Financial Management Important definitions.

Answer:

1)    Yield to maturity

Yield to maturity is the discount rate at which the sum of all future cash flows from the bond (coupons and principal) is equal to the price of the bond. The YTM is often given in terms of Annual Percentage Rate (A.P.R.), but more usually, market convention is followed.

2)    Capital budgeting

Capital budgeting is the process in which a business determines and evaluates potential expenses or investments that are large in nature. These expenditures and investments include projects such as building a new plant or investing in a long-term venture.

3)    Consol

Consol is a bond that never matures; a perpetuity in the form of a bond. The stated rate of interest on a bond; the annual interest payment divided by the bond’s face value is called Consol Rate.

4)    Degree of operating leverage (DOL)

The degree of operating leverage is a measure used to evaluate how a company’s operating income changes with respect to a percentage change in its sales. A company's operating leverage involves fixed costs and variable costs.

5)    Dividend reinvestment plan (DRIP)

A dividend reinvestment program or dividend reinvestment plan (DRIP) is an equity investment option offered directly from the underlying company. The investor does not receive quarterly dividends directly as cash; instead, the investor’s dividends are directly reinvested in the underlying equity.

6)    Ex-dividend date

The ex-dividend date is usually set for stocks two business days before the record date. If you purchase a stock on its ex-dividend date or after, you will not receive the next dividend payment. Instead, the seller gets the dividend.

7)    Indifference point

The indifference point is the level of volume at which total costs, and hence profits, are the same under both cost structures.

Formula:

        Cost Indifference Point = Differential fixed cost / Differential variable cost per unit

8)    Independent project

A project whose acceptance or rejection is independent of the acceptance or rejection of other projects.

9)    NPV profile

The NPV profile is a graph with the discount rate on the x-axis and the NPV of the investment on the y-axis. Higher discount rates mean cash flows that occur sooner are more influential to NPV.

10)      Zero-coupon bond

A zero-coupon bond, also known as an "accrual bond," is a debt security that doesn't pay interest (a coupon) but is traded at a deep discount, rendering profit at maturity when the bond is redeemed for its full face value.