Call
Option
An option
to buy, or "call," a share of stock at a certain price within a specified
period.
Call
Provision
A provision
in a bond contract that gives the issuer the right to redeem the bonds
under specified terms prior to the normal maturity date.
Cannibalization
Occurs
when the introduction of a new product causes sales of existing products
to decline.
Capital
Asset Pricing Model (CAPM)
A model
based on the proposition that any stock's required rate of return is
equal to the risk-free rate of return plus a risk premium which reflects
only the risk remaining after diversification.
Capital
Budgeting
The process
of planning expenditures on assets whose cash flows are expected to
extend beyond one year.
Capital
Component
One of
the types of capital used by firms to raise money.
Capital
Gain or Loss
The profit
(loss) from the sale of a capital asset for more (less) than its purchase
price.
Capital
Gains Yield
The capital
gain during a given year divided by the beginning price.
Capital
Intensity Ratio
The amount
of assets required per dollar of sales (A*/So)
Capital
Markets
The financial
markets for stocks and for long-term debt (one year or longer)
Capital
Rationing
A situation
in which a constraint is placed on the total size of the firm's capital
budget.
Cash
Budget
A table
showing cash flows (receipts, disbursements, and cash balances) for
a firm over a specified period.
Cash
Discount
A reduction
in the price of goods given to encourage early payment.
Cash
Flow (CF)
This term
designates uneven cash flows.
Change
in Net Working Capital
The increased
current assets resulting from a new project minus the spontaneous increase
in accounts payable and accruals.
Check
Clearing
The process
of converting a check that has been written and mailed into cash in
the payee's account.
Classified
Stock
Common
stock that is given a special designation, such as Class A, Class B,
and so forth, to meet special needs of the company.
Clientele
Effect
The tendency
of a firm to attract a set of investors who like its dividend policy.
Closely
Held Corporation
A corporation
that is owned by a few individuals who are typically associated with
the firm's management.
Coefficient
of Variation (CV)
Standardized
measure of the risk per unit of return; calculated as the standard deviation
divided by the expected return.
Collection
Policy
The procedures
that a firm follows to collect accounts receivable.
Collections
Float
The amount
of checks that we have received but which have not yet been credited
to our account.
Commercial
Paper
Unsecured,
short-term promissory notes of large firms, usually issued in denominations
of $100,000 or more and having an interest rate somewhat below the prime
rate.
Commodity
Futures
A contract
that is used to hedge against price changed for input materials.
Common
Stockholders' Equity (Net Worth)
The capital
supplied by common stockholder-capital stock, paid-in capital, retained
earnings and, occasionally, certain reserves. Total equity is common
equity plus preferred stock.
Compensating
Balance
A bank
balance that a firm must maintain to compensate the bank for services
rendered or for granting a loan.
Compensating
Balance
A minimum
checking account balance that a firm must maintain with a commercial
bank, generally equal to 10 to 20 percent of the amount of loan outstanding.
Compounding
The arithmetic
process of determining the final value of a cash flow or series of cash
flows when compound interest is applied.
Computerized
Inventory Control System
A system
of inventory control in which a computer is used to determine reorder
points and to adjust inventory balances.
Congeneric
Merger
A merger
of firms in the same general industry, but for which no customer or
supplier relationship exists.
Conglomerate
Merger
A merger
of companies in totally different industries.
Consol
A perpetual
bond issued by the British government to consolidate past debts; in
general, any perpetual bond.
Constant
Growth Model
Also called
the Gordon Model, it is used to find the value of a constant growth
stock.
Constant
Ratio Method
A method
of forecasting future financial statements, and future financial requirements,
that assumes certain financial ratios will remain constant.
Continuous
Compounding
A situation
in which interest is added continuously rather than at discrete points
in time.
Conversion
Price, Pc
The effective
price paid for common stock obtained by converting a convertible security.
Conversion
Ratio, CR
The number
of shares of common stock that are obtained by converting a convertible
bond or share of convertible preferred stock.
Conversion
Value, Ct
The value
of common stock obtained by converting a convertible security.
Convertible
Bond
A bond
that is exchangeable, at the option of the holder, for common stock
of the issuing firm.
Convertible
Currency
A currency
that may be readily exchanged for other currencies.
Convertible
Security
A security,
usually a bond or preferred stock, that is exchangeable at the option
of the holder for the common stock of the issuing firm.
Corporate
Bonds
Bonds
issued by corporations.
Corporate,
or Strategic, Alliance
A cooperative
deal that stops short of a merger.
Corporate,
or Within-Firm, Risk
Risk not
considering the effects of stockholders' diversification; it is measured
by a project's effect on uncertainty about the firm's future earnings.
Corporation
A legal
entity created by a state, separate and distinct from its owners and
managers, having unlimited life, easy transferability of ownership,
and limited liability.
Correlation
The tendency
of two variables to move together.
Correlation
Coefficient
A measure
of the degree of relationship between two variables.
Cost
of New Common Equity, ke
The cost
of external equity; based on the cost of retained earnings, but increased
for flotation costs.
Cost
of Preferred Stock, kps
The rate
of return investors require on the firm's preferred stock. kps is calculated
as the preferred dividend, Dps, divided by the net issuing price, Pn.
Cost
of Retained Earnings, ks
The rate
of return required by stockholders on a firm's common stock.
Costly
Trade Credit
Credit
taken in excess of free trade credit, whose cost is equal to the discount
lost.
Country
Risk
The risk
that arises from investing or doing business in a particular country.
Coupon
Interest Rate
The stated
annual rate of interest on a bond.
Coupon
Payment
The specified
number of dollars of interest paid each period, generally each six months.
Credit
Period
The length
of time for which credit is granted.
Credit
Policy
A set
of decisions that include a firm's credit period, credit standards,
collection procedures, and discounts offered.
Credit
Standards
Standards
that stipulate the required financial strength that an applicant must
demonstrate to granted credit.
Credit
Terms
A statement
of the credit period and any discounts offered--for example, 2/10, net
30.
Crossover
Rate
The discount
rate at which the NPV profiles of two projects cross and, thus, at which
the projects' NPV's are equal .
Cumulative
A protective
features on preferred dividends previously not paid to be paid before
any common dividends can be paid.
Current
Ratio
This ratio
is calculated by dividing current assets by current liabilities. It
indicates the extent to which current liabilities are covered by those
assets expected to be converted to cash in the near future.
Current
Yield
The annual
interest payment on a bond divided by the bond's current price.
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