase expensive equipment
par value
a dollar value shown on a share of stock
trade credit
a form of short-term financing
underwriter
an organization that assists a business to raise capital through the sale of stocks and bonds
common stakeholders
have the right to vote at annual meetings, at one vote per share of stock owned
influence of capital contributors, the cost of capital, and interest rates
influence how companies decide how to get the capital they need
venture capitalists
they must get a percentage of ownership in the company in return for their investment