Cuenca, Mari Cris V. Bsba-Hrdmmsm 3-7N

CUENCA, MARI CRIS V.
BSBA-HRDMMSM 3-7N
WARRANTS
It is a financial contract that grants the holder the right but not the obligation to buy
or sell a fixed number of the underlying securities at a fixed price for a specified
period of time.
Classification of Warrants
Subscription (or Corporate Issued) Warrant
A type of security issued by a corporation (usually together with a bond or preferred
stock) that gives the holder the right to purchase a certain amount of common stock
at a stated price; "as a sweetener they offered warrants along with the fixed-income
securities.
Covered Warrant (or Fully Covered Warrant)
A type of warrant that allows the holder to buy or sell a specific amount of equities,
currency or other financial instruments from the issuer, usually a bank or a similar
financial institution, at a specific price and time.
Call/Put Warrants
A call warrant represents a specific number of shares that can be purchased from
the issuer at a specific price, on or before a certain date. A put warrant represents
a certain amount of equity that can be sold back to the issuer at a specified price,
on or before a stated date.
EQUITY RESTRUCTING
Equity Restructing means a non-reciprocal transaction between the company and its
stockholders, such as a stock dividend, stock split, spin-off, rights offering or
recapitalization through a large, nonrecurring cash dividend, that affects the shares
of stock or the share price of stock and causes a change in the per value of the
stock underlying the option.
PLANNING THE CAPITAL STRUCTURE

CAPITAL STRUCTURE
It refers to the make-up of its capitalization and it includes all long-term capital
resources, shares, loans, reserves and bonds.
Effect on Working Capital and Net Income

A high debt-equity ratio may require bigger cash outflows for periodic financing
charges and to meet current maturities of long-term debt. Due to significant
financing charges, a high corporation with high exposure to long-term debt may
incur net losses despite positive operating income figures.
Effect on Cost of Capital
Cost of capital is computed based on the capital structure and the corresponding
costs for its components. Interest is paid on long-term debt and shareholders expect
dividend payments and high earnings per share. Thus, changes in the composition
of the capital structure can affect cost of capital which is often used as a benchmark
in evaluating long-term projects.
Estimating Long-term Capital Requirement
This requires estimates of working capital requirement and the investments in plant,
property and equipment and in other long-term projects. The breakdown is
determined based on desired debt-equity ratio and desired cost of capital
considering interest rates (net of tax effect), projected earnings per share and
dividend payout ratio.
QUASI-REORGANIZATION
A quasi-reorganization is an accounting fresh start that allows companies to
eliminate accumulated deficits in the retained earnings account on their balance
sheets. It allows a small or large business to continue operating after doing an
accounting reorganization of its assets, liabilities and net worth without the time
and expenses normally associated with a legal reorganization.
When a corporation has been incurring losses so that its deficit has been significant
in amount, it may take so many years before it can have a positive balance in its
retained earnings account despite future profitable operations. The account will
appear with a negative balance again and again on the balance sheet and it can be
a hindrance to financing schemes.
DELINQUENT SUBSCRIPTIONS
When a subscriber defaults on his subscription, the corporation may declare him
delinquent and sell the shares in a public auction after giving him a grace period of
30 to 60 days. The highest bidder is he who offers to pay the unpaid balance plus
accrued interest, advertising cost and costs related to the sale for the least number
of shares. Should there be no bidder, the corporation may bid for the same and
effect the transfer of all the subscribed shares to treasury stock crediting the entire
amount that should have been paid by the bidder.

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CUENCA, MARI CRIS V.

PLANNING THE CAPITAL STRUCTURE

Effect on Working Capital and Net Income

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