Chapters 1-5
Costs that shareholders bear due to managers' pursuit of their own interest
What are agency costs?
Legal document that specifies both the rights of bondholders and duties of the issuing corporation
What is a bond indenture?
The percentage of each dollar earned that a firm distributes to the owners in the form of cash
What is the dividend payout ratio?
What is the credit period?
Firm in a merger transaction that attempts to acquire another firm
What is an acquiring company?
Short-term assets expected to be converted into cash within 1 year
What are current assets?
Outlay of funds by a firm that is expected to produce benefits over 1 year
What is a capital expenditure?
Approach to evaluating unequal-lives projects
What is ANPV?
Percentage deduction from the purchase price
What is the early payment discount?
Legal process in which a court declares that a firm is unable to meet its financial obligations
What is bankruptcy?
Portion of costs of fixed assets charged against annual revenues over time
What is depreciation?
A relative measure of nondiversifiable risk
What is beta?
The level of EBIT needed to cover all fixed financial costs
What is the financial breakeven point (or breakeven point)?
Length of time between when a firm pays for raw materials and receives cash from receivables
Pro rata cash settlement of creditor claims by the debtor firm
What is a composition?
Market in which the buyer and seller are not brought together directly
What is a dealer market?
Total costs of issuing and selling a security
What are flotation costs?
What are incremental cash flows?
Outright sale of AR at a discount
What is factoring AR?
Business failure that occurs when a firm is unable to pay its liabilities as they come due
Securities that represent claims on the cash flows generated by a pool of mortgages
What are mortgage-backed securities?
The time it takes an investment to generate cash inflows sufficient to recoup the initial outlay
What is the payback period?
Opportunities embedded in capital projects that enable managers to alter cash flows and risk, affecting NPV.
What are real options?
The time between receipt of a payment and its deposit into the firm's account
What is processing float?
A petition filed by a failed firm on its own behalf for reorganizing its structure and paying its creditors
What is voluntary reorganization?