© 2000 John Petroff
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© 2000 John Petroff |
Assignments, Cases & Exercises
Research assignments:
R-12A1.1 Gather information on accounting rules of different countries pertaining to retained earnings appropriations for various reserves (e.g. by reading country profile booklets from major accounting firms). Construct a table summarizing your findings.
R-12A1.2 Read the SFAS on accounting rules pertaining to comprehensive income. Argue whether or not the presence of comprehensive income in the balance sheet improves the meaning of what is present in retained earnings.
R-12A2.1 Choose 100 American corporations randomly. Average their payout ratio over the past five years. Do the same for a group of corporations from a European country and a group of firms from an Asian country. Draw inferences from the pattern of dividend distributions in different countries.
R-12A2.2 Return to the 100 American corporations used in the previous assignment. Group companies that distribute significantly more than 50% of earnings, roughly 50%, and significantly less. See if common characteristics are present among the companies in each group.
R-12A2.3 Pick a sample of 24 stocks that have gone through a stock split in the past two years. Record and compare the average price of the stock in six months after the stock split and the six months preceding the stock split. Report any observable trend.
R-12B1.1 Obtain, analyze and summarize SEC rules for initial public offerings.
R-12B1.2 Find initial public offering rules in three countries other than the United States. Summarize and compare them.
R-12B1.3 List the major new exchange markets that have been set up since 1995 to facilitate the issue of new technology stocks. Outline the history of each. Show their importance for the countries involved.
R-12B2.1 Select three companies that issued preemptive rights to their shareholders in the past three years. Study the annual reports of these companies to learn what was the financial needs that needed to be met by each company. Trace the success of the issue in achieving the funding needs. (For instance, inquire from the corporate investor's relations office as to how many rights where not exercised.)
R12B2.2 Choose three companies that use dividend reinvestment plans. Determine from the history of the company, the reason why this financial approach is used and what investment needs are financed from that source. Indicate how successful it has been. (For instance, inquire from the corporation as to what proportion of dividends are reinvested.)
R-12B2.3 Take three recent seasoned new issues. Verify that the corporation did not issue preemptive rights to shareholders, and that this was in accordance with corporate by-laws. Determine at what price each new share were subscribed. Compare that price to market quotations. Determine from the annual report or 10-K what gross and net amounts the flotations generated.
R-12B2.4 Research the rules of three foreign countries pertaining to seasoned new issues. Indicate whether preemptive rights to existing shareholders are mandatory.
R-12B3.1 Find six corporations that have (or had) more than one class of common shares. Catalogue the different rights each shareholder is entitled to. Trace the history of the company to find the reason for issuing more than one class of shares.
R-12C.1 Select six companies that have issued preferred stock. Obtain a prospectus for each stock and determine what special rights are given to preferred shareholders in comparison to common shareholders. Study the pattern of preferred and common stock quotations, and offer explanations for the difference.
R-12C.2 For the six companies used in the previous questions, determine the reason(s) for the preferred stock to have been issued from management's comments in annual reports (as well as articles about the companies, if any).
R-12D1.1 Obtain copies of at least twelve bonds of different companies. Catalogue the different types of provisions found in them. Determine from the working of the covenants which bonds are more risky and which less. Confirm with official ratings and corporate performance record.
R-12D2.1 Study the methods of retirement (or conversion) of six bonds. Relate each method selected to the financial needs and performance of the company.
R-12D3.1 Compare the provisions, risks, returns and convenience of purchase of eurobonds, foreign bonds and traditional domestic corporate bonds by obtaining the prospectus of three eurobonds and three foreign bonds.
R-12D4.1 Review the history of zero-coupon and deep-discount bonds. Indicate in which countries such bonds are popular and correlate that with tax provisions if possible.
R-12D5.1 Review the emergence and appeal of junk bonds in the United States. Report on recent example of successful flotation and problems cases.
R-12E1.1 Locate six comparable companies: three companies that financed their investment needs with term loans, and three with bonds. Read the annual reports to learn what reasons (commercial, operating, financial or cost of funds) lead to the choice.
R-12E2.1 Take six companies in the same industry. Tabulate which companies use capital leases, and which operating leases. Explain the choice by operational and financial reasons.
R-12G2.1 Find six companies that refunded their bonds at some point in time in the past. Outline each process. Determine the possible market and internal reasons for the refunding. Catalogue the gain or loss the refunding produced.
R-12G3.1 Tabulate the information contained in notes to financial statements pertaining to the use of swaps and derivative instruments of 24 companies. Show the magnitude of the operations. Suggest whether the purpose is hedging or speculation. Point out the size and direction on financial results.
Cases for Chapter 12 Capital Sources:
Review the capital sourcing strategy of Viatel in Case
- VYTL. Discuss how appropriate is the capital sourcing methods.
Would it be better to finance all the expansion with common shares?
Do existing shareholders gain or lose from the Viatel issue of
preferred stock? Do existing shareholders gain or lose from Viatel's
flotation of long term notes
Study the methods used by Versar to finance its expansion plan
in Case - VSR. Discuss the reasons
for Versar's choice of finance sources and the problems that they
create. Discuss the terms of the loans, the covenants and the
quality of the collateral. Comment on potential impact of the
financing approach on company owners. What would happen if Versar
fails to meet one of the financial ratio covenants and National
Bank calls the line of credit?
Review the growth strategy of Panamco in the late 1990's presented
in Case - PB. Discuss the methods
of financing the growth. Comment on the reasons for the need to
obtain help from Coca-Cola head office. Link your analysis to
the liquidity problems Panamco in 1999. What financial statistic
or other indicator best reveals forthcoming financial sourcing
difficulties?
Make a careful chronological schedule of KV Pharmaceutical
Company access to capital markets and borrowing presented in the
outline and the information links in Case
- KVa. Explain the reasons for issuing the different types
of share classes and the preferred stock. How do the different
interested parties are affected by the variety of financing sources?
Will the perception change if the performance of the company is
not as flourishing in the future?
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