Hincapie Co. (a specialty bike-accessory manufacturer) is expecting growth in sales of some products targeted to the low-price market. Hincapie is contemplating a preferred stock issue to help finance this expansion in operations. The company is leaning toward participating preferred stock because ownership will not be diluted, but the investors will get an extra dividend if the company does well. The company management wants to be certain that its reporting of this transaction is transparent to its current shareholders and wants you to research the disclosure requirements related to its capital structure. Instructions If your school has a subscription to the FASB Codification, log in and prepare responses to the following. Provide Codification references for your responses. a. Identify the authoritative literature that addresses disclosure of information about capital structure. b. Find definitions of the following: 1. Securities. 2. Participation rights. 3. Preferred stock. c. What information about securities must companies disclose? Discuss how Hincapie should report the proposed preferred stock issue.
Dividend Valuation
Dividend refers to a reward or cash that a company gives to its shareholders out of the profits. Dividends can be issued in various forms such as cash payment, stocks, or in any other form as per the company norms. It is usually a part of the profit that the company shares with its shareholders.
Dividend Discount Model
Dividend payments are generally paid to investors or shareholders of a company when the company earns profit for the year, thus representing growth. The dividend discount model is an important method used to forecast the price of a company’s stock. It is based on the computation methodology that the present value of all its future dividends is equivalent to the value of the company.
Capital Gains Yield
It may be referred to as the earnings generated on an investment over a particular period of time. It is generally expressed as a percentage and includes some dividends or interest earned by holding a particular security. Cases, where it is higher normally, indicate the higher income and lower risk. It is mostly computed on an annual basis and is different from the total return on investment. In case it becomes too high, indicates that either the stock prices are going down or the company is paying higher dividends.
Stock Valuation
In simple words, stock valuation is a tool to calculate the current price, or value, of a company. It is used to not only calculate the value of the company but help an investor decide if they want to buy, sell or hold a company's stocks.
Hincapie Co. (a specialty bike-accessory manufacturer) is expecting growth in sales of some products targeted to the low-price market. Hincapie is contemplating a
Instructions
If your school has a subscription to the FASB Codification, log in and prepare responses to the following. Provide Codification references for your responses.
a. Identify the authoritative literature that addresses disclosure of information about capital structure.
b. Find definitions of the following:
1. Securities.
2. Participation rights.
3. Preferred stock.
c. What information about securities must companies disclose? Discuss how Hincapie should report the proposed preferred stock issue.
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