Koofers

Final Definitions - Flashcards

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Class:FINC 331 - Introduction to Business Finance
Subject:Finance
University:Radford University
Term:Fall 2010
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Coefficient of Variation a measure of relative dispersion that is useful in comparing the risks of assets with differing expected returns
Diversifiable risk the portion of an asset's risk that is attributable to firm-specific, random causes. AKA unsystematic risk
Nondiversifiable risk the relevant portion of an asset's risk attributable to market factors that affect all firms. AKA systematic risk
Beta Coefficient an index of the degree of movement of an asset's return in response to a change in the market return; measure of nondiversifiable risk
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Business Risk the risk to the firm of being unable to cover operating costs
Financial Risk the risk to the firm of being unable to cover required financial obligations (interest, lease payments, preferred stock dividends)
Cost of Capital rate of return a firm must earn on its investments in projects in order to maintain in the market value of its stock
Preferred Stock Dividend of preferred stock/ (Price of preferred stock - flotation costs)
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Discounted cash flow (formula for cost of retained earnings) (Dividend/ Price) + growth
Breakpoint Amount/ Wt
After-tax cost of debt Before tax rate*(1-marginal tax rate)
Risk Premium difference between the return on a risky investment and that on a risk-free investment
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 Coefficient of Variationa measure of relative dispersion that is useful in comparing the risks of assets with differing expected returns
 Diversifiable riskthe portion of an asset's risk that is attributable to firm-specific, random causes. AKA unsystematic risk
 Nondiversifiable riskthe relevant portion of an asset's risk attributable to market factors that affect all firms. AKA systematic risk
 Beta Coefficientan index of the degree of movement of an asset's return in response to a change in the market return; measure of nondiversifiable risk
 Business Riskthe risk to the firm of being unable to cover operating costs
 Financial Riskthe risk to the firm of being unable to cover required financial obligations (interest, lease payments, preferred stock dividends)
 Cost of Capitalrate of return a firm must earn on its investments in projects in order to maintain in the market value of its stock
 Preferred StockDividend of preferred stock/ (Price of preferred stock - flotation costs)
 Discounted cash flow (formula for cost of retained earnings)(Dividend/ Price) + growth
 BreakpointAmount/ Wt
 After-tax cost of debtBefore tax rate*(1-marginal tax rate)
 Risk Premiumdifference between the return on a risky investment and that on a risk-free investment
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