Capital Budgeting and Estimating Cash Flows
Capital budgetingThe process of identifying, analyzing, and selecting investment projects whose returns
(cash flows) are expected to extend beyond one year.
Generating investment project proposals consistent wit
Capital Budgeting Techniques
Discounted Cash Flow (DCF)any method of investment project evaluation and selection that adjusts cash flows over
time for the time value of money.
Payback Period (PBP)the period of time required for the cumulative expected cas
Asset Securitizationthe process of packaging a pool of assets and then selling interests in the pool in the
form of asset-backed securities(ABS).
Asset-backed Securitiesdebt securities whose interest and principal payments are provided by the cash flows
This strategy will result in a low possibly negative net working capital.
Risk means jeopardy to the firm for not having enough assets
Meet cash obligations as they occur
Support proper level of sales (no inventory)
The more current assets you have the mo
The Capital Market
Financial Marketsall institutions and procedures for bringing buyers and sellers of financial instruments
Capital Marketthe market for relatively long-term (greater than one year original maturity) financial
Registration Statementthe disclosure document filed with the SEC to register a new securities issue.
The registration statement includes the prospectus and other info required by the SEC.
Prospectuspart I of the registration statement filed with the SEC.
Privileged Subscriptionthe sale of new securities in which existing shareholders are given a preference in
purchasing these securities
the proportion of common shares that they already own; also known as rights offering.
Preemptive Rightthe privilege of s
Participating Preferred Stockpreferred stock where the holder is allowed to participate in increasing dividends if the
common stockholders receive increasing dividends.
Convertible Securitya bond or preferred stock that is convertible into a specified num
Long Term Debt, Preferred Stock, and Common Stock
Bonda long-term debt instrument issued by a corporation or government with maturity of
normally 10 years or more. Anything less is normally called a note.
Coupon Ratethe stated rate of interest on a bond;
Majority-rule Votinga method of electing corporate directors
where each common share held carries one vote for each director position that is open
also called statutory voting.
Cumulative Votinga method of electing corporate directors
where each common sh