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Definition
| what long term investments a firm should choose |
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Definition
| how to finance the long term investments selected |
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Term
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Definition
| how short term assets should be financed and managed |
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Term
| how to solve agency problem |
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Definition
| threat of a take over by a competitor and threat of a proxy fight |
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Definition
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Term
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Definition
| measure the total taxes you pay divided by your taxable income |
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Term
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Definition
| the tax rate you would pay on the next $1 |
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Term
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Definition
| balance sheet accounts are listed in order of decreasing liquidity |
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Term
| internal rate of return (IRR) |
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Definition
| rate generated solely by the CFs of an investment; causes NPV=O |
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Term
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Definition
| an asset characterized by CFs that increase at a constant rate forever |
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Term
| difference between an annuity due and an ordinary annuity |
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Definition
| an annuity due pays on 1st of each month (like rent) and has a higher FV than an ordinary annuity that is in all other ways the same |
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Term
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Definition
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Term
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Definition
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Term
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Definition
| brokerage fee is a component of trading costs, improving liquidity results in a lower cost of capital, disclosing info narrows the gap between informed and uninformed traders (improves liquidity), investors demand a higher expected return when investing in stocks with high trading costs |
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Term
| behavioral challenges to market efficient hypothesis |
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Definition
| people deviate from rationality in the same way, limit to arbitrage because mkt can stay irrational longer than an arbitrageur can stay insolvent |
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Term
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Definition
| lowest real rate of return; used as risk free rate |
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Term
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Definition
| used to discount expected CF when the firm has debt and equity |
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Term
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Definition
| prices of security rise immediately upon the release of new positive info with no further price adjustments related to that info. |
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Term
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Definition
| security prices reflect all information - public and private |
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Term
| semi-strong form efficiency |
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Definition
| security prices reflect all publicly available info. |
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Term
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Definition
| security prices reflect all info. found in past prices |
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Term
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Definition
| investors will generally view an increase in debt as a positive sign for the firm's value |
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Term
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Definition
| date that determines whether a stockholder is entitled to a dividend payment; anyone holding stock immediately before this date is entitled to a dividend; 3 days before the record date (only counting busi.days) |
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Term
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Definition
| date on which company determines existing shareholders; 3 business days after ex-div. date (including the actual days) |
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Term
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Definition
| it is irrelevant because you can create your own homemade divident |
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Term
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Definition
| flexibility, executive compensation, undervaluation, tax benefits over div. |
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Term
| why would you choose a high div. policy? |
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Definition
| desire for current income, self control, agency costs, dividend signaling |
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Term
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Definition
| personal taxes favor low-div. policy while other factors favor high div. policy - overall cancel each other out |
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Term
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Definition
corporations try and keep divident payments the same as to not signal anything to shareholders
formula:
div. change=div1-div0= s*(t*EPS1-div0)
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Term
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Definition
| pay in additional shares of stocks instead of in cash; decreases stock price and increases the number of shares outstanding |
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Term
| process of intial public offering (IPO) |
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Definition
| 1. board approval 2. registration & approval by SEC (20 days) 3. pricing the issue 4. public offering & sale 5. mkt. stabilization (30 days) |
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Term
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Definition
| cash payment made by a firm to its owners when some of the firm's assets are sold off |
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Term
| consistent dividend policy |
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Definition
| primary factor affecting a firm's dividend decision |
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Term
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Definition
| will reduce total assets of the firm, increase the EPS, and reduce the total equity |
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Term
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Definition
| declaration date, ex-dividend date, date of record, payment date |
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Term
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Definition
| change the cash div. payout received by selling off shares to receive desired div. |
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Term
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Definition
| issuing of an option directly to the shareholders to acquire stock |
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Term
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Definition
| behavior of the informed investor and why some IPOs have such large initial return |
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Term
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Definition
| the underwriter buys the securities for less than the offering price and accepts the risk of not selling the isuse |
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Term
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Definition
| underwriter does not purchase the shares but merely acts as an agent |
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Term
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Definition
| issuing firm can offers its securities to the highest bidder |
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Term
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Definition
| only one investment banker is used |
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Term
| debt capacity is the reason value of the stock falls when equity issued |
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Definition
| because management has info. that the probability of default has risen, limiting the debt capacity causing the firm to raise equity capital |
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Term
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Definition
| written agreement between a corporation and the bondholder's representative |
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Term
| open-ended mortgage trust indenture |
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Definition
| allows for unlimited bond issuance |
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Term
| closed-end mortgage trust indenture |
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Definition
| does not allow for unlimited bond issuance |
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Term
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Definition
| part of the bond issuance, a corp. makes annual payments into an account managed by a trustee in order to make payments on bonds |
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Term
| positive covenant to an indenture or loan agreement |
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Definition
| sets a condition that the co. must follow such a providing regular fina. stmts to the lender |
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Term
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Definition
| agreements to protect the bondholders that specificy a co. canNOT do something; ex. can't pledge any other assets to other lenders, can't merge with another firm |
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Term
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Definition
| allows the issuer to call in bonds before the maturity date |
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Term
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Definition
| allows the buyer to sell back the bond before the maturity date |
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Term
| option's instrinsic value |
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Definition
| value of an option if it were to immediately expire |
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Term
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Definition
| stock price = exercise price |
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Term
| out-of-the-money call option |
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Definition
| when the exercise price > stock price; negative intrinsic value |
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Term
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Definition
| positive intrinsic value; stock price > exercise price |
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Term
| lower bound on a call option |
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Definition
| 0 or S-E (whichever is greater) |
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Term
| upper bound on a call option |
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Definition
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Term
| shareholders accept a -NPV in a leveraged firm if... |
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Definition
| its increase the standard deviation on the returns of the firm's assets |
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Term
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Definition
| swing in the price of the call relative to the swing in the price the stock |
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Term
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Definition
| stock price * Δ - amount borrowed |
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