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Definitions |
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GM =
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GP/S
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WACC=
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(E/E+D)ke + (D/D+E)kd(1-T)
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quick ratio
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current assets-inventories/current liabilities
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time-value-of-money (TVM)
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calculating & comparing costs
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Designation of the Parties
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Who's who
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WACC
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= Ci/V*(Kics) + Co/V*(Kocs) + P/V*(Kps) +
N/V*(Kn)*(1-t) + B/V*(Kb)*(1-t)
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Financial intermediaries
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institutions that connect borrowers and lenders by accepting funds from lenders and loaning funds to borrowers
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'normal' yield curve
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An upward-sloping yield curve.
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An exchange of promises between parties, conditioned on certain events and enforceable by law.
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Contracts
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Net Profit
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Profit before tax
- Tax expenses
_________________
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start-up company
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between 17-25 % or higher returns
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level-payment loan
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borrower pays interest and principal over life of loan, resulting in no principal payment of maturity
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Broker
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An agent who facilitates a transaction between parties
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Asset management
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Right amount of assets vs. sales?
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A company’s board of directors is primarily an agent of the company’s:
a. Chief Executive Officer (CEO)
b. employees
c. management
d. management and employees
e. shareholders
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Shareholders
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investment co
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mutual funds, securities of corps, and real estate investment trusts
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Amounts that are subtracted from the assessed value prior to the tax levy (allows political authorities to provide tax relief to particular taxpayers - e.g., low-income homeowners).
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Exemptions
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Without dividend. Buyer of a stock after the ex-dividend date does not receive the most recently declared dividend.
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Ex-Dividend
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% Chg
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Change in price as a report
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gilt-edged
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securities and bonds of the highest rating or quality; secure, government backed or guaranteed
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mutual fund theorem
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all investor's desire same portfolio of risky assets and can be satisfied by a single mutual fund composed of that portfolio (market portfolio)
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Block transactions
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large transactions in which at least 10,000 shares of stock are bought or sold
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Puffing
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Statements of opinion made by a seller to induce the purchaser to buy
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The Lord will hold us _________ for how we use our time, talents and resouces
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accountable
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semiannual compounding
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The process of determining the final value of a cash flow or series of cash flows when interest is added twice a year.
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"363 sale"
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submit to the bankruptcy court an asset purchase agreement between selling firm and prospective buyer-if approved by court any remaining unpaid claims after sale are cleared-Court typically requires a competitive bidding process; original "stalking horse" bidder receives termination fee if not the winning bidder
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NPV Rule
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NPV > 0 AcceptNPV < 0 Reject
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Title that a reasonable title insurer would insure.
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Insurable Title
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senior bonds secured by specific pieces of equipment; popular with transportation companies such as airlines
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equipment trust certificates
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In what statement does total operating expense belong?
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Income statement
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Cumulative dividends
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Dividends that are paid to preferred stock holders for that year and all the years missed before the common stock holders are paid.
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construction loan
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a short-term loan to finance the building phase of a real-estate project
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debtor in possession
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a company that files for protection under the bankruptcy act
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after a loan secured by a Deed of Trust is paid off, which party should record the Deed of reconveyance
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trustor
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CHEIF EXECUTIVE OFFICER
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The person charged with running the corporation by instituting the rules and policies set by the board of directors.
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Payment Cap
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a limit on the payment increases for an adjustable-rate mortgage
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net present value (NPV)
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A method of ranking investment proposals , which is equal to the present value of future net cash flows, discounted at the cost of capital.
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Treasury Stock
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Treasury stock is stock that has been sold to the investing public, which hassubsequently been repurchased by the corporation. The corporation may elect to reissue the shares or it may retire the shares that it holds in Treasury stock.Treasury stock does not receive dividends nor does it vote.
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INFLATION
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an increase in the price of goods and services
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Kelo vs. New London
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A very controversial Supreme Court decision that allowed New London, CT, to use Eminent Domain to take private property for a new private useWhy did New London want to do this? The project would replace lower income housing with a new industrial development. The upshot? A larger property tax base, i.e., more money for New London.Meanwhile, Susan Kelo and the other plaintiffs would have to move, after being “fairly” compensated for their propertyThe concern? That private property rights have been severely compromised if ED can be used to seize property for some other, private, useConsider the implications for graft and corruptionA counter-argument: The Kelo decision gives Gov’t greater power to improve blighted property
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a mutual fund whose primary goals are capital gains and long-term growth
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growth fund
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Costs arising from bankruptcy or distorted business decisions before bankruptcy.
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Costs of Financial Distress
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Annual Percentage Rate (APR)
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The nominal, stated annual interest rate that ignores the effect of compound interest within the year. The APR is the periodic rate (r) times the number of compoundings per year (m). AKA the quotest Interest Rate or IR. (x) 1% per month = 12% APR. 3% per quarter = 12% APR.
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redraft
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a draft on the drawer or endorsers of a protested bill of exchange for the amount of the bill plus the costs and charges
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Financial Leverage
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The extent to which a firm relies on debt financing.
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DEBT-EQUITY RATIO
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It is the ratio of a firm's total amount of short and long-term debt (including current maturities) to the value of its equity, which may be caluclated basked on market or book values.
Debt-Equity Ratio = Total Debt
Total Equity
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Humped Yield Curve
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A yield curve where interest rates on medium-term maturities are higher than rates on both short-and long-term maturities
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Real estate investment trust (REIT)
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an investment fund that holds portfolios of real estate investment.
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capital asset pricing model
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estimates the rate of return an investor should expect to receive on a risky asset, purpose is to determine the discount rate to use when valuing an asset
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an open-end mutual fund that trades as a listed security on a stock exchange
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exchange-traded fund (ETF)
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net worth / equity
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measure of your wealthvalues of assets - debt/borrowings
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tenancy by the entirety
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form of joint tenancy for husband & wife
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whats a Keogh (HR-10) plan?
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A tax deferred pension account for self employed individuals.
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General obligation bond (GO)
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a municipal bond backed by the full taxing power of municipality.
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Carry Back / Carry Forward
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If companies incur an operating loss than they can amend taxes and receive refund for previous two years and carry that loss for the next 20 years
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Most federallysponsored credit agencies are involved in
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making loans to the housing and farm market(C)
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NET INCOME OR EARNINGS
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The last or "bottome line" of a firm's income statement that is a measure of the firm's income over a given period of time.
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Which is not needed for operating cash flow?
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Expenses associated with the firms financing of its assets are not included since they are not operating expenses. (taxes)
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What does the balance show?
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the value of a business on a particular date. A balance sheet shows what the business owns and owes.
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What are "veggie libels" or "banana bills"?
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laws that provide ranchers and farmers a cause of action when someone spreads false information about the safety of a food product
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the payment of an equal stream of cash into a fund which increases in size (depending on the interest rate received) up to a future point in time
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future value on an annuity
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Does the stated primary use of proceeds affect the magnitude of underpricing? Is it consistent with the empirical evidence?
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- If underpricing is related to the level of I, the the management can reduce it by committing to a definite stated use for the proceed
????
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What is the role of an underwriter in a corporate bond issuance?
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- Investment banks often form a temporary alliance, alled a underwriting syndicate to to underwrite a bond issue
- One serves as the lead underwriter, undertaking the bulk of required due diligence, and receives the lion's share of the syndicate's fees
- Other syndicate members mainly assist in marketing the issue
- The firm pays underwriters a fee expressed as a percentage of the proceeds, called the underwriter spread
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