Finance Chap 7-9 Terms

What is the model that determines the current price of a stock as its dividend next period divided by the discount rate less the dividend growth rate Dividend Growth Model
What is a stocks expected cash dividend divided by its current price? Dividend Yield
What is the dividend growth rate or the rate at which the value of an investment grows called? Capital Gains Yield
What is equity without priority for dividends or in bankruptcy called? Common Stock
What is a produced in which a shareholder may cast all votes for each member of the board of directors called? Cumulative Voting
What is a procedure in which a shareholder allowing another individual to vote his or her shares called? Straight Voting
A grant of authority by a shareholder allowing another individual to vote his or her shares is called what? Proxy
What is a payment made out of a firms earnings to its owners in the form of either cash or stock called? Dividend
What is a stock with dividend priority over common stock, normally with a fixed dividend rate, sometimes without voting rights called? Preferred Stock
What is the market in which new securities are originally sold to investors called? Primary Market
What is the market in which previously issued securities are traded among investors called? Secondary Market
What is an agent who buys and sells securities from inventory called? Dealer
What is an agent who arranges security transactions among investors called? Broker
What is the owner of a trading license on the New York Stock Exchange called? Member
What is an NYSE member acting as a dealer in a small number of securities on the exchange floor; formerly known as a specialist called? Designed Market Maker (DMM)
What are NYSE members who execute customer buy and sell orders; sometimes called $2 brokers called? Floor Brokers
Investment firms that are active participants in stocks assigned to them. Their job is to make a one sided market i.e. offering to either buy or sell. They trade purely for their own accounts. These people are called? Supplemental Liquidity Providers (SLPs)
The flow of customer orders to buy and sell securities is called? Order Flow
A fixed place on the exchange floor where the DMM operates is called? DMM’s Post
The highest bid quotes and the lowest ask quotes for a security is called? Inside Quote
Websites that allow investors to trade directly with one another are called? Electronic Comminications Networks (ECNs)
The difference between an investments market value an its cost is called what? Net Present Value
A valuation calculating the present value of a future cash flow to determine is value today and the process of valuing an investment by discounting its future cash flow is called what? Discounted Cash Flow Valuation
The amount of time required for an investment to generate cash flows sufficient to recover its initial cost is called what? Payback Period
An investments average net income divided by its average book value is called what? Average Accounting Return (AAR)
The discount rate that makes the net present value of an investment zero is called what? Internal Rate of Return (IRR)
A graphical representation of the relationship between an investments net present values and various discount rates is called what? Net Present Value Profile
The possibility that more than one discount rate will make the net present value of an investment zero is called what? Multiple Rates of Return
A situation where taking one investment prevents the taking of another is called what? Mutually Exclusive Investment Decisions
The present value of an investments future cash flows divided by its initial cost. Also called “benefit-cost ratio” Profitability Index (PI)
The difference between a firms future cash flows with a project and those without the project is called what? Incremental Cash Flows
The assumption that evaluation of a project may be based on the projects incremental cash flows is called what? Stand-Alone Principle
A cost that has already been incurred and can’t be recouped and therefore should not be considered in an investment decision is called what? Sunk Cost
The most valuable alternative that is given up if a particular investment is undertaken is called what? Opportunity Cost
The cash flows of a new project that come at the expense of a firms existing project is called what? Erosion
Financial statements projecting future years operations is called what? Pro Forma Financial Statements
The tax saving that results from the depreciation deduction, calculated as depreciation multiplied by the corporate tax rate is called what? Depreciation Tax Shield
The depreciation method under US tax law allowing for the accelerated write-off of property under various classifications is called what? Accelerated Cost Recovery System (ACRS)
The possibility that errors in projected cash flows will lead to incorrect decisions also called an “estimation risk” is called what? Forecasting Risk
The determination of what happens to net present value estimates when we ask what-if questions is called what? Scenario Analysis
Investigation of what happens to net present value when only one variable is changed is called what? Sensitivity Analysis
Opportunities that managers can exploit if certain things happen in the future also known as “real” options is called what? Managerial Options
Taking into account the managerial options implicit in a project is called what? Contingency PLanning
Options for future related business products or strategies is called what? Strategic Options
The situation that exists if a firm has positive net present value projects but can’t obtain the necessary financings is called what? Capital Rationing
The situation that occurs when units in a business are allocated a certain amount of financing for capital budgeting is called what? Soft Rationing
The situation that occurs when a business can’t raise financing for a project under any circumstances is called what? Hard Rationing

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