|risk-adjusted discount rate method|
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Definition of risk-adjusted discount rate method
risk-adjusted discount rate method
a formal method of adjusting for risk in which the decision maker increases the rate used for discounting the future cash flows to compensate for increased risk
Schedule of depreciation rates allowed for tax purposes.
Any depreciation method that produces larger deductions for depreciation in the
(1) The estimated useful life of the fixed asset being depreciated is
Any of several methods that recognize an increased amount
A method of investment appraisal that measures
the rate of earnings obtained on the average capital investment over the life of a capital project; computed as average annual profits divided by average investment; not based on cash flow
In portfolio accounting, a straight-line accumulation of capital gains on discount
A strategy that uses available information and forecasting techniques to seek a
a price concession made under competitive pressure (real or imagined) that does not relate to quantity purchased
the present value of a finite stream of cash flows for every beginning $1 of cash flow.
Publicly traded issues that may be collateralized by mortgages and MBSs.
Cash flow provided by operating
Net income adjusted to exclude selected nonrecurring and noncash items of reserve, gain, expense, and loss.
Conventional earnings before interest, taxes, depreciation, and amortization (EBITDA) revised to exclude the effects of mainly nonrecurring items of revenue or gain and expense or loss.
Operations Reported income from continuing operations
Adjusted present value (APV)
The net present value analysis of an asset if financed solely by equity
After-tax real rate of return
Money after-tax rate of return minus the inflation rate.
a process of service department cost allocation
All equity rate
The discount rate that reflects only the business risks of a project and abstracts from the
A method of adjusting accounts receivable to the amount that is expected to be collected based on company experience.
Amortizing interest rate swap
Swap in which the principal or national amount rises (falls) as interest rates
Annual percentage rate (APR)
The periodic rate times the number of periods in a year. For example, a 5%
annual percentage rate (APR)
Interest rate that is annualized using simple interest.
Arithmetic average (mean) rate of return
Arithmetic mean return.
The amount of total risk that can be eliminated by diversification by
Auction rate preferred stock (ARPS)
Floating rate preferred stock, the dividend on which is adjusted every
Average-Cost Inventory Method
The inventory cost-flow assumption that assigns the average
Average rate of return (ARR)
The ratio of the average cash inflow to the amount invested.
Average tax rate
Taxes as a fraction of income; total taxes divided by total taxable income.
average tax rate
Total taxes owed divided by total income.
Bank discount basis
A convention used for quoting bids and offers for treasury bills in terms of annualized
The risk that a firm will be unable to meet its debt obligations. Also referred to as default or insolvency risk.
A strategy in which the maturities of the securities included in the portfolio are concentrated
Base interest rate
Related: Benchmark interest rate.
Basic business strategies
Key strategies a firm intends to pursue in carrying out its business plan.
The uncertainty about the basis at the time a hedge may be lifted. Hedging substitutes basis risk for
Benchmark interest rate
Also called the base interest rate, it is the minimum interest rate investors will
Benefit Ratio Method
The proportion of unemployment benefits paid to a company’s
Benefit Wage Ratio Method
The proportion of total taxable wages for laid off
risk of a firm measured from the standpoint of an investor who holds a highly diversified portfolio.
Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit Committees
A committee formed in response to SEC chairman Arthur Levitt's initiative to improve the financial
book rate of return
Accounting income divided by book value.
Bootstrapping, bootstrap method
An arithmetic method for backing an
Break-even payment rate
The prepayment rate of a MBS coupon that will produce the same CFY as that of
Break-even tax rate
The tax rate at which a party to a prospective transaction is indifferent between entering
Broker loan rate
Related: Call money rate.
A strategy in which a portfolio is constructed so that the maturities of its securities are highly
The risk that the cash flow of an issuer will be impaired because of adverse economic
A passive investment strategy with no active buying and selling of stocks from the
Call money rate
Also called the broker loan rate , the interest rate that banks charge brokers to finance
The combination of cash flow uncertainty and reinvestment risk introduced by a call provision.
A method of constructing a replicating portfolio in which the manager purchases a
A discount rate used to find the present value of a series of future cash receipts. Sometimes called discount rate.
cash burn rate
A relatively recent term that refers to how fast a business
An incentive offered to purchasers of a firm's product for payment within a specified time
A strategy in which a put and with the same strike price and expiration are either both
The risk that a foreign debtor will be unable to pay its debts because of business events,
Related: Unsystematic risk
See asset-specific risk
a foundation for the compensation plan that addresses the role compensation should play in the organization
A contract accounting method that recognizes contract revenue
The risk that a project will not be brought into operation successfully.
computer integrated manufacturing (CIM)
the integration of two or more flexible manufacturing systems through the use of a host computer and an information networking system
an organizational strategy in which company management decides to confront, rather than avoid, competition; an organizational strategy in which company management still attempts to differentiate company
A firm engaged in two or more unrelated businesses.
A merger involving two or more firms that are in unrelated businesses.
constant-growth dividend discount model
Version of the dividend discount model in which dividends grow at a constant rate.
The process of calculating the present value of a stream of future
The percentage tax charged by a state to an employer to
The acquisition of one firm by anther firm.
Debt obligations issued by corporations.
A legal document creating a corporation.
One of the three areas of the discipline of finance. It deals with the operation of the firm
Corporate financial management
The application of financial principals within a corporation to create and
Corporate financial planning
Financial planning conducted by a firm that encompasses preparation of both
Corporate processing float
The time that elapses between receipt of payment from a customer and the
Corporate tax view
The argument that double (corporate and individual) taxation of equity returns makes
Corporate taxable equivalent
rate of return required on a par bond to produce the same after-tax yield to
cost leadership strategy
a plan to achieve the position in a
The risk that the other party to an agreement will default. In an options contract, the risk
Country financial risk
The ability of the national economy to generate enough foreign exchange to meet
Country risk General
Level of political and economic uncertainty in a country affecting the value of loans or
In bonds, notes or other fixed income securities, the stated percentage rate of interest, usually
The rate of interest paid on a debt security. Generally stated on an
The nominal interest rate that the issuer promises to pay the
Annual interest payment as a percentage of face value.
Covered call writing strategy
A strategy that involves writing a call option on securities that the investor
Covered or hedge option strategies
Strategies that involve a position in an option as well as a position in the
The risk that an issuer of debt securities or a borrower may default on his obligations, or that the
Financial and moral risk that an obligation will not be paid and a loss will result.
The interest rate offered on an investment type insurance policy.
Refers to the volatility of returns on international investments caused by events associated
The exchange rate between two currencies expressed as the ratio of two foreign exchange rates
The return at which two alternative projects have the same net present value.
Related: Exchange rate risk
Currency risk sharing
An agreement by the parties to a transaction to share the currency risk associated with
Current rate method
Under this currency translation method, all foreign currency balance-sheet and income
Refers to multi-period cash flow matching.
A bond issued with a very low coupon or no coupon and selling at a price far below par
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