Modern Furniture Evaluation Essay Example | Topics and Well Written Essays - 1250 words

Modern Furniture Evaluation - Essay ExamplePreferred stock is a class of ownership in a corporation that has a higher claim on the assets and earnings than the common stock. Preferred stock generally has a dividend that must be paid out before the dividends to common stockholders and the sh ares usually do not have voting rights. Each attach to can compute out the details pertaining to the issue of best-loved stocks. However preferred stock can be considered as a financial instrument that possesses the characteristics of both debt (with frozen(p) dividend) and equity (potential appreciation). (Investopedia)A sofa bed debt or security is a bond or a share of preferred stock that can be born-again at the option of the holder into common stock of the same corporation. The investor is provided with a fixed return from a bond or with a specified dividend from the preferred stock. In addition the investor has an option to covert it to common stock. As a result the company is able to se ll a convertible security at a lower yield than it would have to pay on a straight bond or preferred stock issue. This is an advantage for issuing convertible securities. (James C.Van Horne)A Warrant is an option to purchase a specified number of shares of common stock at a stated price. When the holder of a secure exercises his option he surrenders the warrants. Warrants are often employed as sweeteners to a public issue of bonds or debt that is privately placed. As a result the company should be able to obtain a lower rate of interest than it would otherwise. For companies that are marginal credit risks the use of warrants may make the difference between being able and not being able to raise funds through a debt issue. Occasionally warrants are directly sold to investors directly against cash. On other occasions they are used in founding of the company issued as compensation to underwriters and venture capitalists. Mostly warrants are issued in connection with a debt issue often a private placement. (James C.Van Horne)A master(a) financial instrument evidences a direct claim against some other party. These instruments often are traded in the spot market with prices set by the usual forces of demand and supply. In contrast a derivative security derives its value from an underlying primary security. One of the examples for the underlying security for derivatives is the stock option. Movements in the price of the underlying asset, the stock in this case drive the value of the derivative instrument, the option. Derivatives may adjudge the form of simple put and call options on stocks. These options were traded in relatively illiquid over the counter markets. However with the tremendous financial innovations occurred in the last twain decades the role of derivative securities in the financial markets have increased manifold touching new heights. (James C. Van Horne)Modern Furniture CompanyTotal deed of shares outstanding3,000,000Cash Dividend Proposed$ 1.60 per shareTotal Earnings of the firm$ 12,000,000Earnings per share$ 4.00Market Value of the Share$ 88.00P/E RatioP/E Ratio is given Market Value per ShareEarnings per Share 88.00 4.00= 22 Dividend Yield and Dividend Payout RatioDividend Yield is given by annual Dividends per