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Glossary - Glossary A ABC system An inventory system in...

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Glossary G-1 A ABC system An inventory system in which items are classified according to their value for inventory control purposes. absolute purchasing power parity theory Theory that claims the current exchange rate is determined by the relative prices in two countries of a similar basket of traded goods and services. actuaries People who use applied mathematics and statistics to predict claims on insurance companies and pension funds. additional funds needed The additional external financing required to support asset growth when forecasted assets exceed forecasted liabilities and equity. after-tax cost of debt ( AT k d ) The after- tax cost to a company of obtaining debt funds. agency costs Costs incurred to monitor agents to reduce the conflict of interest between agents and principals. agency problem The possibility of conflict between the interests of a firm’s managers and those of the firm’s owners. agent A person who has the implied or actual authority to act on behalf of another. aggressive working capital financing approach The use of short-term funds to finance all temporary current assets, possibly all or some permanent current assets, and perhaps some fixed assets. American depository receipts (ADRs) Securities denominated in U.S. dollars that represent a claim on foreign currency-denominated stocks held in a trust. amortized loan A loan that is repaid in regularly spaced, equal installments, which cover all interest and principal owed. annuitant A person who is entitled to receive annuity payments. annuity A series of equal cash payments made at regular time intervals. arbitrage The process whereby equivalent assets are bought in one place and simultaneously sold in another, making a risk-free profit. average tax rate The amount of tax owed, divided by the amount of taxable income. B balance sheet The financial statement that shows an economic unit’s assets, liabilities, and equity at a given point in time. banker’s acceptance A security that represents a promise by a bank to pay a certain amount of money, if the original note maker doesn’t pay. bearer The owner of a security. best eff orts basis An arrangement in which the investment banking firm tries its best to sell a firm’s securities for the desired price, without guarantees. If the securities must be sold for a lower price, the issuer collects less money. beta ( β ) The measure of nondiversifiable risk. The stock market has a beta of 1.0. Betas higher than 1.0 indicate more nondiversifiable risk than the market, and betas lower than 1.0 indicate less. Risk- free portfolios have betas of 0.0. bird-in-the-hand theory A theory that says that investors value a dollar of dividends more highly than a dollar of reinvested earnings because uncertainty is resolved.
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