Chap 17 Solman Finman
Chapter 17
Discussion Questions
17-1. Corporate management has become increasingly sensitive to the desires of large institutional investors because they fear these shareholders may side with corporate raiders in voting their shares in mergers or takeovers attempts.
17-2. There is no difference in dividend payments. The difference in trading values reflects a premium for being able to participate in electing a majority to the board of directors.
17-3. Usually corporations issue different classes of stock so that a controlling group can continue to control the board with a relatively small number of shares.
17-4. One disadvantage is that so-called non-voting shareholders generally contribute the bulk of the equity capital and get to elect only a minority of board members. Another is that in case of a takeover promising large premiums the non-voting shares can be ignored and therefore not get the same financial benefit as the voting shares.
17-5. The purpose of cumulative voting is to allow some minority representation on the board of directors. A possible disadvantage to management is that minority shareholders can challenge their actions.
17-6. Mainly because of the non-taxable nature of the dividends received by corporations and the dividend tax credit accorded individuals.
17-7. The preemptive right provides current shareholders with a first option to buy new shares. In this fashion, their voting right and claim to earnings cannot be diluted without their consent.
17-8. The actual owners have the last claim to any and all funds that remain. If the firm is profitable, this could represent a substantial amount. Thus, the residual claim may represent a privilege as well as a potential drawback. Generally, other providers of capital may only receive a fixed amount.
17-9. When a rights offering is announced, a stock initially trades rights-on, that is, if you buy the stock you will also acquire a right toward future purchase of the stock.
Discussion Questions
17-1. Corporate management has become increasingly sensitive to the desires of large institutional investors because they fear these shareholders may side with corporate raiders in voting their shares in mergers or takeovers attempts.
17-2. There is no difference in dividend payments. The difference in trading values reflects a premium for being able to participate in electing a majority to the board of directors.
17-3. Usually corporations issue different classes of stock so that a controlling group can continue to control the board with a relatively small number of shares.
17-4. One disadvantage is that so-called non-voting shareholders generally contribute the bulk of the equity capital and get to elect only a minority of board members. Another is that in case of a takeover promising large premiums the non-voting shares can be ignored and therefore not get the same financial benefit as the voting shares.
17-5. The purpose of cumulative voting is to allow some minority representation on the board of directors. A possible disadvantage to management is that minority shareholders can challenge their actions.
17-6. Mainly because of the non-taxable nature of the dividends received by corporations and the dividend tax credit accorded individuals.
17-7. The preemptive right provides current shareholders with a first option to buy new shares. In this fashion, their voting right and claim to earnings cannot be diluted without their consent.
17-8. The actual owners have the last claim to any and all funds that remain. If the firm is profitable, this could represent a substantial amount. Thus, the residual claim may represent a privilege as well as a potential drawback. Generally, other providers of capital may only receive a fixed amount.
17-9. When a rights offering is announced, a stock initially trades rights-on, that is, if you buy the stock you will also acquire a right toward future purchase of the stock.