Fundamentals of Corporate Finance

Glossary

A

accounting rate of return (ARR) a rate of return on a capital project based on average net income divided by average book value over the project's life; also called the book value rate of return

agency conflicts conflicts of interest between a principal and an agent

agency costs the costs arising from conflicts of interest between a principal and an agent—for example, between a firm's owners and its management

amortization schedule a table that shows the loan balance at the beginning and end of each period, the payment made during that period, and how much of that payment represents interest and how much represents repayment of principal

amortizing loan a loan for which each loan payment contains repayment of some principal and a payment of interest that is based on the remaining principal to be repaid

angels (angel investors) wealthy individuals who invest their own money in new ventures

annual percentage rate (APR) the simple interest rate charged per period multiplied by the number of periods per year

annuity a series of equally spaced and level cash flows extending over a finite number of periods

annuity due an annuity in which payments are made at the beginning of each period

asset substitution problem the incentive that stockholders in a financially leveraged firm have to substitute more risky assets for less risky assets

average tax rate total taxes paid divided by taxable income

B

balance sheet financial statement that shows a firm's financial position (assets, ...