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Cash Inflow or Outflow 1981 1982 1983 1984 1985 1986 1987
Net Income 219.90 196.60 164.40 181.70 -59.90 158.70 159.10
Borrowings LT Debt 2.20 292.50 21.10 122.10 177.30 91.40 107.20
- Cash Spent on Dividends -180.45 -178.65 -148.98 -167.68 -158.70 -143.30 -143.30
- Cash Spent Increasing Assets 3.60 -665.40 -52.60 -151.90 148.70 -7.30 -262.90
Difference 45.25 -354.95 -16.08 -15.78 107.40 99.50 -139.90
1981 1982 1983 1984 1985 1986 1987
Debt-Equity Ratio 0.01 0.24 0.26 0.38 0.67 1.04 1.08
Equity to Total Assets Ratio 0.60 0.55 0.53 0.47 0.40 0.30 0.30
common shares
Dividend on remaining common shares
reduced from $2.00 to $1.00
Cash saved $1 (73.8 18) $56 million
1 2 3 4 5
$1.25 + 1 Share
1 2 3 4 5
J. K. Dietrich - FBE 532 – Spring 2006
Concept
Shareholders wanting cash yield will
convert to PERCs
– Receive higher dividend
– No profit from share value above $31.50
Other shareholders will be content to hold
(lower dividend yielding) Avon common
At margin, value of the two securities
(common and PERCS) must be equivalent
to common if PERCS not issued at all
J. K. Dietrich - FBE 532 – Spring 2006
PERCS
Receives higher dividend but has a limit on
upside gain to stock
– If P+5 > $31.50, receive $31.50 in stock value
– If P+5 < $ 31.50, receive share value
$31.50