公司理财词汇表

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COPORATEFINANCE

Glossary

AARAverageaccountingreturn.

ACRSAcceleratedcostrecoverysystem.

APTArbitragepricingtheory.

Absolutepriorityrule(APR)Establishespriorityofclaimsunderliquidation.

Acceleratedcostrecoverysystem(ACRS)Asystemusedtodepreciateassetsfortaxpurposes.Thecurrentsystem,enactedbythe1986TaxReformAct,isverysimilartothe

ACRSestablishedin1981.Thecurrentsystemspecifiesthedepreciablelives(recoveryperiods)andratesforeachofseveralclassesofproperty.

AccountinginsolvencyTotalliabilitiesexceedtotalassets.Afirmwithnegativenetworthisinsolventonthebooks.

AccountingliquidityTheeaseandquicknesswithwhichassetscanbeconvertedtocash.

AccountspayableMoneythefirmowestosuppliers.

AccountsreceivableMoneyowedtothefirmbycustomers.

AccountsreceivablefinancingAsecuredshort-termloanthatinvolveseithertheassigningofreceivablesorthefactoringofreceivables.Underassignment,thelenderhasalienonthereceivablesandrecoursetotheborrower.Factoringinvolvesthesaleofaccountsreceivable.Thenthepurchaser,calledthefactor,mustcollectonthereceivables.

AccountsreceivableturnoverCreditsalesdividedbyaverageaccountsreceivable.

AdditionstonetworkingcapitalComponentofcashflowoffirm,alongwithoperatingcashflowandcapitalspending.

AdvancecommitmentApromisetosellanassetbeforethesellerhaslineduppurchaseoftheasset.Thissellercanoffsetriskbypurchasingafuturescontracttofixthesalesprice.

AgencycostsCostsofconflictsofinterestamongstockholders,bondholders,andmanagers.Agencycostsarethecostsofresolvingtheseconflicts.Theyincludethecostsofprovidingmanagerswithanincentivetomaximizeshareholderwealthandthenmonitoringtheirbehavior,andthecostofprotectingbondholdersfromshareholders.Agencycostsarebornebystockholders.

AgencytheoryThetheoryoftherelationshipbetweenprincipalsandagents.Itinvolvesthenatureofthecostsofresolvingconflictsofinterestbetweenprincipalsandagents.

AggregationProcessincorporatefinancialplanningwherebythesmallerinvestmentproposalsofeachofthefirm’soperationalunitsareaddedupandineffecttreatedasabigpicture.

AgingscheduleAcompilationofaccountsreceivablebytheageofaccount.

AmericanDepositoryReceipt(ADR)AsecurityissuedintheUnitedStatestorepresentsharesofaforeignstock,enablingthatstocktobetradedintheUnitedStates.

AmericanoptionAnoptioncontractthatmaybeexercisedanytimeuptotheexpirationdate.AEuropeanoptionmaybeexercisedonlyontheexpirationdate.

AmortizationRepaymentofaloanininstallments.

AngelsIndividualsprovidingventurecapital.

Annualizedholding-periodreturnTheannualrateofreturnthatwhencompoundedTtimes,wouldhavegiventhesameT-periodholdingreturnasactuallyoccurredfromperiod1toperiodT.

AnnuityAlevelstreamofequaldollarpaymentsthatlastsforafixedtime.Anexampleofanannuityisthecouponpartofabondwithlevelannualpayments.

AnnuityfactorThetermusedtocalculatethepresentvalueofthestreamoflevelpaymentsforafixedperiod.

AnnuityinadvanceAnannuitywithanimmediateinitialpayment.

AnnuityinarrearsAnannuitywithafirstpaymentonefullperiodhence,ratherthanimmediately.Thatis,thefirstpaymentoccursondate1ratherthanondate0.

AppraisalrightsRightsofshareholdersofanacquiredfirmthatallowthemtodemandthattheirsharesbepurchasedatafairvaluebytheacquiringfirm.

ArbitrageBuyinganassetinonemarketatalowerpriceandsimultaneouslysellinganidenticalassetinanothermarketatahigherprice.Thisisdonewithnocostorrisk.

Arbitragepricingtheory(APT)Anequilibriumassetpricingtheorythatisderivedfromafactormodelbyusingdiversificationandarbitrage.Itshowsthattheexpectedreturnonanyriskyassetisalinearcombinationofvariousfactors.

ArithmeticaverageThesumofthevaluesobserveddividedbythetotalnumberofobservations—sometimesreferredtoasthemean.

AssetsAnythingthatthefirmowns.

AssetsrequirementsAcommonelementofafinancialplanthatdescribesprojectedcapitalspendingandtheproposedusesofnetworkingcapital.

AuctionmarketAmarketwherealltradersinacertaingoodmeetatoneplacetobuyorsellanasset.TheNYSEisanexample.

AutocorrelationThecorrelationofavariablewithitselfoversuccessivetimeintervals.

AvailabilityfloatReferstothetimerequiredtoclearacheckthroughthebankingsystem.

Averageaccountingreturn(AAR)Theaverageprojectearningsaftertaxesanddepreciationdividedbytheaveragebookvalueoftheinvestmentduringitslife.

AveragecollectionperiodAverageamountoftimerequiredtocollectanaccountreceivable.Alsoreferredtoasdayssalesoutstanding.

AveragecostofcapitalAfirm’srequiredpayouttothebondholdersandthestockholdersexpressedasapercentageofcapitalcontributedtothefirm.Averagecostofcapitalis

computedbydividingthetotalrequiredcostofcapitalbythetotalamountofcontributedcapital.

AveragedailysalesAnnualsalesdividedby365days.

BalancesheetAstatementshowingafirm’saccountingvalueonaparticulardate.Itreflectstheequation,Assets_Liabilities_Stockholders’equity.

BalloonpaymentLargefinalpayment,aswhenaloanisrepaidininstallments.

Banker’sacceptanceAgreementbyabanktopayagivensumofmoneyatafuturedate.

BankruptcyStateofbeingunabletopaydebts.Thustheownershipofthefirm’sassetsistransferredfromthestockholderstothebondholders.

BankruptcycostsSeeFinancialdistresscosts.

Bargain-purchase-priceoptionGiveslesseetheoptiontopurchasetheassetatapricebelowfairmarketvaluewhentheleaseexpires.

BasicIRRruleAccepttheprojectifIRRisgreaterthanthediscountrate;rejecttheprojectifIRRislessthanthediscountrate.

BearerbondAbondissuedwithoutrecordoftheowner’sname.Whoeverholdsthebond(thebearer)istheowner.

Best-effortsunderwritingAnofferinginwhichanunderwriteragreestodistributeasmuchoftheofferingaspossibleandtoreturnanyunsoldsharestotheissuer.

BetacoefficientAmeasureofthesensitivityofasecurity’sreturntomovementsinanunderlyingfactor.Itisameasuredsystematicrisk.

BidderAfirmorpersonthathasmadeanoffertotakeoveranotherfirm.

Black-ScholescallpricingequationAnexactformulaforthepriceofacalloption.Theformularequiresfivevariables:therisk-freeinterestrate,thevarianceoftheunderlyingstock,theexerciseprice,thepriceoftheunderlyingstock,andthetimetoexpiration.

BlanketinventorylienAsecuredloanthatgivesthelenderalienagainstalltheborrower’sinventories.

BondAlong-termdebtofafirm.Incommonusage,thetermbondoftenreferstobothsecuredandunsecureddebt.

BookcashAfirm’scashbalanceasreportedinitsfinancialstatements.Alsocalledledgercash.

BookvaluepersharePer-shareaccountingequityvalueofafirm.Totalaccountingequitydividedbythenumberofoutstandingshares.

BorrowToobtainorreceivemoneyonloanwiththepromiseorunderstandingofreturningitoritsequivalent.

Break-evenanalysisAnalysisofthelevelofsalesatwhichaprojectwouldmakezeroprofit.

Bubbletheory(ofspeculativemarkets)Securitypricessometimesmovewildlyabovetheirtruevalues.

BusinessfailureTheriskthatthefirm’sstockholdersbearifthefirmisfinancedonlywithequity.

BuyingtheindexPurchasingthestocksintheStandard&Poor’s500inthesameproportionastheindextoachievethesamereturn.

CAPMCapitalassetpricingmodel.

CARCumulativeabnormalreturn.

CalloptionTheright—butnottheobligation—tobuyafixednumberofsharesofstockatastatedpricewithinaspecifiedtime.

CallpremiumThepriceofacalloptiononcommonstock.

CallpriceofabondAmountatwhichafirmhastherighttorepurchaseitsbondsordebenturesbeforethestatedmaturitydate.Thecallpriceisalwayssetatequaltoormorethantheparvalue.

CallprotectedDescribesabondthatisnotallowedtobecalled,usuallyforacertainearlyperiodinthelifeofthebond.

CallprovisionAwrittenagreementbetweenanissuingcorporationanditsbondholdersthatgivesthecorporationtheoptiontoredeemthebondataspecifiedpricebeforethematuritydate.

CallableReferstoabondthatissubjecttoberepurchasedatastatedcallpricebeforematurity.

Capitalassetpricingmodel(CAPM)Anequilibriumassetpricingtheorythatshowsthatequilibriumratesofexpectedreturnonallriskyassetsareafunctionoftheircovariance

withthemarketportfolio.

CapitalbudgetingPlanningandmanagingexpendituresforlong-livedassets.

CapitalgainsThepositivechangeinthevalueofanasset.Anegativecapitalgainisacapitalloss.

CapitalmarketlineTheefficientsetofallassets,bothriskyandriskless,whichprovidestheinvestorwiththebestpossibleopportunities.

CapitalmarketsFinancialmarketsforlong-termdebtandforequityshares.

CapitalrationingThecasewherefundsarelimitedtoafixeddollaramountandmustbeallocatedamongcompetingprojects.

CapitalstructureThemixofthevariousdebtandequitycapitalmaintainedbyafirm.Alsocalledfinancialstructure.Thecompositionofacorporation’ssecuritiesusedtofinanceitsinvestmentactivities;therelativeproportionsofshort-termdebt,long-termdebt,andowners’equity.

CapitalsurplusAmountsofdirectlycontributedequitycapitalinexcessoftheparvalue.

CarryingcostsCoststhatincreasewithincreasesinthelevelofinvestmentincurrentassets.

CarryingvalueBookvalue.

CashbudgetAforecastofcashreceiptsanddisbursementsexpectedbyafirminthecomingyear.Itisashort-termfinancialplanningtool.

CashcowAcompanythatpaysoutallearningspersharetostockholdersasdividends.

CashcycleIngeneral,thetimebetweencashdisbursementandcashcollection.Innetworkingcapitalmanagement,itcanbethoughtofastheoperatingcyclelesstheaccounts

payablepaymentperiod.

CashdiscountAdiscountgivenforacashpurchase.Onereasonacashdiscountmaybeofferedistospeedupthecollectionofreceivables.

CashflowCashgeneratedbythefirmandpaidtocreditorsandshareholders.Itcanbeclassifiedas(1)cashflowfromoperations,(2)cashflowfromchangesinfixedassets,and(3)cashflowfromchangesinnetworkingcapital.

CashflowafterinterestandtaxesNetincomeplusdepreciation.

Cash-flowtimelineLinedepictingtheoperatingactivitiesandcashflowsforafirmoveraparticularperiod.

CashofferApublicequityissuethatissoldtoallinterestedinvestors.

CashtransactionAtransactionwhereexchangeisimmediate,ascontrastedtoaforwardcontract,whichcallsforfuturedeliveryofanassetatanagreed-uponprice.

CashoutReferstosituationwhereafirmrunsoutofcashandcannotreadilysellmarketablesecurities.

CertificatesofdepositShort-termloanstocommercialbanks.

ChangeinnetworkingcapitalDifferencebetweennetworkingcapitalfromoneperiodtoanother.

ChangesinfixedassetsComponentofcashflowthatequalssalesoffixedassetsminustheacquisitionoffixedassets.

CharacteristiclineThelinerelatingtheexpectedreturnonasecuritytodifferentreturnsonthemarket.

ClearingTheexchangingofchecksandbalancingofaccountsbetweenbanks.

ClienteleeffectArgumentthatstocksattractclientelesbasedondividendyieldortaxes.Forexample,ataxclienteleeffectisinducedbythedifferenceintaxtreatmentofdividendincomeandcapitalgainsincome;hightax-bracketindividualstendtopreferlow-dividendyields.

CoinsuranceeffectReferstothefactthatthemergeroftwofirmsdecreasestheprobabilityofdefaultoneither’sdebt.

CollateralAssetsthatarepledgedassecurityforpaymentofdebt.

CollateraltrustbondAbondsecuredbyapledgeofcommonstockheldbythecorporation.

CollectionfloatAnincreaseinbookcashwithnoimmediatechangeinbankcash,generatedbychecksdepositedbythefirmthathavenotcleared.

CollectionpolicyProceduresfollowedbyafirminattemptingtocollectaccountsreceivable.

CommercialdraftDemandforpayment.

CommercialpaperShort-term,unsecuredpromissorynotesissuedbycorporationswithahighcreditstanding.Theirmaturityrangesupto270days.

CommonequityBookvalue.

CommonstockEquityclaimsheldbythe“residualowners”ofthefirm,whoarethelasttoreceiveanydistributionofearningsorassets.

CompensatingbalanceDepositthatthefirmkeepswiththebankinalow-interestornon-interest-bearingaccounttocompensatebanksforbankloansorservices.

CompetitiveofferMethodofselectinganinvestmentbankerforanewissuebyofferingthesecuritiestotheunderwriterbiddinghighest.

CompositionVoluntaryarrangementtorestructureafirm’sdebt,underwhichpaymentisreduced.

CompoundinterestInterestthatisearnedbothontheinitialprincipalandoninterestearnedontheinitialprincipalinpreviousperiods.Theinterestearnedinoneperiodbecomesineffectpartoftheprincipalinafollowingperiod.

CompoundvalueValueofasumafterinvestingitoveroneormoreperiods.Alsocalledfuturevalue.

CompoundingProcessofreinvestingeachinterestpaymenttoearnmoreinterest.Compoundingisbasedontheideathatinterestitselfbecomesprincipalandthereforealsoearnsinterestinsubsequentperiods.

ConcentrationbankingTheuseofgeographicallydispersedcollectioncenterstospeedupthecollectionofaccountsreceivable.

ConditionalsalescontractAnarrangementwherebythefirmretainslegalownershipofthegoodsuntilthecustomerhascompletedpayment.

ConflictbetweenbondholdersandstockholdersThesetwogroupsmayhaveinterestsinthecorporationthatconflict.Sourcesofconflictincludedividends,dilution,distortionof

investment,andunderinvestment.Protectivecovenantsworktoresolvetheseconflicts.

ConglomerateacquisitionAcquisitioninwhichtheacquiredfirmandtheacquiringfirmarenotrelated,unlikeahorizontaloraverticalacquisition.

ConsolAbondthatcarriesapromisetopayacouponforever;ithasnofinalmaturitydateandthereforenevermatures.

ConsolidationAmergerinwhichanentirelynewfirmiscreated.

ConsumercreditCreditgrantedtoconsumers.Tradecreditiscreditgrantedtootherfirms.

ContingentclaimClaimwhosevalueisdirectlydependenton,oriscontingenton,thevalueofitsunderlyingassets.Forexample,thedebtandequitysecuritiesissuedbyafirmderivetheirvaluefromthetotalvalueofthefirm.

ContingentpensionliabilityUnderERISA,thefirmisliabletotheplanparticipantsforupto30percentofthenetworthofthefirm.

ContinuouscompoundingInterestcompoundedcontinuously,everyinstant,ratherthanatfixedintervals.

ContributionmarginAmountthateachadditionalproduct,suchasajetengine,contributestoafter-taxprofitofthewholeproject:(Salesprice_Variablecost)_(1_Tc),

whereTcisthecorporatetaxrate.

ConversionpremiumDifferencebetweentheconversionpriceandthecurrentstockpricedividedbythecurrentstockprice.

ConversionpriceTheamountofparvalueexchangeableforoneshareofcommonstock.Thistermreallyreferstothestockpriceandmeansthedollaramountofthebond’spar

valuethatisexchangeableforoneshareofstock.

ConversionratioThenumberofsharesper$1,000bond(ordebenture)thatabondholderwouldreceiveifthebondwereconvertedintosharesofstock.

ConversionvalueWhataconvertiblebondwouldbeworthifitwereimmediatelyconvertedintothecommonstockatthecurrentprice.

ConvertiblebondAbondthatmaybeconvertedintoanotherformofsecurity,typicallycommonstock,attheoptionoftheholderataspecifiedpriceforaspecifiedperiodoftime.

CorporationFormofbusinessorganizationthatiscreatedasadistinct“legalperson”composedofoneormoreactualindividualsorlegalentities.Primaryadvantagesofacorporationincludelimitedliability,easeofownership,transfer,and

perpetualsuccession.

CorrelationAstandardizedstatisticalmeasureofthedependenceoftworandomvariables.Itisdefinedasthecovariancedividedbythestandarddeviationsoftwovariables.

CostofequitycapitalTherequiredreturnonthecompany’scommonstockincapitalmarkets.Itisalsocalledtheequityholders’requiredrateofreturnbecauseitiswhatequityholderscanexpecttoobtaininthecapitalmarket.Itisacostfromthefirm’sperspective.

CouponThestatedinterestonadebtinstrument.

CovarianceAstatisticalmeasureofthedegreetowhichrandomvariablesmovetogether.

CreditanalysisTheprocessofdeterminingwhetheracreditapplicantmeetsthefirm’sstandardsandwhatamountofcredittheapplicantshouldreceive.

CreditinstrumentDevicebywhichafirmofferscredit,suchasaninvoice,apromissorynote,oraconditionalsalescontract.

CreditperiodTimeallowedacreditpurchasertoremitthefullpaymentforcreditpurchases.

CreditscoringDeterminingtheprobabilityofdefaultwhengrantingcustomerscredit.

CreditorPersonorinstitutionthatholdsthedebtissuedbyafirmorindividual.

CrossrateTheexchangeratebetweentwoforeigncurrencies,neitherofwhichisgenerallytheU.S.dollar.

CrownjewelsAnantitakeovertacticinwhichmajorassets—thecrownjewels—aresoldbyafirmwhenfacedwithatakeoverthreat.

CumdividendWithdividend.

Cumulativeabnormalreturn(CAR)Sumofdifferencesbetweentheexpectedreturnonastockandtheactualreturnthatcomesfromthereleaseofnewstothemarket.

CumulativedividendDividendonpreferredstockthattakespriorityoverdividendpaymentsoncommonstock.Dividendsmaynotbepaidonthecommonstockuntilallpastdividendsonthepreferredstockhavebeenpaid.

CumulativeprobabilityTheprobabilitythatadrawingfromthestandardizednormaldistributionwillbebelowaparticularvalue.

CumulativevotingAprocedurewherebyashareholdermaycastallofhisorhervotesforonememberoftheboardofdirectors.

CurrentassetAssetthatisintheformofcashorthatisexpectedtobeconvertedintocashinthenext12months,suchasinventory.

CurrentliabilitiesObligationsthatareexpectedtorequirecashpaymentwithinoneyearortheoperatingperiod.

CurrentratioTotalcurrentassetsdividedbytotalcurrentliabilities.Usedtomeasureshort-termsolvencyofafirm.

DateofpaymentDatethatdividendchecksaremailed.

DateofrecordDateonwhichholdersofrecordinafirm’sstockledgeraredesignatedastherecipientsofeitherdividendsorstockrights.

DatesconventionTreatingcashflowsasbeingreceivedonexactdates—date0,date1,andsoforth—asopposedtotheend-of-yearconvention.

DaysinreceivablesAveragecollectionperiod.

DayssalesoutstandingAveragecollectionperiod.

DefactoExistinginactualfactalthoughnotbyofficialrecognition.

DealermarketAmarketwheretradersspecializinginparticularcommoditiesbuyandsellassetsfortheirownaccount.TheOTCmarketisanexample.

DebentureAnunsecuredbond,usuallywithmaturityof15yearsormore.Adebtobligationbackedbythegeneralcreditoftheissuingcorporation.

DebtLoanagreementthatisaliabilityofthefirm.Anobligationtorepayaspecifiedamountataparticulartime.

DebtcapacityAbilitytoborrow.Theamountafirmcanborrowuptothepointwherethefirmvaluenolongerincreases.

DebtdisplacementTheamountofborrowingthatleasingdisplaces.Firmsthatdoalotofleasingwillbeforcedtocutbackonborrowing.

DebtratioTotaldebtdividedbytotalassets.

DebtserviceInterestpaymentsplusrepaymentsofprincipaltocreditors,thatis,retirementofdebt.

DecisiontreesAgraphicalrepresentationofalternativesequentialdecisionsandthepossibleoutcomesofthosedecisions.

DeclarationdateDateonwhichtheboardofdirectorspassesaresolutiontopayadividendofaspecifiedamounttoallqualifiedholdersofrecordonaspecifieddate.

DedicatedcapitalTotalparvalue(numberofsharesissuedmultipliedbytheparvalueofeachshare).Alsocalleddedicatedvalue.

DeedoftrustIndenture.

Deep-discountbondAbondissuedwithaverylowcouponornocouponandsellingatapricefarbelowparvalue.Whenthebondhasnocoupon,itisalsocalledapurediscount

ororiginal-issue-discountbond.

DefaultriskThechancethatinterestorprincipalwillnotbepaidontheduedateandinthepromisedamount.

DefeasanceAdebt-restructuringtoolthatenablesafirmtoremovedebtfromitsbalancesheetbyestablishinganirrevocabletrustthatwillgeneratefuturecashflowssufficientto

servicethedecreaseddebt.

DeferredcallAprovisionthatprohibitsthecompanyfromcallingthebondbeforeacertaindate.Duringthisperiodthebondissaidtobecallprotected.

DeferrednominallifeannuityAmonthlyfixed-dollarpaymentbeginningatretirementage.Itisnominalbecausethepaymentisfixedindollaramountatanyparticulartime,

uptoandincludingretirement.

DeferredtaxesNoncashexpense.

DeficitTheamountbywhichasumofmoneyislessthantherequiredamount;anexcessofliabilitiesoverassets,oflossesoverprofits,orofexpenditureoverincome.

DeliverableinstrumentTheassetinaforwardcontractthatwillbedeliveredinthefutureatanagreed-uponprice.

DenominationFacevalueorprincipalofabond.

DepreciationAnoncashexpense,suchasthecostofplantorequipment,chargedagainstearningstowriteoffthecostofanassetduringitsestimatedusefullife.

DepreciationtaxshieldPortionofaninvestmentthatcanbedeductedfromtaxableincome.

DilutionLossinexistingshareholders’value.Thereareseveralkindsofdilution:(1)dilutionofownership,(2)dilutionofmarketvalue,and(3)dilutionofbookvalueandearnings,aswithwarrantsandconvertibleissues.Firmswithsignificantamountsofwarrantsorconvertibleissuesoutstandingarerequiredtoreportearningsona“fullydiluted”basis.

DirectleaseAleaseunderwhichalessorbuysequipmentfromamanufacturerandleasesittoalessee.

DisbursementfloatAdecreaseinbookcashbutnoimmediatechangeinbankcash,generatedbycheckswrittenbythefirm.

DiscountIfabondissellingbelowitsfacevalue,itissaidtosellatadiscount.

DiscountrateRateusedtocalculatethepresentvalueoffuturecashflows.

DiscountedpaybackperiodruleAninvestmentdecisionruleinwhichthecashflowsarediscountedataninterestrateandthepaybackruleisappliedonthesediscounted

cashflows.

DiscountingCalculatingthepresentvalueofafutureamount.Theprocessistheoppositeofcompounding.

DistributionAtypeofdividendpaidbyafirmtoitsownersfromsourcesotherthancurrentoraccumulatedretainedearnings.

DiversifiableriskAriskthatspecificallyaffectsasingleassetorasmallgroupofassets.Alsocalleduniqueorunsystematicrisk.

DividendPaymentmadebyafirmtoitsowners,eitherincashorinstock.Alsocalledthe“incomecomponent”ofthereturnonaninvestmentinstock.

DividendgrowthmodelAmodelwhereindividendsareassumedtobeataconstantrateinperpetuity.

DividendpayoutAmountofcashpaidtoshareholdersexpressedasapercentageofearningspershare.

DividendyieldDividendspershareofcommonstockdividedbymarketpricepershare.

DividendspershareAmountofcashpaidtoshareholdersexpressedasdollarspershare.

Double-decliningbalancedepreciationMethodofaccelerateddepreciation.

DuPontsystemoffinancialcontrolHighlightsthefactthatreturnonassets(ROA)canbeexpressedintermsoftheprofitmarginandassetturnover.

DurationTheweightedaveragetimeofanasset’scashflows.Theweightsaredeterminedbypresentvaluefactors.

EACEquivalentannualcost.

EBITEarningsbeforeinterestandtaxes.

EMHEfficientmarkethypothesis.

ERISAEmployeeRetirementIncomeSecurityActof1974.

EconomicassumptionsEconomicenvironmentinwhichthefirmexpectstoresideoverthelifeofthefinancialplan.

EffectiveannualinterestrateTheinterestrateasifitwerecompoundedoncepertimeperiodratherthanseveraltimesperperiod.

Efficientmarkethypothesis(EMH)Thepricesofsecuritiesfullyreflectavailableinformation.Investorsbuyingbondsandstocksinanefficientmarketshouldexpecttoobtainanequilibriumrateofreturn.Firmsshouldexpecttoreceivethe“fair”value(presentvalue)forthesecuritiestheysell.

EfficientsetGraphrepresentingasetofportfoliosthatmaximizeexpectedreturnateachlevelofportfoliorisk.

End-of-yearconventionTreatingcashflowsasiftheyoccurattheendofayear(or,alternatively,attheendofaperiod),asopposedtothedateconvention.Undertheend-of-yearconvention,theendofyear0isthepresent,endofyear1occursoneperiodhence,andsoon.

EquilibriumrateofinterestTheinterestratethatclearsthemarket.Alsocalledmarket-clearinginterestrate.

EquityOwnershipinterestofcommonandpreferredstockholdersinacorporation.Also,totalassetsminustotalliabilities,ornetworth.

EquitykickerUsedtorefertowarrantsbecausetheyusuallyareissuedincombinationwithprivatelyplacedbonds.

EquityshareOwnershipinterest.

Equivalentannualcost(EAC)Thenetpresentvalueofcostdividedbyanannuityfactorthathasthesamelifeastheinvestment.

EquivalentloanTheamountoftheloanthatmakesleasingequivalenttobuyingwithdebtfinancingintermsofdebtcapacityreduction.

ErosionCash-flowamounttransferredtoanewprojectfromcustomersandsalesofotherproductsofthefirm.

EurobanksBanksthatmakeloansandacceptdepositsinforeigncurrencies.

EurobondAninternationalbondsoldprimarilyincountriesotherthanthecountryinwhosecurrencytheissueisdenominated.

EurocurrencyMoneydepositedinafinancialcenteroutsideofthecountrywhosecurrencyisinvolved.

EurodollarAdollardepositedinabankoutsidetheUnitedStates.

EurodollarCDDepositofdollarswithforeignbanks.

EuropeanCurrencyUnit(ECU)Anindexofforeignexchangeconsistingofabout10Europeancurrencies,originallydevisedin1979.

EuropeanoptionAnoptioncontractthatmaybeexercisedonlyontheexpirationdate.AnAmericanoptionmaybeexercisedany