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Chapter 1-3 Key Terms
Simple interest |
Interest calculated only on principal (investment amount) Principal * Rate * Time calculated each year |
Compound interest |
Calculated in principal + accumulated interest; each yr adds on (Principal + Interest [1]) * Rate * Time |
Capitol Cost |
OE/ debt + OE debt/ OE+debt |
Tax Shield from depreciation |
Depreciation x tax rate |
Tax and gains |
Sale price- value= gain gain x tax rate= tax paid on gain sale price-(add is at a loss) tax paid on gain= after tax inflow |
Cash inflows after tax |
Estimated cash inflow- (estimated x tax)= after tax inflows |
Callable stock |
Preferred stock that allows the company to buy it back at a certain price |
Convertible preferred stock |
Preferred stock that giver shareholders the freedom to convert their share into other forms of capital |
Cumulative Stock |
Accumulates unpaid dividends over time |
Participating preferred stock |
Allows preferred shareholders to receive excess of the stated dividend rate |
Date of declaration |
Announcement to pay put dividends |
Date of payment |
Date when company formally pays share holders |
Date of record |
Company reviews records to ensure shareholders eligibility to receive dividends |
Capital budgeting Process |
Investment opportunities Select appropriate investment Financing Evaluating |
Rate of return |
Dollar amount of return on investment/ dollar amount if initial investment |