Skys the limit. What ever the market will bare to pay. What I'm saying is that is the collateral for the debt. If one takes the debt and divide it by the issued number of shares then a $1.25 dosent cut it. If you take the potential earnings of the liability it is a much different picture again.
To be able to sell debt there has to be a underlying liability that can be used as a collateral.
Let's look at accounts payables as an example. This could be wages owed. The wages will be amortized into the product or service offered with a premium attached to it. Laid out between the spread of the liability and the collateral " capital surplus " is your premium. This can also be calculated by reversing the retained earnings using today's interest rates.
Now I can use many other examples of accounts payables that can be sold.
So let's look at receivables. Now many will argue that the receivables is an asset cause the spread between the collateral and the liability is nill or a negative.
The negative is the cost of capital over time of not being received as well the cost of reselling the product never mind one having to go and retrieve the product or service that could end up being a lengthy expensive court proceedings.
This liability is reflected in the outstanding shares and the spread between the other eguity. The negative earnings liability is represented by your treasury stock figure. The stock holders equity is the book value given to your common share value.
So if one takes your common share value minus your liability of the receivables you should be close to your market value of the stock.
They won't let the stock fall below the risk associated with the receivables or your payables that was sold to the public and this is were the forward splitting of the shares come into play.
Anyhow I hope this helps you out. The risk is a constant changing space. The more risk that is sold the more collateral given up but it is always a constant number between collateral and the liability of the receivables and payables sold.
Now there are other many other considerations as well that will change that constant number between the two products I have mentioned and that is the first product that is offered often associated with outside collateral obligations that are put up and provided often by very wealthy individuals and corporations. This collateral can be a brand, an individuale, art, collector cars the liability is bank debt, machinery, buildings , leasing and insurence obligations, the list is very very long often including environmental obligations as well urban renewal obligations and liabilities.
Sorry guy sometimes I can get taken away on the subject of investing. The risk is there, save guardyour self as much as possible and if you get that 10% up side take her cause there will always be a down side as risk never truly leaves you and is in a constant rotation following the product and service cycles. Hey keep in mind that a company will buy another companies interest to off set cycle risk. Well I won't go over that cause I have in many of my posts discussed that very subject.
