short term debt
debt instruments with original maturities of one year or less.
stocks of firms that traditionally pay large, relatively constant dividends each year
after tax cost of debt
the relevant cost of new debt, taking into account the tax deductibility of interest
weighted average cost of capital
a weighed average of the component costs of debt, preferred stock, and common equity
a firms investment in short term assets; cash, marketable securities, inventory, and accounts receivable.
relaxed fat cat current asset investment policy
when large amounts of cash and marketable securities and inventories are carried and under which sales are stimulated by a liberal credit policy that results in a high level of receivables
maturity matching approach
a financing policy that matches asset and liability maturities. This would be considered a moderate current asset financing policy.
a set of decisions that includes a firms credit standards, terms, methods used to collect credit accounts, and credit monitoring procedures.
days sales outstanding
how long it takes to collect accounts receivable
a report showing how long accounts receivables have been outstanding.
work in process
inventory in various stages of completion. Process of raw materials to finished goods.
the credit created when one firm buys on credit from another firm. accounts payable
a lien on all inventory. gives the lending institution a legal claim against the borrowers entire inventory.
a forecast of a firms unit and dollar sales for some future peroid
how much assets your using to leverage your business
assets that cannot be acquired in small increments, but in large amounts
securities that can be sold on short notice without loss of principal or investment
costs that remain unchanged in total amount over a wide range of production levels
a schedule showing cash receipts, cash disbursements, and cash balances for a firm over a specified peroid of time.
costs that are fixed per unit and change in total amount as production volume changes
a contract negotiated directly with a bank in which the borrower agrees to make a series of interest and principal payments on specific dates to the bank
high-risk, high-yield bonds used to finance mergers, leveraged buyouts and failing companies
dividends and retained earnings
the net income that a firm earns can either be paid out to shareholders as dividends or can be reinvested in the company as retained earnings
how do shareholders exert control of the management of a firm?
vote annually on board of directors
identify and explain types of cash flows used in making a decision to accept or reject a project
relevant cost, after tax cost, incremental cost, direct cost, opportunity cost
what is included in the calculation of the initial investment outlay of a project?
shipping and installation costs associated with the purchase of an asset
what is the formula for net working capital
current assets- current liabilities
what are 4 reasons a business holds cash balances?
emergency for rainy days and low sales, transactions with another company, speculative cash for purchasing new assets, and compansating for bills.
describe a promissory note
a fany IOU. A promise to pay a balance owed.
describe in detail factoring and pledging of accounts receivable.
Factoring= selling accounts receivable
Pledging= using as collateral on a loan
define operating breakeven point
operating income is 0. enough to cover cost
describe 5 major points of the cash conversion cycle
order and receive materials, add labour and finish goods, sales, pay accounts payable and pay wages, and collect accounts receivable.
ways to eliminate any problems that slow the cash conversion cycle down
speed up assembly line, hold off on paying accounts payable, and decreasing price will increase sales
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