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cash budget
a forecast of cash receipts and disbursements for the next planning period
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dutch auction underwriting
type of underwriting in which the offer price is set based on competitive bidding by investors
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best efforts underwriting
type of underwriting in which the underwriter sells as much of the issue as possible, but can return any unsold shares to the issuer without financial responsibility
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firm commitment underwriting
type of underwriting in which the underwriter buys the entire issue, assuming full financial responsibility for any unsold shares
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syndicate
group of underwriters formed to share the risk and to help sell an issue
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spread
compensation to the underwriter, determined by the difference between the underwriter's buying price and offering price
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underwriters
investment firms that act as intermidiaries between a company selling securities and the investing public
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general cash offer
an issue of securities offered for sale to the general public on a cash basis
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tombstone
advertisement announcing a public offering
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venture capital
financing for new, often high-risk ventures
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reverse split
stock split under which a firm's number of shares outstanding is reduced
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indirect bankruptcy costs
costs of avoiding a bankruptcy filing incurred by a financially distressed firm
-
direct bankruptcy costs
- -costs directly associated with bankruptcy
- -legal and administrative expenses
-
financial leverage
- -extent to which a firm relies on debt
- -the more debt financing a firm uses in it's capital structure, the more financial leverage it employs
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4 reasons for IPO underpricing:
- 1) Young firms tend to be very risky
- 2) The best IPOS are oversubscribed
- 3) Underwriters like to avoid lawsuits
- 4) Underpricing helps counter the winner's curse
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The quiet period helps...
ensure that all potential investors have access to the same information.
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What is reviewed by the SEC primarily to determine if all the pertinent rules and regulations have been followed?
registration statement
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the registration of securities under SEC 415 which permits a firm to issue securities over a two-year period is called _____ registration.
shelf
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Direct loans from a limited number of investors for generally a long period of time are what?
private placements
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The provision that grants the underwriters an option to purchase additional shares at the offer price is called a ____ ____ provision.
green shoe
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an offering of additional equity shares by a publicly owned firm is called a ________ offering.
seasoned equity
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An initial public offering is:
the first issue of equity shares to the general public
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A public issue of securities that initially offers the securities to existing shareholders is best defined as a...
rights offer
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Preliminary prospectus provided to prospective investors is a...
red herring
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The legal document provided to prospective investors that describes a security offering and provides information on the issuer is called a...
prospectus
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what occurs when a firm is operating at it's optimal point?
shortage costs are equal to carrying costs
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The cash cycle is equal to the ________ __________ period minus the _________ ________ period plus the __________ period.
accounts receivable;accounts payable;inventory
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The operating cycle is equal to the __________ __________ period plus the __________ period.
accounts receivable; inventory
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Purchasing new fixed assets ________ cash.
decreases
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Increasing the accounts payable balance ________ cash.
increases
-
An inventory load is best defined as a _____ _____ term loan to purchase inventory.
secured short
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Accounts receivable financing is the term used to describe which of the following types of loans that involve either the assignment or the factoring of a firm's accounts receivables?
secured short term
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The costs incurred because a firm's investment in current assets is low are called ________ costs.
shortage
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Costs that increase as the level of investment in current assets increases are called _______ costs.
carrying
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The accounts receivable period is the time that elapses between the _____ and the _______.
sale of an item;receopt of payment for that sale
-
The time it takes to acquire and sell inventory is referred to as the:
inventory period
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the operating cycle begins when _______ and ends when ______.
inventory is purchase; payment is received for the sale of that inventory
-
What impact does this have on cash? more finished goods are produced for inventory instead of for order.
increase
-
What impact does this have on cash? A greated percentage of raw material purchases are paid for with credit.
decrease
-
What impact does this have on cash? fewer raw materials than usual are purchased
decrease
-
What impact does this have on cash? an increased number of customers begin to pay in cash instead of with credit
decrease
-
What impact does this have on cash? The cash discounts offered by suppliers are increased; thus, payments are made earlier.
increase
-
What impact does this have on cash? the terms of cash discounts offered to customers are made less favorable.
increase
-
The use of borrowing by an individual to adjust his or her overall exposure to financial leverage is referred to as:
homemade leverage
-
M&M Proposition I is the theory that the:
value of a firm is independent of its capital structure
-
The theory that a firm's cost of equity capital is a positive linear function of its capital structure is referred to as:
M&M Proposition II
-
The equity risk that derives from a firm's daily operation is referred to as:
business risk
-
Financial risk is the risk associated with a firm's:
capital structure
-
The benefit to a firm derived from the tax treatment of its interest payments is referred to as:
interest tax shield
-
The direct and indirect costs of bankruptcy are also called _______ costs.
financial distress
-
Liquidation is defined as the:
termination of a firm as a going concern.
-
The financial restructuring of a firm in an attempt to maintain the firm as a going concern is referred to as a/an:
reorganization
-
The list that establishes the order of claims in a liquidation is referred to as the:
absolute priority rule.
-
A taxpaying, levered firm's optimal capital structure is the mixture of ____ and ______ financing that minimizes the weighted average cost of capital.
debt and equity
-
A regular cash dividend is best described as a:
cash payment by a firm to its owners as part of a firm's normal operations.
-
declaration date
the board of directors passes a resolution to pay a dividend
-
The ex-dividend date is defined as ______ day/days before the date of record.
two business
-
The argument that stocks attract certain groups of investors based on
the stock's dividend yield and related tax effects is referred to as
the ______ effect.
clientele
-
If a firm maintains its preferred debt-equity ratio and pays dividends
only after meeting its investment needs, the firm is following a
dividend policy which is referred to as a _________ dividend policy.
residual
-
A firm's long-term desired dividend-to-earnings ratio is called the ______ ratio.
target payout
-
What is the name given to a transaction wherein a firm buys some of its own outstanding shares of stock?
repurchase
-
a non-cash payment made by a firm to its shareholders that dilutes the value of each share of stock outstanding
stock dividend
-
increases the number of shares outstanding without increasing the value of the owners' equity
stock split
-
The prices that fall between the lowest price at which a stock has
traded and the highest price at which it has traded are referred to as
the:
trading range
-
____ creates financial leverage
debt
-
debt gives you ______ earnings per share.
higher
-
business risk
equity risk that comes from the nature of the firms operating activities
-
financial risk
equity risk that comes from the financial policy (capital structure) of the firm
-
financial distress costs
direct and indirect costs associated with going bankrupt or experiencing financial distress
-
4 steps in the Bankruptcy Process:
- 1) Business failure
- 2) Legal bankruptcy
- 3) Technical Insolvency
- 4) Accounting Insolvency
-
dividend declaration date
date on which the board of directors passes a resolution to pay a dividend
-
date of record
date by which holders must be on record to receive a dividend
-
residual dividend approach
policy under which a firm pays divs only after meeting its investment needs while maintaining a desired debt-equity ratio
-
stock dividend
payment made by a firm to its owners in the form of stock, diluting the value of each share outstanding
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