Going public and the dividend policy of the company

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Теги реферата: конспект по математике, 7 ответов
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Preference shares

They also are the part of the equity ownership, attractive to risk-averse investors because of their fixed rate of dividend, which normally must be at a higher level than the rate of interest paid to lenders, because of the relatively greater risk of non-payment of dividend. Whilst they are part of the share capital, the holders are not normally entitled to a vote, unless the terms of issue specified overwise, and even then votes are usually only exercisable when dividends are in arrears. Preference shareholders have prior rights to dividend before ordinary shareholders, but it may be withheld if the directors consider there are insufficient resources to meet it. There is an implied right to accumulation of dividends if they are unpaid, unless the shares are stated to be non-cumulative. Payment of such arrears has priority over future ordinary dividends. And if the company goes into liquidation, preference shareholders are not entitled to payment of dividend arrears or of capital before ordinary shareholders, unless their terms of issue provide otherwise, which they usually do.

Companies have issued three varieties of preferences shares from time to time, to confer special rights; these are redeemable preferences shares, participating preferences shares and convertible preferences shares. Redeemable preferences shares are similar to loan capital in that they are repayable but they lack the advantage enjoyed by loan interest of being able to charge dividend against profit for taxation purposes, participating preferences shares enjoy the right to further share in the profit beyond their fixed dividend, normally after the ordinary shareholders have received up to a state percentage on their capital, convertible preferences shares give the option to holders to convert their shares into ordinary shares at the specified price over a specified period of time.

3. The Stock Exchange and the Capital Market
The Capital Market embraces all the activities of financial institution engaged in:
. the raising of finance for private and public bodies whether situated in

UK or overseas (the primary market);
. trading the securities and other financial instruments created by the activity above (the secondary market).

The Stock Exchange plays a central role in this international market. It provides the primary facility fir marketing new issues of shares and other securities, and also a well-regulated secondary market in shares,
British government and local authority stocks, industrial and commercial loan stocks and many overseas stocks that are included in its Official
List. Nowadays it called the London Stock Exchange Ltd is an independent company with the Board of Directors drawn from the Exchange’s executive, and from the customer and user base.

The main participants on the Stock Exchange are Retail Service
Providers (RSPs) and the stockbrokers. The function of RSPs is to provide a market in securities, which they have nominated, and to maintain two-way prices, i.e. lower price at which they are prepared to buy and a higher price at which thy will sell. And stockbrokers can act for client as agent only, when purchasing or sell securities on their behalf, in which case they deal with RSPs. And dual capacity stockbrokers/dealers, however they will buy and sell shares on their own account, and may act as both agent and principal in carrying out clients ‘buy’ and ‘sell’ instruction.
Unfortunately the integration of the broking and dealing functions within the same financial grouping can give rise to conflict of interest, and this has made it essential to create a protective regulatory framework both within and between financial institutions.

But some companies are not suitable for a full Stock Exchange listing and the Alternative Investment Market (AIM), setting up by the
Stock Market Exchange in 1995, is a more suitable for unknown and risky companies.

Its main features are:
. no formal limit on company size;
. ?500.000 capitalization (full listing ?3-?5 million);
. no minimum trading record (full listing five years);
. 10% of the equity capital must be in public hands (full listing 25%)
. no entry fee is required, but a annual listing fee of ?2.500 in year 1, rising to ?4.000 in year three is payable.

4. Procedure for an Issue of Securities
All arrangements made by an Issuing House, which specialized in this work.
The procedure would be probably as follows:
. an evaluation by the Issuing House of the company’s financial standing and future prospects;
. an assessment if the finance required, and advise regarding the most appropriate package to finance to meet the need;
. advice of the timing of the issue;
. agreement with the Stock Exchange on the method of issue (sale by tender, SE placing etc);
. completion of an underighting agreement;
. preparation of the prospectus and other documents required by the Stock

Exchange in the initial application for the quotation;
. advertising the offer for sell and the publication of the prospectus;
. arrangements with the bankers to receive the amounts payable;
. the issue price of the share to be agreed at a level to ensure a success of the issue;
. final application for the Stock Exchange quotation, and signing of the listing agreement, which binds the company to maintain a regular supply of information to the Stock Exchange and shareholders.

5. Equity Share Futures and Options

These are traded at the London International Futures and Options
Exchange (LIFFE), which was established in 1982.

Both futures and options are used by investors for:
. hedging i.e. protecting against future capital loss in their investments;
. speculation i.e. gambling on forecasts of favorable movements in future

Stock Market prices.

The main differences between futures and options is that futures contracts are binding obligation to buy or sell assets, whereas options convey rights to buy or sell assets, but not obligations. Futures are agreed, whereas options are purchase.

Equity Share Futures
The only equity futures dealt in on LIFFE are those based on the FTSE 100 and MID 250 Stock Indices.

Futures contracts may b used to protect an expected rise in the market before funds are available to an investor. For example, an investor expecting a large cash sum in three months’ time could protect his position by buying FTSE 100 Index futures contract now, and selling futures for a higher sum when the market rises. The profit made on the futures position would then compensate him for the higher price he has pay for his investments when the expected cash sum arrives.

Equity Share Options
An option is the right to buy or sell something at an agreed price (the exercise price) within a stated period of time. As applied to shares, a payment (a premium) is made through or to a stockbroker for a call option, which gives the right to buy shares by a future date; or for a put option, which gives the right to sell shares by future date. And the holder may exercise the option, or late it lapse. However the giver (the ‘writer’) of the option, i. e. the dealer to whom the premium has been paid, is obliged to deliver or buy the shares respectively, if the option holder exercises his rights.

Traditional options have been dealt in for over 200 years, and are usually written for a date three month’ hence, when either the shares are exchanged, or the option lapses. The disadvantage of the traditional option is that it cannot be traded before the exercise date, and it was because of this inflexibility that the traded options market was created in the UK in
1978.

Equity options were first traded on LIFFE in 1992, and currently
(1997), options are available on 73 large companies’ shares. Because traded options cost much less then the underlying shares, an investor is able to back an investment opinion without risking too much money.

II. Dividend Policy and Share Valuation

Dividends as a Residual Profit Decision

It would seem sensible for a company to continue to reinvest profit as long as projects can be found that yield returns higher than its cost of capital. In this way, the company can earn a higher return for shareholders than they can earn for themselves by reinvesting dividends. Such a policy can be optimal, however, only if the company maintains its target-gearing ratio by adding an appropriate proportion of borrowed funds to the retained earnings. If not, the company’s coast of capital would increase because of its disproportionate volume of higher-cost equity capital; this would be reflected share price.

Activity:
The LTD Company has the chance to invest in the five projects listed below:
|Projects |Capital outlay, ? |Yield rate, % |
|A |70.000 |18 |
|B |100.000 |17 |
|C |130.000 |16 |
|D |50.000 |15 |
|E |100.000 |14 |

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