Term
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Definition
| Independent form owners, owned by stock holders, AD: limited lability, DIS: Double Taxation |
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Term
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Definition
| Ability to convert assets to cash @ FMV, and ability to pay bills, Measures relationship between CA and CL |
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Term
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Definition
Sophisticated method of evaluating return, illustrates interaction between profit, assets, and leverage
Profit Margin: NI ÷ Sales
TAT: Sales ÷ TA
Equ Mult: TA ÷ TE |
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Term
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Definition
| Measures Rate of Return to investors |
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Term
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Definition
Pure discount loans: simplest form, pay back single lump sum @ future date
Interest only loans: Interest only payments, principle at end
Amortized loans: Principle overtime with interest |
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Term
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Definition
APR: Annual percent rate
EAR: Effective annual rate - more accurate |
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Term
Nominal Interest Rate
*missing something |
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Definition
Interest rate before inflation,
Inflation, Higher liquidity, and better securities decreases interest rates |
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Term
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Definition
| give the bond time to mature and are filled at the Current Ask Price |
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Term
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Definition
| executed if the ask price of the bond is less than the target price |
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Term
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Definition
| expenses regardless if the project is taken on |
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Term
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Definition
| Cashflows created by taking on a project |
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Term
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Definition
Weighted Average Cost of Capital: used to evaluate project cost of capital needed for a firm to take on a project
Based on current projects
Do not use when: the risk of a project are different than the firms risk (starts making a new product) |
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Term
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Definition
| can only have one thing happening at a time |
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Term
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Definition
| Net Present Value: (+) = funded, larger = better |
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Term
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Definition
| associated with issuing new securities or raising new capital, increase of FC = decrease NPV |
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Term
| Investment in a T-Bill offers: |
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Definition
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Term
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Definition
Market risk
> 1 = higher Market Premium
< 1 = Lower MP |
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Term
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Definition
| The marginal investors RR on the security that was used to raise the capital |
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Term
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Definition
How long will it take to payback loan
Issue: doesn’t take into account TVM |
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Term
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Definition
Takes into account TVM, simple, smaller firms use this
Issue: doesn’t take into account Future CF, might as well use NPV |
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Term
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Definition
Most popular, calculates Rate of return,
Issue: scaling problem – you don’t know the initial investment, doesn’t work with non-normal CF (- to +) |
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Term
| Modified Internal Rate of Return |
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Definition
group cost and benefits ( cost = beginning, profit = end)
Issue: Reinvestment risk - assumes that investment can be reinvested |
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Term
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Definition
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Term
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Definition
= CA - CL + Finance product activities
Firm should fund the least amount possible |
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Term
| Operating cycle is time needed to: |
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Definition
Acquire raw materials and turn into finished product
Sell and receive payment for them |
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Term
| Categories of carrying costs: |
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Definition
Opportunity costs: associated with having capital tied up in CA not FA
Explicit costs: necessary to maintain the value of CA |
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Term
| Flexible financing policy |
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Definition
| Finance the peaks of asset demand with long-term D and E, results in surplus of cash and marketable securities most of the time (below line) |
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Term
| Restrictive Financing Policy |
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Definition
| Finance peaks of demand with short-term financing (above line) |
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Term
| Compromise financing policy |
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Definition
"split the difference"
Firms finance the seasonally-adjusted average level of asset demand with long-term financing, uses short term financing as needed, occasionally requires short-term investing of excess funds (follows line) |
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Term
| Short-Term financing plans |
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Definition
Unsecured Loans: most common, line of credit, fees explicit/ implicit, commitment fee (firm keeps $$ at 0% int)
Secured Loans: Asset-based loan, lower interest rate, backed with long-term asset, security = invent or AR
Other: Commercial paper or Bankers acceptance |
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Term
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Definition
Transaction facilitation: paying bills, wages, taxes
Compensating balances: may be required as part of a credit agreement with a bank
Investment opp: allows for opps to be taken advantage of quickly |
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Term
| Types of collection float |
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Definition
| Mail, In-house processing, and Availability |
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Term
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Definition
| Capacity, Character, Capital, Collateral, and Conditions |
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