Finance Test 4 Flashcards
(55 cards)
Credit Policy
Generically, a business’s rules and regulations regarding granting credit and collecting from buyers that take credit; for healthcare providers, the business’s policy regarding self pay and indigent patients
Free Trade Credti
the amount of credit received from a supplier that has no explicit cost attached; in other words, credit received during the discount period
Costly trade credit
the credit taken by a company from a vendor in excess of the free trade credit
Compensating Balance
a minimum checking account balance that a business must maintain to compensate that bank for other services or loans
Line of credit
a loan arrangement in which a bank agrees to lend some maximum amount to a business over some designated period
What are accruals? What is their role in short term Financing?
accruals increase automatically as a firm’s operations expand. this type of short term debt is free in the sense that no explicit interest is paid on funds raised through accruals
What is the “price” of debt capital?
The price takes the form of dividends and capital gains (or losses)
What four factors affect the cost of money?
investment opportunities, time preferences for consumption, risk and inflation
Term Loan
long term debt financing obtained directly from a financial institution, often a commercial bank
Bond
long term debt issues by a business or government unit and generally sold in $1,000 or $5,000 increments to a large number of individual investors
Corporate Bond
debt issued (sold) by for profit businesses, as opposed to government or tax exempt bonds
zero coupon bonds
a bond that pays no interest. it is bought as a discount from par value, so its return comes solely from price appreciation
Mortgage bond
a bond issued by a business that pledges real property as collateral
Debenture
an unsecured bond, meaning one that has no assets pledged as security (collateral)
Municipal Bond
a tax exempt bond issues by a govt entity, such as a state, city, or healthcare financing authority
Private Placement
the sale of newly issues securities to a single investor or small group of investors
Junior Mortgage
second mortgages are sometimes called junior mortgages because they are junior in priority to claims of senior mortgages, or first mortgage bonds.
Key Difference between a private placement and a public issue?
Interest rate on private placements is generally higher that the interest rate on public issues. the administrative costs of placing an issue are less for private placements
What is the purpose of a bond pool?
raise funds by issuing municipal bonds that are then loaned to not for profit hospitals that are too small to ‘tap’ the muni market directly
Indenture
a legal document that spells out the rights and obligations of both bondholders and the issuing corporations; the loan agreement for a bond
Promissory Note
a doc that specifies the terms and conditions of a loan; also called loan agreement or in the case of bonds, indenture
Restrictive Covenant
a provision in a bond indenture or loan agreement that protects the interests of lenders by restricting the actions of management
Trustee
an individual or institution, typically a commercial bank, that represents the interests of bondholders
call Provision
a provision in a bond indenture (contract) that gives the issuing company the right to redeem (call) the bond prior to maturity
