serve as intermediaries by channeling the savings of individuals, businesses, and governments into loans or investments

some financial institutions accept customers savings deposits and lend this money to other customers or to firms, other invest costumers savings in earning assets such as:

financial institutions are required by ________ to operate within established regulatory guidelines

for financial institutions the key suppliers of funds and the key demanders of funds are individuals, businesses, and governments

the _______ that individual consumers place in financial institutions provide these institutions with a large portion of their _______ . Individuals not only supply funds to financial institutions but also demand funds from them in the form of loans.

business firms also deposit some of their funds in financial institutions, primarily in checking accounts with various:

like individuals, firms borrow funds from these institutions, but firms are net demanders of funds:

________ maintain deposits of temporarily idle funds, certain tax payments, and social security payments in commercial banks

the major ________ in the US economy are commercial banks, savings and loans, credit unions, saving banks, insurance companies, mutual funds, and pension funds

_______ are among the most important financial institutions in the economy because they provide savers with a secure place to invest funds and they offer both individuals and companies loans to finance investments, such as the purchase of a new home or the expansion o a business

_________ are institutions that assist companies in raising capital, advise firms on major transactions such as mergers or financial restructurings, and engage in trading and market making activities

________ are forums in which suppliers of funds and demanders of ufnds can transact business directly

the 2 key financial markets are:

to raise money, firms can use either ________ or ________

a ____________ involves the sale of a new security directly to an investor or group of investors, such as an insurance company or pension fund

most firms, raise money through a ____________ of securities, which is the sale of either bonds or stocks to the general public

financial market in which securities are initially issued, the only market in which the issuer is directly involved in the transaction

financial market in which preowned securities (those that are not new issues) are traded

the ___________ is created by a financial relationship between suppliers and demanders of short-term funds (funds with maturities of 1 year or less)

most ___________ market transactions are made in marketable securities

short-term instruments such as US treasury bills, commercial paper, and negotiable certificates of deposit issued by government, business, and financial institutions, respectively

the international equivalent of the domestic money market is called the:

this market for ________ bank deposits is denominated in US dollars or other major currencies

____________ deposits arise when a corporation or individual makes a bank deposit in a currency other than the local currency of the country where the bank is located

the _______ is a market that enables suppliers and demanders of long-term funds to make transactions

the key capital market securities are:

are long-term debt instruments used by business and government to raise large sums of money, generally from a diverse group of lenders

shares of _________ stock are units of ownership or equity in a corporation. Common stockholders earn a return by receiving _______ (periodic distributions of cash) or by realizing increases in share price

is a special form of ownership that has features of both a bond and common stock. Preferred stockholders are promised a fixed periodic dividend that must be paid prior to payment of any dividends to common stockholders

although US _________ are by for the worlds largest, there are important debt and equity markets outside the US

a bond that is issued by a foreign corporation or government and is denominated in the investors home currency and sold in the investors home market

the market in which corporations and governments typically issue bond denominated in dollars and sell them to investors located outside the UD

a market that allows corporations to sell blocks of shares to investors in a number of different countries simultaneously

the cost of capital, which is the rate of return that financial managers use to ________ all possible ________ opportunities to determine which ones add value to the firm

represents the firms cost of financing and is the minimum rate of return that a project must earn to increase firm value

a firms cost of capital reflects the expected ____________________________________, and it reflects the entirety of the firms financing activities

by weighting the cost of each source of financing by its _________________ in the firms target capital structure, the firm can obtain a: ____________________.

the __________________________ available to a firm because they are the sources that supply the financing necessary to support the firms capital budgeting activities

is the process of evaluating and selecting long term investments

there are 4 basic sources of long term capital for firms:

a firms existing mix of financing sources ay reflect its _______________________, it is ultimately the marginal cost of capital necessary to raise the next marginal dollar of financing that is relevant for evaluating the firms future investment opportunities

is the financing cost associated with new funds raised through long term borrowing

the ___________________ from the sale of a bond or any security ,a ret the funds that the firm receives from the sale

represent the total costs of issuing and selling securities

these costs apply to all public offerings of securities (debt, preferred stock, and common stock), they include 2 components:

costs or compensation earned by investment barkers for selling the security

costs or issuer expenses such as legal and accounting costs:

the before tax cost of debt, $$r_d$$ is simply the rate od return the firm must pay on new borrowing. A firms before tax cost of debt for bonds can be found in any of three ways

a relatively quick method for finding the before tax cost of debt is to observe the yield to maturity (YTM) on the firms existing bonds or bonds of similar risk issued by other companies

this approach finds the before tax cost of debt by calculating the YTM generated by the bonds cash flows, given the net proceeds that the firm receives when it issues the bonds. From the issuers point of view, this value is the cost to matutity of the cash flows associated with the debt

the interest payments paid to bond-holders are tax deductable for the firm so the interest expense on debt reduces the firms taxable income and therefore the firms tax liability

is the ratio of the preferred stock dividend to the firms net proceeds from the sale of the preferred stock

the cost of common stock is the return required on the stock by investors in the marketplace

there are two forms of common stock financing:

is the rate of which investors discount the expected common stock dividends of the firm to determine its share value

2 techniques are used to measure the cost of common stock equity

is the difference between the market price and the issue price, which is the price paid by the primary market investors

reflects the expected average future cost of capital over the long run, found by weighting the cost of each specific type of capital by its proportion in the firms capital structure

refers to the effects that the fixed costs have on the returns that shareholders earn, higher leverage generally results in higher but volatile returns

managers influence leverage by choosing a specific _________________ which is the mix of long term debt and equity maintained by a firm

is concerned with the relationship between the firms sales revenue and its earnings before interest and taxes (EBIT) or operating profits

when ________________ such as cost of good sold and operating expenses are largely fixed, small changes in revenue will lead to much larger changes in EBIT

is concerned with the relationship between the firms EBIT and its common stock earnings per share (EPS)

the level of sales necessary to cover all operating costs. the point at which EBIT=$0

it enables the firm to obtain the use of certain fixed assets for which it must make a series of contractual, periodic, tax-deductible payments

is the receiver of the services of the assets under the lease contract

is the owner of the assets

the 2 basic types of leases that are available to a business are:

a cancelable contractual arrangement whereby the lessee agrees to make periodic payments to the lessor, often for 5 or fewer years, to obtain an assets services

a longer term lease than an operating lease that is noncancelable and obligates the lessee to make payments for the use of an asset over a predefined period of time

financial leases are commonly used for:

a lease agreement typically specifies whether the lessee is responsible for:

operating leases normally include ________________ requiring the lessor to maintain the assets and to make insurance and tax payments

provisions especially common in operating leases that grant the lesse the right to release assets at the expiration of the lease

provisions frequently included in both operating and financial leases that allow the lessee to purchase the leased asset at maturity, typically for a prespecified price

the decision facing firms needing to acquire new fixed assets; whether to lease the assets or to purchase them, using borrowed funds or available liquid resources

DOL:

the 2 most common fixed financial costs are: