Finance 302 Exam 2 Definitions

prospectus

A document that describes the details of a proposed security offering along with relevant information about the issuer

MIRR vs. IRR

MIRR= Uses the company's investment rate (WACC) and cash flow of project IRR= Only uses the CF's of the project

dilution

Market value dilution occurs when the net present value of a project is negative.

Cost of Debt

Only thing that can be affected by tax rate changes

When analyzing the best-case scenario, which of the following variables will be forecast at their highest expected level?

Salvage value and units sold

Seasoned Equity Offering

When an already public company needs to sell more shares it is called a seasoned equity offering (SEO)

sunk cost

a cost that has already been paid and cannot be recovered

With Dutch auction underwriting:

all successful bidders pay the same price per share.

angel investor

are usually individuals who invest their own money, but they tend to focus on smaller deals

The raising of small amounts of capital from a large number of people is known as:

crowdfunding

Sensitivity analysis determines the:

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

Green Shoe Provision

gives the members of the underwriting group the option to purchase additional shares from the issuer at the offering price

If a firm commitment IPO is overpriced then the:

investors in the IPO may consider suing the underwriters.

By definition, which one of the following must equal zero at the accounting break-even point?

net income

By definition, which one of the following must equal zero at the financial break-even point?

npv

Percentage ownership dilution

occurs when a company issues new shares that result in a decrease in existing stockholders' ownership percentage of that company.

When an issuer offers new securities to the general public, it must file a(n) ________ with the SEC to disclose all material information about the issuer.

registration statement

Lockup agreements

specify how long insiders must wait after an IPO before they can sell stock

eroision

when the profits of one item/project are reduced due to the addition of an item/project