Term
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Definition
| The amount of time required for a firm to recover its initial investment in a project as calculated from cash inflows. |
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Term
Internal Rate of Return
IRR |
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Definition
The discount rate that equates the NPV of an investment opportunity with $0 (because the PV of cash inflows equals the initial investment);
it is the rate of return that the firm will earn if it invests in the project and receives the given cash inflows. |
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Term
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Definition
| The process of evaluating and selecting long-term investments that are consistent with the firm's goal of maximizing owners' wealth. |
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Term
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Definition
| Compund annual rate of return earned on a debt security purchased on a given day and held to maturity. |
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Term
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Definition
Debentures
Subordinated Debentures
Income Bonds |
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Term
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Definition
Mortgage Bonds
Collateral Trust Bonds
Equipment Trust Certificates |
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Term
| Debentures Characteristics |
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Definition
| Unsecured bonds that only creditworthy firms can issure. Convertible bonds are normally debentures. |
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Term
| Debentures Priority of Lender's Claim |
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Definition
| Claims are the same as those of any general creditor. May have other unsecured bonds subcordinated to them. |
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Term
Subordinated Debentures
Characteristics |
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Definition
| Claims are not satisfied until those of the creditors holding certain (senior) debts have been fully satisfied. |
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Term
Subordinated Debentures
Priority of Lender's Claim |
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Definition
| Claim is that of a general creditor but not as good as a senior debt claim. |
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Term
True or False
Are Preferred Stocks Like Common Stocks |
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Definition
True
Because they are perpetual securities with no matrurity date. |
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Term
True or False
Are Preffered Stocks Likes Bonds |
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Definition
True
Because they are fixed incomome securities. Dividends never change. |
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Term
Non-Constant Dividend Growth
or
Variable Growth |
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Definition
| Model assumes the stock will pay dividends that grow at one rate during one period and another rate in another year or therafter. |
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Term
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Definition
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Term
Capital Asset Pricing Model
CAPM |
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Definition
The basic theory that links risk and return for all assets.
You use CAPM to understand the basic risk-return trade-offs involved in all types of financial decisions. |
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Term
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Definition
The risk you can't get rid of by adding stocks (systematic) can not be eliminated through diversification becaue that variability is caused by events that affect most stocks simillarly.
Examples would include changes in macroeconomic factors such as interest rates, inflation, and the business cycle. |
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Term
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Definition
Required rate of Return = Rf + Beta(Rm - Rf)
(Rm-Rf) = Premium
f=Risk Free Rate
m=Market Return
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Term
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Definition
Short Term
Lower Risk
Lower Return |
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Term
| Long Term Government Bonds |
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Definition
Long Term
Higher Risk
Higher Return |
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Term
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Definition
For all assets it is composed of 2 parts
1) Risk Free Rate
2) Risk Premium |
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Term
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Definition
Speculative
High Risk
High Yield Interest Rates |
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Term
WACC Model
Weighted Average Cost of Capital |
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Definition
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Term
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Definition
| Equates net present value to be equal to 0, also what you make. |
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Term
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Definition
Any type of security, gold, cash, and real estate.
Higher cost. |
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Term
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Definition
Mimics an index S&P 500, Russel 2000, and S&P 400.
Diversify |
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Term
True or False
Bonds and Stocks are used as Finacncial Capital |
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Definition
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Term
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Definition
Market value of equity and debt.
Market value not given use book value on balance sheet. |
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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
| A downward sloping yield curve indicates that short term interest rates are generally higher than long term interest rates. |
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Term
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Definition
| An upward sloping yield curve indicates that long term interest rates are generally higher than short term interest rates. |
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Term
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Definition
| A graphic depiction of the term structure of interest rates. |
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Term
Mutual Funds
Primary Liabilities
(Sources of Funds) |
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Definition
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Term
Mutual Funds
Primary Asset
(Uses of Funds) |
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Definition
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Term
True or False
Mutual Funds Are One of the Principal Financial Intermediary |
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Definition
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Term
| Junk Bond Characteristics |
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Definition
| Debt rated Ba or lower by Moody's or BB or lower by Standard&Poor's. Commonly used by rapidly growing firms to obtain growth capital, most often as a way to finance mergers and takeovers. High-risk bonds with high yields, often yielding 2% to 3% more than the best quality corporate debt. |
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Term
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Definition
| Is a long term debt instrument that pays the bondholder a specified amount of periodic interest rate over a specified period of time. |
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Term
True or False
Becasue stakeholders are residual claimants they are the first to receive dividend payments. |
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Definition
False
They receive dividend paymenets only after all claims have been settled with the government, creditors, and preferred stockholders. |
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Term
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Definition
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Term
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Definition
Sales-COGS = Gross Profits
Sales sales
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Term
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Definition
Operating Profits / Sales |
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Term
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Definition
Earning Available For Common Stockholders
Sales |
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Term
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Definition
Earnings Available for Common Stockholders
Numbers of Shares of Common Stock Outstanding |
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Term
Return on Total Assets
ROA |
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Definition
Earnings Available for common Stockholders
Total Assets |
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Term
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Definition
Earnings Available for Common Stockholders
Common Stock Equity |
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Term
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Definition
Companies pay interest to owners of debt instruments such as loans and bonds. |
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Term
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Definition
Companies pay dividends to owners of security instruments such as stocks. |
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Term
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Definition
Creditos, or those owning the debt instruments, can receive monthly, quarterly or annual payments or a lump sum at the end, depending on the terms of the interest rate agreement. |
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Term
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Definition
stock owners typically receive quarterly or annual paymenets with approval from the companys board of directros. |
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Term
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Definition
| Debt financing is less risky than purchasing security interest in a company because if the co liquidates, interest is paid out before dividends. While creditors can influence company decisions through the terms of the debt instrument, they do not have the voting power of someone holding a security interest in the co. From the co's standpoint,interest is tax deductible dividends are not. |
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Term
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Definition
A firms cost of equity represenets the compensation that the market demands in exchange for owing the asset and bearing the risk of ownership. |
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Term
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Definition
Cost of Equity=Dividends per share/Price+growth rate |
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Term
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Definition
| The effective rate that a co pays on its current debt. This can be measured in either before or after tax returns; however, because interest expense is deductible, the after tax cost is seen most often. This is one part of the co's capital structure, which also includes the cost of equity. |
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Term
Required Rate of Return
RRR |
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Definition
| Corporations us the RRR to decide if they should pursue a new project or business expansion; in corporate finance, the RRR is equal to the weighted average cost of capital (WACC) |
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Term
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Definition
The goal of a corporation is to maximize profits. Furthermore, the goal of a publicaly traded corporation is to maximize value for its shareholders. |
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Term
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Definition
A mutual fund that invests in companies listed in an imporatnt stock market index in order to match the markets overall performance. |
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