{"id":328,"date":"2023-03-28T15:15:35","date_gmt":"2023-03-28T15:15:35","guid":{"rendered":"https:\/\/pressbooks.ccconline.org\/ppscacc2010principlesoffinance\/?post_type=chapter&p=328"},"modified":"2023-04-02T23:32:23","modified_gmt":"2023-04-02T23:32:23","slug":"key-terms","status":"publish","type":"chapter","link":"https:\/\/pressbooks.ccconline.org\/ppscacc2010principlesoffinance\/chapter\/key-terms\/","title":{"raw":"Glossary of Key Terms","rendered":"Glossary of Key Terms"},"content":{"raw":"
\r\n \t
\r\n

Chapter 5 Glossary of Key Terms<\/h2>\r\n<\/dt>\r\n \t
after-tax cost of debt<\/dt>\r\n \t
the net cost of interest on a company\u2019s debt after taxes; the firm\u2019s effective cost of debt<\/dd>\r\n<\/dl>\r\n
\r\n \t
capital<\/dt>\r\n \t
a company\u2019s sources of financing<\/dd>\r\n<\/dl>\r\n
\r\n \t
capital structure<\/dt>\r\n \t
the percentages of a company\u2019s assets that are financed by debt capital, preferred stock capital, and common stock capital<\/dd>\r\n<\/dl>\r\n
\r\n \t
conversion price<\/dt>\r\n \t
the face value of a convertible bond divided by its conversion ratio<\/dd>\r\n<\/dl>\r\n
\r\n \t
conversion ratio<\/dt>\r\n \t
the number of shares of common stock receivable for each convertible bond that is converted<\/dd>\r\n<\/dl>\r\n
\r\n \t
convertible bonds<\/dt>\r\n \t
bonds that can be converted into a fixed number of shares of common stock upon maturity<\/dd>\r\n<\/dl>\r\n
\r\n \t
financial distress<\/dt>\r\n \t
when a firm has trouble meeting debt obligations<\/dd>\r\n<\/dl>\r\n
\r\n \t
financial leverage<\/dt>\r\n \t
the debt used in a company\u2019s capital structure<\/dd>\r\n<\/dl>\r\n
\r\n \t
flotation costs<\/dt>\r\n \t
costs involved in the issuing and placing of new securities<\/dd>\r\n<\/dl>\r\n
\r\n \t
interest tax shield<\/dt>\r\n \t
the reduction in taxes paid because interest payments on debt are a tax-deductible expense; calculated as the corporate tax rate multiplied by interest payments<\/dd>\r\n<\/dl>\r\n
\r\n \t
levered equity<\/dt>\r\n \t
equity in a firm that has debt outstanding<\/dd>\r\n<\/dl>\r\n
\r\n \t
net debt<\/dt>\r\n \t
a company\u2019s total debt minus any cash or risk-free assets the company holds<\/dd>\r\n<\/dl>\r\n
\r\n \t
preferred stock<\/dt>\r\n \t
equity capital that has a fixed dividend; preferred shareholders fall in between debt holders and common stockholders in the order of claimants<\/dd>\r\n<\/dl>\r\n
\r\n \t
trade-off theory<\/dt>\r\n \t
a theory stating that the total value of a levered company is the value of the firm without leverage plus the value of the interest tax shield less financial distress costs<\/dd>\r\n<\/dl>\r\n
\r\n \t
unlevered equity<\/dt>\r\n \t
equity in a firm that has no debt outstanding<\/dd>\r\n<\/dl>\r\n
\r\n \t
weighted average cost of capital (WACC)<\/dt>\r\n \t
the average of a firm\u2019s debt and equity costs of capital, weighted by the fractions of the firm\u2019s value that correspond to debt and equity<\/dd>\r\n<\/dl>\r\n \r\n\r\nAttribution:<\/strong>\r\n\r\nThis chapter is from \u201cPrinciples of Finance\u201d \u00a0https:\/\/openstax.org\/books\/principles-finance\/pages\/1-why-it-matters<\/a> by Dahlquist and Knight. This book is licensed under the CC-BY<\/a> 4.0 license. 2022 OpenStax.\r\n\r\nhttps:\/\/openstax.org\/books\/principles-finance\/pages\/1-key-terms<\/a>\r\n\r\nAccess for free at https:\/\/openstax.org\/books\/principles-finance\/pages\/17-key-terms<\/a>","rendered":"
\n
\n<\/dt>\n
after-tax cost of debt<\/dt>\n
the net cost of interest on a company\u2019s debt after taxes; the firm\u2019s effective cost of debt<\/dd>\n<\/dl>\n
\n
capital<\/dt>\n
a company\u2019s sources of financing<\/dd>\n<\/dl>\n
\n
capital structure<\/dt>\n
the percentages of a company\u2019s assets that are financed by debt capital, preferred stock capital, and common stock capital<\/dd>\n<\/dl>\n
\n
conversion price<\/dt>\n
the face value of a convertible bond divided by its conversion ratio<\/dd>\n<\/dl>\n
\n
conversion ratio<\/dt>\n
the number of shares of common stock receivable for each convertible bond that is converted<\/dd>\n<\/dl>\n
\n
convertible bonds<\/dt>\n
bonds that can be converted into a fixed number of shares of common stock upon maturity<\/dd>\n<\/dl>\n
\n
financial distress<\/dt>\n
when a firm has trouble meeting debt obligations<\/dd>\n<\/dl>\n
\n
financial leverage<\/dt>\n
the debt used in a company\u2019s capital structure<\/dd>\n<\/dl>\n
\n
flotation costs<\/dt>\n
costs involved in the issuing and placing of new securities<\/dd>\n<\/dl>\n
\n
interest tax shield<\/dt>\n
the reduction in taxes paid because interest payments on debt are a tax-deductible expense; calculated as the corporate tax rate multiplied by interest payments<\/dd>\n<\/dl>\n
\n
levered equity<\/dt>\n
equity in a firm that has debt outstanding<\/dd>\n<\/dl>\n
\n
net debt<\/dt>\n
a company\u2019s total debt minus any cash or risk-free assets the company holds<\/dd>\n<\/dl>\n
\n
preferred stock<\/dt>\n
equity capital that has a fixed dividend; preferred shareholders fall in between debt holders and common stockholders in the order of claimants<\/dd>\n<\/dl>\n
\n
trade-off theory<\/dt>\n
a theory stating that the total value of a levered company is the value of the firm without leverage plus the value of the interest tax shield less financial distress costs<\/dd>\n<\/dl>\n
\n
unlevered equity<\/dt>\n
equity in a firm that has no debt outstanding<\/dd>\n<\/dl>\n
\n
weighted average cost of capital (WACC)<\/dt>\n
the average of a firm\u2019s debt and equity costs of capital, weighted by the fractions of the firm\u2019s value that correspond to debt and equity<\/dd>\n<\/dl>\n

 <\/p>\n

Attribution:<\/strong><\/p>\n

This chapter is from \u201cPrinciples of Finance\u201d \u00a0https:\/\/openstax.org\/books\/principles-finance\/pages\/1-why-it-matters<\/a> by Dahlquist and Knight. This book is licensed under the CC-BY<\/a> 4.0 license. 2022 OpenStax.<\/p>\n

https:\/\/openstax.org\/books\/principles-finance\/pages\/1-key-terms<\/a><\/p>\n

Access for free at https:\/\/openstax.org\/books\/principles-finance\/pages\/17-key-terms<\/a><\/p>\n","protected":false},"author":101,"menu_order":1,"template":"","meta":{"pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-328","chapter","type-chapter","status-publish","hentry"],"part":28,"_links":{"self":[{"href":"https:\/\/pressbooks.ccconline.org\/ppscacc2010principlesoffinance\/wp-json\/pressbooks\/v2\/chapters\/328","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/pressbooks.ccconline.org\/ppscacc2010principlesoffinance\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/pressbooks.ccconline.org\/ppscacc2010principlesoffinance\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/pressbooks.ccconline.org\/ppscacc2010principlesoffinance\/wp-json\/wp\/v2\/users\/101"}],"version-history":[{"count":5,"href":"https:\/\/pressbooks.ccconline.org\/ppscacc2010principlesoffinance\/wp-json\/pressbooks\/v2\/chapters\/328\/revisions"}],"predecessor-version":[{"id":1274,"href":"https:\/\/pressbooks.ccconline.org\/ppscacc2010principlesoffinance\/wp-json\/pressbooks\/v2\/chapters\/328\/revisions\/1274"}],"part":[{"href":"https:\/\/pressbooks.ccconline.org\/ppscacc2010principlesoffinance\/wp-json\/pressbooks\/v2\/parts\/28"}],"metadata":[{"href":"https:\/\/pressbooks.ccconline.org\/ppscacc2010principlesoffinance\/wp-json\/pressbooks\/v2\/chapters\/328\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/pressbooks.ccconline.org\/ppscacc2010principlesoffinance\/wp-json\/wp\/v2\/media?parent=328"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/pressbooks.ccconline.org\/ppscacc2010principlesoffinance\/wp-json\/pressbooks\/v2\/chapter-type?post=328"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/pressbooks.ccconline.org\/ppscacc2010principlesoffinance\/wp-json\/wp\/v2\/contributor?post=328"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/pressbooks.ccconline.org\/ppscacc2010principlesoffinance\/wp-json\/wp\/v2\/license?post=328"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}