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sunk costs: Costs that have been incurred and cannot be recov-
weak-form efficiency: Market prices rapidly reflect all informa-
ered.
tion contained in the history of past prices.
sustainable growth rate: Steady rate at which a firm can grow
without changing leverage; plowback ratio — return on equity. weighted-average cost of capital (WACC): Expected rate of re-
turn on a portfolio of all the firm™s securities, adjusted for tax
swap: Arrangement by two counterparties to exchange one
savings due to interest payments.
stream of cash flows for another.
white knight: Friendly potential acquirer sought by a target com-
technical analysts: Investors who attempt to identify over- or
pany threatened by an unwelcome suitor.
undervalued stocks by searching for patterns in past prices.
workout: Agreement between a company and its creditors estab-
tender offer: Takeover attempt in which outsiders directly offer
lishing the steps the company must take to avoid bankruptcy.
to buy the stock of the firm™s shareholders.
yield curve: Graph of the relationship between time to maturity
terms of sale: Credit, discount, and payment terms offered on a
and yield to maturity.
sale.
yield to maturity: Interest rate for which the present value of the
trade-off theory: Debt levels are chosen to balance interest tax
bond™s payments equals the price.
shields against the costs of financial distress.
zero-balance account: Regional bank account to which just
treasurer: Manager responsible for financing, cash manage-
enough funds are transferred daily to pay each day™s bills.
ment, and relationships with financial markets and institu-
tions.

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