FINAN 450 Test 3
Straight voting
a procedure in which a shareholder may cast all votes for each member of the board of directors
Cumulative voting
a procedure in which a shareholder may cast all votes for one member of the board of directors
Dividend yield
a stock's expected cash dividend divided by its current price
Electronic communications networks
a website that allows investors to trade directly with each other
Broker
an agent who arranges security transactions among investors
Dealer
an agent who buys and sells securities from inventory
Average accounting return (AAR)
an investment's average net income divided by its average book value
Members
as of 2006, the owner of a trading license on the NYSE
Common stock
equity without priority for dividends or in bankruptcy
Pro-forma financial statements
financial statements projecting future years' operations
Over-the-counter (OTC) market
securities market in which trading is almost exclusively done through dealers who buy and sell for their own inventories
Preferred stock
stock with dividend priority over common stock, normally with a fixed dividend rate, sometimes without voting rights
Payback period
the amount of time required for an investment to generate cash flows sufficient to recover its initial cost
Stand-alone principle
the assumption that evaluation of a project may be based on the project's incremental cash flows
Erosion
the cash flows of a new project that come at the expense of a firm's existing projects.
Incremental cash flows
the difference between a firm's future cash flows with a project and those without the project
Net present value (NPV)
the difference between an investment's market value and its cost
Internal rate of return (IRR)
the discount rate that makes the NPV of an investment zero
Capital gains yield
the dividend growth rate, or the rate at which the value of an investment grows
Order flow
the flow of customer orders to buy and sell securities
Inside quotes
the highest bid quotes and the lowest ask quotes for a security
Discounted payback period
the length of time required for an investment's discounted cash flows to equal its initial cost
Primary market
the market in which new securities are originally sold to investors
Secondary market
the market in which previously issued securities are traded among investors
Opportunity cost
the most valuable alternative that is given up if a particular investment is undertaken
Profitability index (PI)
the present value of an investment's future cash flows divided by its initial cost. Also called the benefit-cost ratio
Discounted cash flow (DCF) valuation
the process of valuing an investment by discounting its future cash flows
Designated market makers
NYSE members who act as dealers in particular stocks. Formerly known as "specialists"
Floor brokers
NYSE members who execute customer buy and sell orders
Sunk cost
a cost that has already been incurred and cannot be removed and therefore should not be considered in an investment decision
DMM's post
a fixed place on the exchange floor where the DMM operates
Proxy
a grant of authority by a shareholder allowing another individual to vote his or her shares
Dividend growth model
a model that determines the current price of a stock as its dividend next period divided by the discount rate less the dividend growth rate
Supplemental liquidity providers
investment firms that are active participants in stocks assigned to them. Their job is to make a one-sided market (i.e., offering to either buy or sell). They trade purely for their own accounts
Dividends
payments by a corporation to shareholders, made in either cash or stock