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The Value of Debt: How to Manage Both Sides of a Balance Sheet to Maximize Wealth by Thomas J. Anderson

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Glossary*

ABLF: Assets-based loan facility. This is a broad term to represent all types of lines of credit that are secured by assets that are on deposit at financial institutions. It may be a purpose or nonpurpose facility.

amortized loan: Requires the borrower to repay parts of the loan amount over time.

available credit: The amount of credit available on your line of credit or ABLF. This will typically fluctuate according to the value of the assets securing the line.

average cost of capital: Typically called the weighted average cost of capital, or WACC. For firms it is the weighted average cost of a firm’s common equity, preferred stock, and debt. Individuals need to apply a similar framework and consider the cost of debt compared to the opportunity cost of equity with their investment decisions.

average tax rate: Tax bill divided by taxable income. This is also called your effective tax rate.

balloon payment: A large final payment on a loan.

call provision: A written agreement between an issuing corporation and its bondholders that gives the corporation the option to redeem the bond at a specified price before the maturity date.

capital structure: The mix of various debt and equity capital maintained by a firm or individual.

collateral: Assets that are pledged as security for payment of debt.

correlation: A standardized statistical measure of the dependence of two random variables. Defined as the covariance divided by the standard deviations of the two variables.

cost of debt: ...

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