CBV Level 3 - Module 1
Coattail Provision - answer In the event of a takeover offer for the company, a coattail
provision gives the holders of the non-voting or restricted voting shares the right to
convert their shares to an equal number of superior voting shares.
Characteristics of Preferred Shares and impact on value - answer-Potential to
participate in growth of the company
-Demand and liquidity
-Control
-Specific rights and characteristics
-Ownership structure
-Dividend history
Five factors that should be considered in selecting a reasonable required rate of return
for preferred shares. - answer-Cumulative Dividends
-Non-Cumulative dividends
-Priority of dividends / capital against other share classes
-Company's financial stability and needs
-Company's earnings and asset coverage
-Voting or conditional voting rights
Describe the key feature of escrowed / restricted shares and the two approaches in
determining the discount applicable to restricted shares. - answerEscrowed shares,
while entitled to vote and receive dividends, may not be purchased or sold for a
prescribed period of time unless special approval is obtained.
Two Valuation Methods:
-The indirect method - restricted stock studies
-The direct method - put call parity analysis
Describe three key differences between preferred shares issued by publicly traded
companies (Pubco) and by private companies (Privico). - answerPublic Co.
-Rarely retractable
-Can be convertible
-Generally cumulative
-Generally voting, but as individual interests represent minority interest, there is no
voting control
Private Co.
-Frequently retractable
-Rarely convertible
-Generally non-cumulative
Coattail Provision - answer In the event of a takeover offer for the company, a coattail
provision gives the holders of the non-voting or restricted voting shares the right to
convert their shares to an equal number of superior voting shares.
Characteristics of Preferred Shares and impact on value - answer-Potential to
participate in growth of the company
-Demand and liquidity
-Control
-Specific rights and characteristics
-Ownership structure
-Dividend history
Five factors that should be considered in selecting a reasonable required rate of return
for preferred shares. - answer-Cumulative Dividends
-Non-Cumulative dividends
-Priority of dividends / capital against other share classes
-Company's financial stability and needs
-Company's earnings and asset coverage
-Voting or conditional voting rights
Describe the key feature of escrowed / restricted shares and the two approaches in
determining the discount applicable to restricted shares. - answerEscrowed shares,
while entitled to vote and receive dividends, may not be purchased or sold for a
prescribed period of time unless special approval is obtained.
Two Valuation Methods:
-The indirect method - restricted stock studies
-The direct method - put call parity analysis
Describe three key differences between preferred shares issued by publicly traded
companies (Pubco) and by private companies (Privico). - answerPublic Co.
-Rarely retractable
-Can be convertible
-Generally cumulative
-Generally voting, but as individual interests represent minority interest, there is no
voting control
Private Co.
-Frequently retractable
-Rarely convertible
-Generally non-cumulative
