Introduction Unit 4 is an overview of capital structure. Up to this point, we ha

Introduction
Unit 4 is an overview of capital structure. Up to this point, we have (during our accounting prerequisite courses and the early units of this course) viewed the balance sheet in terms of assets, liabilities, and owners’ equity. In this unit we will view the balance sheet in a different way. We will begin to view assets and liabilities in terms of their short-term or long-term attributes. This will suggest that specific elements of an enterprise’s balance sheet supported specific types of financing approaches.
Conventional financial thought calls for short term-assets to be supported by short-term financing while long-term assets should be supported by long-term financing. A corresponding concept is, that for purposes of analyzing capital structure, long-term liabilities (bonds) are considered part of an enterprise’s capital structure (categorized with equity).
Discussion of capital structure will logically lead to the topic of stock and bond yields. Yield determination will be a foundational concept related to cost of capital.
Reading Assignment
Chapter 13 (sections 3, 4, and 5) of Finance and Chapter 8 of Corporate Finance – Basic provide an overview of looking at the balance sheet in a different way than we have in the past. By viewing assets and liabilities in terms of their short-term or long-term attributes will guide us into thinking of what specific elements of an enterprise’s balance sheet should be supported by a specific type of financing approach. As Chapter 3 of Corporate Finance II explains, conventional financial thought calls for short term-assets to be supported by short-term financing while long-term assets should be supported by long-term financing.
Chapter 19 of Finance presents an array of short-term financing instruments that are commonly used to support firms’ short-term assets. A brief glossary of short-term financing is also provided as a reference guide.
The underlying concept regarding long-term financing (related to cost of capital) is yield calculation. Chapter 3 of Strategic Financial Management II (special emphasis on page 39) presents the computations used to determine yields on common stock, bonds, and preferred stock. A brief summary of yield calculations is also provided for reference.
Required:
Boundless. (2023, February 18). Boundless Finance. Available at https://www.coursesidekick.com/finance/study-guides/boundless-finance
· Chapter 13 Capital Structure
· Chapter 14 Obtaining Capital: Methods of Long-Term Financing
Chapter 3 – Nielsen, K.M. (2010). Corporate Finance: Part II – Budgeting, Financing & Valuation. BookBoon: Ventus Publishing ApS. Available at http://my.uopeople.edu/pluginfile.php/56304/mod_page/content/7/CorporateFinanceII.pdf
Pages 6-31 – Hill, R.A. (2010). Strategic Financial Management: Part II – Finance & Wealth Decisions. BookBoon: Ventus Publishing ApS. Available at http://my.uopeople.edu/pluginfile.php/56304/mod_page/content/7/StrategicFinMgmtII.pdf
Discussion Assignment
Describe what a common stock yield is and why it is important for an investor. Describe and explain the importance of a bond yield also. How is a common stock investor and a bond investor different. What different expectations do they have? If a common dividend is not paid, what recourse do the stockholders have? What recourse do bond holders have available if bond interest payments are not made?
Learning Journal
Please answer the questions below:
Select three short-term financing instruments and three long-term financing instruments. Please explain them and describe how they work. When explaining the long-term financing instruments, address the concept of tax savings in terms of how they are achieved and why they occur when using one instrument and not another. Support your answer with sources/evidence.
Imagine yourself as a financial manager in a company, and you are requested to provide a financial report including the calculation of the current market rate of return from the investor’s perspective for each of the four investment options, taking into consideration the followings:
Common stocks available for investment are:
2,500,000 shares of common stock, with a par balance of $1 per share.
The current market value of the common share is $24.43 per share.
Annual earnings per share $1.95.
Bonds available for investment
$1,750,000 bonds (A) with an interest of 6.25%, with a current market value of $104 per bond (price of $104 per $100).
$2,250,000 Notes B, with an interest rate of 5.75%, with a current market value of $94.50 (price $94.50 per $100 note).
The corporate tax rate is 35%.
Preferred shares available for investment
950,000 outstanding preferred shares with a par value of $10 with a preferential dividend payment set at 5%. The current market value is $15.63 per Preferred Share
Submission Instructions
Please write the question before your answer.
Your submission paper should be a minimum of 500 words and not more than 750 words, not including a reference list or the assignment questions. Use high-quality, credible, relevant sources to develop ideas that are appropriate for the discipline and genre of the writing
Make sure your assignment is formatted with double-spacing, Times New Roman, 12-point font, and 1” margins.
Include citations and a list of references in APA format. Edit for spelling and grammar errors.
Use citations and references to support your work and be sure to include at least 2-3 strong arguments supported by 2-3 of this week’s readings. Edit for spelling and grammar errors.