SUBJECT INDEX (WEB-APPENDIX A TO P)

A

Absolute priority rule, 670–672

Accounting identity, 678

Accounting principles, 677–678

assumptions, 667

Accounts receivable turnover ratio, 687

Accrual accounting, 678

Acid-test ratio, 686

Acquisition strategies, 697–699

Activity ratios, 687–688

accounts receivable turnover ratio, 687

inventory turnover ratio, 687

Addition

of matrices, 741

of vectors, 739–740

Adjusted discount rate technique, 709n3

Adjusted present value technique, 709n3

Arrays, 733

B

Balance sheet, 678–679

accounting identity, 678

Bank loans, 663–664

Bankruptcy process, 669–670

Basic earning power ratio, 682

Basic earnings per share, 679

Best efforts underwriting arrangement, 667

Bullet loans, 664

C

Cap (maximum coupon rate), 659

Capital gain, 695

Capital loss, 695

Capital market imperfections, 701–703

Cash flow for/from financing activities, 680

Cash flow for/from investing, 680

Cash flow from operations, 680

Cash-flow interest coverage ratio, 690

Cash flows of capital budgeting projects, estimating, 692–696

change in expenses, 693

change in revenues, 693

change in taxes, 694

change in working capital, 694

investment cash flows, 695–696

operating cash flows, 692–693

working capital, 694

Central limit theorem, 726

Change in revenues, 693

Collateral trust debentures, 660

Column vectors, 733

Commercial paper, 663

Component percentage ratios, 688–689

Concession price, 666

Conglomerates

as means of overcoming capital market imperfections, 701–704

Consistent system, 737

Continuous compounding, 731

Continuous interest rates, 730–732

simple interest rate per period, 730

Continuous probability distributions, 722–728

Continuous random variable, 722

Conversion premium, 662

Conversion price, 662

Convertible bonds, 661–662

Corporate bonds, 658–662

coupon rate, 659

coupon reset date, 659

maturity, 658

mortgage bond, 659

paying off bonds, provisions for, 660–661

secured debt, 659–660

unsecured debt, 659–660

zero-coupon bonds, 659

Corporate debt funding instruments, 658–664

Correlation, 719–721

Cost of goods sold, 679

Cost of leasing, 707–708

Costs of deals, 653–655

monitoring costs, 654–655

screening costs, 654–655

search costs, 654

transactions costs, 653–654

direct, 653

indirect, 653

Coupon rate, 659

Covariance, 719–721

covariance matrix, 736

Coverage ratios, 689–690

Credit rating, 668

Credit risk, 668–675

credit risk transfer (CRT) mechanisms, 674–675

Creditor rights, 669–670

Cumulative distribution function, 722–724

Current assets, 694

Current ratio, 685

Currently callable issue, 661

D

Deal terms, 653–657

bank loans, 663–664

investment-grade loan, 663

leveraged loan, 664

commercial paper, 663

costs of deals, 653–655, See also individual entry

informational conditions, 655–657

syndicated bank loans, 664

bullet loans, 664

method of assignment, 664

participation, 664

senior bank loans, 664

Debtor in possession (DIP), 670

Debt-to-assets ratio, 688

Default, 672–673

default loss rate, 672

default risk, 668–673

Degrees of freedom, 726

Depreciation, 679

Determinants, 736–737

Diagonal matrix, 735

Diluted earnings per share, 679

Direct cash flow from leasing, 710–712

valuing, 712–713

Direct transaction costs, 653

Dispersion for random variables, 718–719

Disposal of equipment, 708–709

Distressed debt, 668

Domain of attraction, 726

Downgrade risk, 673–674

rating migration table, 673–674

DuPont system, 683–685

E

Earnings before interest and taxes (EBIT), 682, 687

Earnings per share (EPS), 679–680

Eigenvalues/Eigenvectors, 743–744

Equipment leases, types of, 706–707

nontax-oriented leases, 706

Equipment trust certificates (ETCs), 660

Equity, 679

equity multiplier, 685

shareholders’ equity, 679

Equivalent loan, 712–714

for lease, 714

Expected value of random variable, 717

F

Financial leverage ratios, 688–690

Financial ratio analysis, 682–691

return-on-investment ratios, 682–685

Financial statements, 677–678

accounting principles, 677–678

Firm commitment, 666

First mortgage bonds, 660

First refunding mortgage bonds, 660

Fixed-asset turnover, 688

Fixed-charge coverage ratio, 690

G

General and refunding mortgage bonds, 660

Generally accepted accounting principles (GAAP), 677

Gross profit margin, 686

Gross spread, 666

H

Hard put, 662

High-yield bonds or junk bonds, 668

Homemade diversification argument, 697

Homogeneous system, 737

I

Imperfect capital market

in acquisitions in, 699

mergers in, 699

Incentive hypothesis, 671

Income statement, 679–680

cost of goods sold, 679

depreciation, 679

Inconsistent system, 737

Indirect transaction costs, 653

Informational asymmetries, 656–657

Informational conditions, 655–657

information and contract types, 655–656

informational asymmetries, 655–656

Integral calculus, 724

Interest coverage ratio, 689

Internal Revenue Service (IRS), 706

Inventory turnover ratio, 687

Inverse matrix, 742

Investment bankers, 665–667

Investment cash flows, 692, 695–696

Investment-grade bonds, 668

Investment-grade loan, 663

Investment-grade sector, 668

Involuntary bankruptcy, 670

Issuance of securities, 665–657

public issuance, 665–666

J

Joint probability of occurrence, 719

L

Lease financing, 705–714

cost of leasing, 707–708

direct cash flow from leasing, 710–712

equivalent loan concept, 713–714

lease versus borrow-to-buy decision, 709–714, 709n3

leasing fundamentals, 705–707

valuing a lease, 709–714

Leveraged lease, 707

Leveraged loan, 664

Liabilities, 678

Linear equations

systems of, 737–738

augmented matrix, 737

consistent system, 737

constant terms, 737

homogeneous system, 737

inconsistent system, 737

non-homogeneous system, 737

Linear independence and rank, 738–739

Liquid assets, 685

Liquidation, 670

Liquidity, 685–686

Location parameter, 724

Lognormal distribution, 727

London Interbank Offered Rate (LIBOR), 659

M

Mandatory sinking fund, 661

Matrices, 733–735, See also Square matrices

dimensions of, 735

elements of, 734

rectangular matrix, 735

square matrix, 735

Matrix algebra, 733–744, See also Vectors

fundamentals of, 733–744

Matrix operations, 740–742

addition, 741

characteristic equation, 743

characteristic polynomial, 743

inverse matrix, 742

multiplication, 741–742

orthogonal matrix, 742

transpose, 740–741

Maturity, 658

term to maturity, 658

Medium-term note (MTN), 662–663

structured MTNs, 663

Merger strategies, 697–699

Method of assignment, 664

Monitoring costs, 654–655

Mortgage bond, 659

Multiplication

of matrices, 741–742

of vectors, 740

N

n×n identity matrix, 735

n-dimensional vector, 733

Net cash flows (NCF), 680, 686

Net credit sales, 687

Net lease, 705

Net profit margin, 687

Net working capital, 685, 694

Net working capital-to-sales ratio, 686

Non-homogeneous system, 737

Noninvestment-grade sector, 668

Nontax-oriented leases, 706

Normal distribution, 724–726

location parameter, 724

shape or dispersion parameter for σ, 724

standard normal distribution, 724

summation stability, 724

Normal distribution, density function of, 725

O

Obsolescence risk, 708–709

Operating cash flows, 692–694

Operating cycle, 685

Operating profit margin, 687

Operations, 739

Opportunity costs, 693

Orthogonal matrix, 742

P

Participation, syndicated bank loans, 664

Paying off bonds, provisions for, 660–661

Perfect capital market, 697–698

acquisitions in, 697–698

mergers in, 697–698

Potential dilution of earnings, 679

Principal component analysis (PCA), 745–749

Probability concepts, 717–721

probability density function, 722–724

probability distribution function, 722–724

Profitability ratios, 686–687

Project's incremental cash flows, 692

Project's operating cash flows (OCF), 692

Public issuance of securities, 665–666

Q

Quick ratio, 684

R

Random variable

dispersion for, 718–719

expected value of, 717

Rating migration table, 673–674

Recapture of depreciation, 695

Recontracting process hypothesis, 671

Recovery rates, 672–673

Rectangular matrix, 735

Reoffering price, 664

Reorganization, 670–671

Residual value, 706

Return on equity, 683

Return-on-investment ratios, 682–685

basic earning power ratio, 682

Row vectors, 733

S

Scalar product, 740

Screening costs, 654–655

Search costs, 654

Secured debt, 659–660

Securities, private placement of, 666–667

Selling group, 666

Senior bank loans, 664

Shape or dispersion parameter, 724

Shareholders’ equity, 679

Simple interest rate per period, 730

Single-investor leases, 707

Sinking funds, 661, 690

Skewsymmetric square matrix, 736

Soft put, 662

Square matrices, 735–736

covariance matrix, 736

diagonal matrix, 735

n×n identity matrix, 735

skewsymmetric, 736

symmetric, 736

zero matrix, 735

Stable distributions, 727–728

Standard normal distribution, 724

Stated annual interest rate, 730

Statement of cash flows, 680

Statement of stockholders’ equity, 680–681

Stockholders’ equity, statement of, 680–681

Strategic bargaining process hypothesis, 672

Structured MTNs, 663

Structured note, 663

Student's-t-distribution, 726

Summation stability, 724

Symmetric square matrix, 736

Syndicated bank loans, 664

T

Tax-oriented true lease, 706

Term to maturity, 658

Times interest-covered ratio, 689

Total asset turnover ratio, 688

Transactions costs, 653–654

direct, 653

indirect, 653

Transpose operation, 739–741

Triple-net lease, 705

True lease, 706

U

Underwriter discount, 666

Underwriting syndicate, 666

Unsecured debt, 659–660

V

Value of the lease, 712

Vectors, 733–734

column vectors, 733

components of, 733

n-dimensional vector, 733

operations, 739–740

addition, 739–740

multiplication, 740

scalar product, 740

transpose, 739

row vectors, 733

Voluntary bankruptcy, 670

W

Working capital, 685, 694

Z

Zero matrix, 735

Zero-coupon bonds, 659