FIN 325 Final Vocab

Question 1

Unanimity

Answer 1

no matter what preferences are, all accept project w/ max NPV & can choose when to accept CFs

Question 2

COGS

Answer 2

all direct costs associated w/ production

Question 3

TIPS

Answer 3

treasury inflation protected returns, can estimate what future inflation will be, protected on coupon

Question 4

Overhead

Answer 4

rent, admin, staff, utilities

Question 5

Principle of incremental CFs

Answer 5

when valuing project, include only extra or marginal CFs that would result from project

Question 6

sunk costs

Answer 6

outflows in past, non-contingent

Question 7

terminal value

Answer 7

what happens to project at time T; salvage or continuation value

Question 8

portfolio theory

Answer 8

choose portf w/ highest ratio of exp return to SD

Question 9

PV

Answer 9

what someone will pay you now for asset (benefit)

Question 10

counterfactual

Answer 10

what would have happened to acquiring shareholder price if deal did not happen

Question 11

Primary offering

Answer 11

sale of new shares created as part of IPO

Question 12

road show

Answer 12

write up ppt & go to investors promote exclusive offer

Question 13

book building

Answer 13

mapping out what demand is at diff price levels

Question 14

allotment allocation/greenshoe provision

Answer 14

gives underwriter option to buy more shares after fact at original price up to specific percent

Question 15

shirking

Answer 15

not taking responsibility for certain duties/not working hard

Question 16

pet projects

Answer 16

taking on wrong – NPV, or no +NPV

Question 17

empire building

Answer 17

manager has incentive to have larger firm (increased pay, more prestige) push for growth at cost of shareholder value