Acquisition premium: Difference between the price paid to acquire a firm and the market price prior to the

acquisition. Acquisition price: Price that will be paid by an acquiring firm for each of the target firms shares. Adjustable rate preferred stock: Preferred stock where the preferred dividend rate is pegged to an external index, such as the treasury bond rate. Agency costs: Costs arising from conflicts of interest between two stakeholders; examples would be managers & stockholders as well as stockholders & bondholders. Asset beta: The beta of the assets of investments of a firm, prior to financial leverage. Can be computed from the regression beta (top-down) or by taking a weighted average of the betas of the different businesses (bottom-up). Baumol model: Model for estimating an optimal cash balance, given the cost of selling securities and the interest rate that can be earned on marketable securities, for firms with certain cash inflows and outflows.

Baumol model: Model for estimating an optimal cash balance, given the cost of selling securities and the interest rate that can be earned on marketable securities, for firms with certain cash inflows and outflows. Building the book: Process of polling institutional investors prior to pricing an initial offering, to gauge the extent of the demand for an issue.
Cap: The maximum interest rate on a floating rate bond

Capital rationing: Situation that occurs when a firm is unable to invest in projects that earn returns greater than the hurdle rates because it has limited capital (either because of internal or external constraints). Cashflow return on investment (CFROI): Internal rate of return on the existing investments of the firm, estimated in real terms, using the original investment in the assets, their remaining life and expected cash flows. Cash slack: Combination of excess cash and limited project opportunities in a firm. Consolidation (in mergers): A combination of two firms where a new firm is created after the merger, and both the acquiring firm and target firm stockholders receive stock in this firm.
Conversion premium: Excess of convertible bond market value over its conversion value

Default spread: Premium over the riskless rate that you would pay (if you were a borrower) because of default risk. Deferred tax asset: Asset created when companies pay more in taxes than the taxes they report in the financial statements.
Divestiture value: Value of an asset to the highest potential bidder for it

Divestiture: Sale of asset, assets or division of a firm to third party. Dividend capture (arbitrage): Strategy of buying stock before the ex-dividend day, selling it after it goes ex-dividend and collecting the dividend. Equity approach: The accounting approach used to show the income from ownership of securities in another firm, where it is a minority, active investment. A proportional share (based upon ownership proportion) of the net income and losses made by the firm in which the investment was made, is used to adjust the acquisition cost. Equity carve out (ECO): Action where a firm separates out assets or a division, creates shares with claims on these assets, and sells them to the public. Firm generally retains control of the carved out asset.
Eurobonds: Bonds issued in the local currency but offered in foreign markets. Eurodollar and Euroyen bonds are examples Eurodollar bonds: Bonds denominated in U.S. dollars and offered to investors globally

Economic Value Added (EVA): Measure of dollar surplus value created by a firm or project. It is defined to be the difference between the return on capital and the cost of capital multiplied by the capital invested.

Free cash flows (Jensen): Cash flows from operations over which managers have discretionary spending power

Implied premium: The premium estimated based upon the current level of stock prices and expected cash flows from buying stocks. The internal rate of return that would make the present value of the cash flows equal to today's stock prices is the expected return on equity. Subtracting out the riskless rate yields the implied premium. Incremental cash flows: Cash flows that arise as a consequence of a new investment. It is the difference between the cash flow a firm would have had without the new investment and the cash flow with the new investment. Internal equity: Cash flows generated by the existing assets of a firm that are reinvested back into the firm.
Net lease: A capital lease where the lessor is not obligated to pay insurance and taxes on the asset, leaving these obligations up to the lessee; the lessee consequently reduces the lease payments Open market repurchase: Stock repurchase where firms buy shares in securities markets at the prevailing market price, and do not have to offer the premiums required for tender offers

Operating leverage: A measure of the proportion of the costs that are fixed costs; the higher the proportion the greater the operating leverage. Poison pills: Securities, the rights or cash flows on which are triggered by hostile takeovers. The objective is to make it difficult and costly to acquire control Pooling accounting: Accounting approach for acquisitions where the book values of the two firm involved in the acquisition are added up, and the market value of the acquisition is not shown on the balance sheet.
Purchase of assets: An action where one firm acquires the assets of another, though a formal vote by the shareholders of the firm being acquired is still needed

Spin off: Action that separates out assets or a division and creates new shares with claims on this portion of the business. Existing stockholders in the firm receive these shares in proportion to their original holdings. Firm usually gives up control over the assets. Split off: Action that separates out assets or a division and creates new shares with claims on this portion of the business. Existing stockholders are given the option to exchange their parent company stock for these new shares. Split up: Action where firm splits into different business lines, distributes shares in these business lines to the original stockholders in proportion to their original ownership in the firm, and then ceases to exist. Stand-by guarantees: Underwriting agreement where the investment banker provides back-up support, in case the actual price falls below the offering price. Standstill agreement: An agreement entered into between a hostile acquirer and a firm, where the hostile acquirer (in return for a payment) agrees not to buy additional stock in the firm for a period of time. Start-up venture capital: Venture capital that allows firms that have established products and concepts to develop and market them.
Synergy: Increase in value arising from the combination of two firms, projects or assets that would not arise if the firms, projects or assets were independently run Unlevered beta: The beta of a firm, under the scenario that it is all equity-financed. It is determined by the businesses that the firm is in, and the operating leverage it maintains in these businesses. Can be computed from the regression beta (top-down) or by taking a weighted average of the betas of the different businesses (bottom-up).

Value ratio: Ratio of PBV Ratio to return on equity of a firm. Value/sales ratio (VS),: Ratio of value per share to sales per share.

Venture capital method: Value estimated by applying a price-earnings multiple to the earnings of the private firm are forecast in a future year, when the company can be expected to go public.