Exam 2 Concepts and Definitions

a yield to maturity that is less than the coupon rate.

All else constant, a coupon bond that is selling at a premium, must have:

sum of the incremental operating cash flow, net capital spending, and net working capital expenses incurred by the project.

The CFFAs for a company is computed as the:

Depreciation Tax Shield

The cash flow tax savings generated as a result of a firm's tax-deductible depreciation expense is called the:

Erosion Costs

The cash flows of a new project that come at the expense of a firm's existing projects are called:

Incremental

The changes in a firm's future cash flows that are a direct consequence of accepting a project are called _____ cash flows.

capital gains

The rate at which a stock's price is expected to appreciate (or depreciate) is called the _____ yield.

dividend growth

The stock valuation model that determines the current stock price by dividing the next annual dividend amount by the excess of the discount rate less the dividend growth rate is called the _____ model.

I. an increase in accounts receivable II. a decrease in net working capital III. an increase in taxes IV. a decrease in the cost of goods sold

Which of the following are relevant cash flows for CFFA calculation?

II. opportunity costs III. erosion costs IV. incremental costs

Which of the following should be included in the analysis of a project?

zero coupon

A bond that makes no coupon payments and is initially priced at a deep discount is called a _____ bond.

Sunk Cost

A cost that has already been paid, or the liability to pay has already been incurred, is a(n):

premium; decrease this premium.

If its yield to maturity is less than its coupon rate, a bond will sell at a _____, and increases in market interest rates will _____.

expand

Last month you introduced a new product to the market. Consumer demand has been overwhelming and it appears that strong demand will exist over the long-term. Given this situation, management should consider the option to:

degree to which the net present value reacts to changes in a single variable.

Sensitivity analysis helps you determine the: