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CONT..CHAPTER 7:INVESTMENT PLANNING (Features of Common Shares (Claims on…
CONT..CHAPTER 7:INVESTMENT PLANNING
Features of Common Shares
Claims on assets
- Claim on Assets during liquidation will be after claims are made by both bondholders and preferred shareholders.
Voting rights
- since common stockholders are owners of a company, they will have the rights to elect members of the BOD, vote on the merger of the company with other comp, authorize additional shares of common stock and lastly vote on amendments to the Articles of Incorporation.
Claims on Income
- income of the common stock holders are in the form of dividends or capital gains on stock. A dividend can be in terms of cash and/or stock that a comp distributes to its shareholders. Cash dividends are paid to all outstanding shares in cash terms.
Preemptive rights
is related to raising additional capital for expansion. The company will have several alternatives in getting the capital and one of the alternatives is by selling new shares. When the comp sells new shares, the existing sharhldrs are given the right to buy the shares before the new shares are sold to new shareholders.
Limited Liability
- The liability of common stockholders are limited to their amount of investment.
INVESTMENT IN BONDS
A bond is a long-term debt instrument issued by a corporation either public or private to finance the company's long- term assets. The issuer or the seller or the borrower of a bond has to make periodic interest payments to the bondholder. The issuer also has to pay the principal payment at maturity. Maturity of a bond is between 10 to 30 years. The bondholder can claim on the firm's income and assets as specified in the indenture.
Features or Characteristics of a Bond
- Coupon rate
as the interest rate. Indicated as the % of the par value of the bond that will be paid out periodically.
- Maturity period
the length of time until the bond issuer returns the par value to the bondholder and terminates the bond. The maturity period is between 10 to 30 years.
- Par Value
the face or principal or nominal value of a bond which the issuer has to pay at maturity. The par value of a bond in Msia is RM1000.
Discount : if selling below RM1000, Premium: if sold above par or RM1000.
- Claims on asset
the bondholder will be the first to receive the firm's asset/income, before the preferred stockholder or common stockholder if the firm is declared bankrupt.
- Voting right and fixed income
the bondholder receives a fixed income in terms of a coupon rate, which is a predictable and regular income, but he/she has no voting rights.
INVESTMENT IN REAL PROPERTIES
There are investments in shop houses, standard lots in shopping or office complexes, condominiums , flats and residential houses.
People are willing to give up or forego a capital sum or big sum of money in exchange for the benefits to be received in the future.
Issues that need to be considered when investing in property
To decide how much to spend and the % to be invested in property. This % should exclude property for owner's occupation.
To look for the location. Where is the best place to invest? Should it be at an established location or new township? The key is to go for capital appreciation by opting for landed property in good locations.
Who is the developer? What is the track record?
To evaluate the sources of financing.
To evaluate the real estate cycle or the timing of entry and also exit.
Factors to look up in order to determine the returns
Scarcity of Land
Income growth
Population of Growth
Economic activities
Supply and Demand
DISADVANTAGES
ADVANTAGES
Expenses including depreciation on the property and interest on borrowings are tax deductible.
Make money as the value of the property increases.
Leverage the investment.
Rental income.
Interest rate could rise.
The property could be untenanted for a period of time and may get a bad tenant.
Prices could remain static or even fall.