Busm 300 Midterm 2 Flashcards

Front 1

Ch.4
Cash Budget

Back 1

A forecasting tool typically used for the short term (a year or so)

Front 2

Ch. 4
DFN

Back 2

-Discretionary Financing (Funds) Need
- how much cash the firm needs in a pro forma statement

Front 3

Ch.4
Dividend Payout Ratio

Back 3

- the percentage of net income paid out to shareholders as dividends
- Div/NI

Front 4

Ch.4
Discretionary Accounts

Back 4

Another name for non-sponateous accounts

Front 5

Ch.4
Dividend Policy

Back 5

the amount of dividends management decides to pay out to sharepolders

Front 6

Ch. 4
EFN

Back 6

External Financing needed
a.k.a. dfn

Front 7

Ch.4
Excess Capacity

Back 7

when fixed assets do not need to increase as sales increase

Front 8

Ch. 4
Non-Spontaneous Accounts

Back 8

financial accounts that do not vary directly with sales

Front 9

Ch.4
Percent of Sales Forecast

Back 9

a way to make pro forma financial statements based on a sales prediction and how accounts vary with sales

Front 10

Ch. 4
Plowback Ratio

Back 10

(1-dividend payout ratio) or (1-div/ni)
- a.k.a. retention ratio

Front 11

Ch.4
Retention Ratio

Back 11

a.k.a. plowback ratio
- percentage of net income plowed back into the firm as retained earnings

Front 12

Ch.4
SGR

Back 12

Sustainable growth rate
ROE*(1-Div/NI)

Front 13

Ch.4
Spontaneous Accounts

Back 13

accounts that vary directly with sales

Front 14

ch.4
4 ways to decrease DFN

Back 14

1. slow sales growth- by increasing prices
2. examine capacity constraints
3. lower dividend payout
4. increase net margin- better prices from suppliers..etc

Front 15

ch.4
steady state growth

Back 15

profitability, asset turnover, leverage, payout are constant and firm doesn't need to issue new equity

Front 16

ch.4
Cash Budget in Three Steps

Back 16

1. Determine Cash Receipts (projections)
2. estimate outflows
3. create cash budget

Front 17

5 annuity

Back 17

a series of payments or receipts

Front 18

5 annuity due

Back 18

an annuity that pays at the beginning of each period

Front 19

5 compounding

Back 19

figuring out the future value of money you will invest

Front 20

5 compounding problem

Back 20

when the periods, payments, and interest must be adjusted for non-annual time value of money problems

Front 21

5 deferred annuity

Back 21

an annuity that starts sometime in the future

Front 22

5 discount rate

Back 22

the rate at which money is discounted or compounded

Front 23

5 discounting

Back 23

figuring out the present value of money you will receive in the future

Front 24

5 effective yield

Back 24

a rate that includes non-annual compounding=(1+stated rate/m)^m-1

Front 25

5 Future Value

Back 25

how much spending power money has at a point in the future

Front 26

5 FV

Back 26

future value, a lump sum

Front 27

5 FVIFA

Back 27

future value investment factor of an annuity

Front 28

5 I/Yr

Back 28

interest rate per period

Front 29

5 Lump Sum

Back 29

a single amount of money

Front 30

5 N

Back 30

number of periods

Front 31

5 Ordinary Annuity

Back 31

an annuity that pays at the end of each period

Front 32

5 Perpetuity

Back 32

an annuity that last forever

Front 33

5 PMT

Back 33

payment, the annuity payment

Front 34

5 PresentValue

Back 34

how much spending power money has today

Front 35

PV

Back 35

present value, a lump sum

Front 36

PVIFA

Back 36

present value investment factor of an annuity

Front 37

5 required rate of return

Back 37

another name for the discount rate

Front 38

5 Time Value of Money

Back 38

The process of valuing money at specific points in time

Front 39

5 Uneven Cash Flows

Back 39

a series of cash flows that are not even

Front 40

6 Affirmative Covenant

Back 40

a bond covenant that requires the firm to do something

Front 41

6 Bond

Back 41

a fixed income financing instrument

Front 42

6 Bond Indenture

Back 42

the legal document detailing the bond

Front 43

6 Bond Ratings

Back 43

a rating assigned to a firm to measure the probability of default by a company like S&P or Moody's

Front 44

6 Convertible Bond

Back 44

bonds that can be converted to equity at the owners request

Front 45

6 Convexity

Back 45

the curvature of the price-yield relationship not captured by duration

Front 46

6 Coupon Rate

Back 46

Another name for coupon yield

Front 47

6 Coupon Yield

Back 47

the rate the bond issuer promises to pay its investors

Front 48

6 Covenant

Back 48

rules set forth in the bond indenture to protect bond investors

Front 49

6 Current Yield

Back 49

an approximation of the current yield that does not incorporate the time value of money =AnnualCoupon/Current Market Value

Front 50

6 Debenture

Back 50

A bond that is not secured by collateral or guarantees

Front 51

6 Debt Capital

Back 51

firm financings that appear in the debt section of the balance sheet

Front 52

6 Duration

Back 52

a measure of the interest rate sensitivity of a bond

Front 53

6 Eurobonds

Back 53

bonds issued in a country not in that country's currency

Front 54

6 Face Value

Back 54

the lump sum amount paid on a bond's maturity date

Front 55

6 Fixed-Income Securities

Back 55

securities that pay an equal payment on fixed periods like a bond

Front 56

6 Foreign Bonds

Back 56

bonds issued in a domestic market by a foreign firm but in the domestic currency

Front 57

6 Inverse Price-Yield Relationship

Back 57

when the market yields go up, bond prices go down and vice versa

Front 58

6 Investment Grade

Back 58

bonds rated BBB or above

Front 59

6 Junk Bonds

Back 59

speculative bonds rated BB and below

Front 60

6 Macaulay Duration

Back 60

a specific type of duration, a measure of interest rate sensitivity

Front 61

6 Maturity Date

Back 61

the date the bond issuer pays the face value and the bond expires

Front 62

6 Modified Duration

Back 62

an adjusted version of macaulay duration which makes it a little more accurate

Front 63

6 Mortgage Bonds

Back 63

bonds that are secured by real property

Front 64

6 Muni

Back 64

short for municipal bond

Front 65

6 Municipal Bond

Back 65

-a bond issued by a local municipality such as a city or county
-offer income tax advantages to individuals

Front 66

6 Negative Covenant

Back 66

a bond covenant that prohibits a firm from doing something

Front 67

6 Par Value

Back 67

another name for face value

Front 68

6 Promised Yield (YTM)

Back 68

another name for yield to maturity

Front 69

6 Security Valuation

Back 69

the process of valuing assets

Front 70

6 Subordinated Debenture

Back 70

A lower ranked bond that is not secured by collateral or guarantees

Front 71

6 trade at discount

Back 71

when a bonds market price is less than its face value or discount rate is greater than coupon rate

Front 72

6 Trade at Premium

Back 72

when a bonds market price is greater than its face value or discount rate is less than coupon rate

Front 73

6 Treasury Bond

Back 73

a bond issued by the US federal government

Front 74

6 YTM

Back 74

yield to maturity- the required rate of return of a bond

Front 75

6 Zero Coupon Bond

Back 75

another name for zeros

Front 76

6 Zeros

Back 76

bonds that do not pay interest payments