Introduction to Corporate Finance

Glossary

G–12

company’s bank, which processes and

deposits the payments.

London Interbank Offered Rate

(LIBOR) The interest rate that

large UK banks charge each other

for overnight loans. Widely used as

a benchmark interest rate for short-

term floating-rate debt.

long position To own an option or

another security.

long-term debt Debt that matures

more than one year in the future.

low-regular and extra payout

policy Policy of a company paying

a low regular dividend supplemented

by an additional cash dividend when

earnings warrant it.

M

mail float The time delay between

when payment is placed in the mail

and when payment is received.

mail-based collection

system Collection system in

which processing centres receive

the incoming mail payments,

separate cheques from remittance

information, prepare cheques

for deposit and send remittance

information to the accounts

receivable department.

maintenance clause A clause in a lease

that specifies who is to maintain the

assets and make insurance and tax

payments.

maintenance margin Margin level

required to maintain an open position.

managed floating rate system A

hybrid currency system in which a

government loosely fixes the value of

the national currency relative to one

or more other currencies.

management buyout (MBO) The

transformation of a public corporation

into a private company by the current

managers of the corporation purchasing

the voting shares, often with the

assistance of a private equity company.

managing director or chief

executive officer (CEO) The top

company manager with overall

responsibility and authority for

managing daily company affairs and

carrying out policies established by

the board.

manufacturing resource planning II

(MRPII) Expands on MRP by using

a complex computerised system to

integrate data from many departments

and generate a production plan for

the company along with management

reports, forecasts, and financial

statements.

margin account The account into

which the investor must deposit the

initial margin.

market/book (M/B) ratio A measure

used to assess a company’s future

performance by relating its market

value per share to its book value per

share.

market portfolio A portfolio that

invests in every asset in the economy.

market risk premium The additional

return earned (or expected) on the

market portfolio over and above the

risk-free rate.

marking-to-market Daily cash

settlement of all futures contracts.

matching strategy Financing strategy

in which a company finances

permanent assets (fixed assets plus

the permanent component of current

assets) with long-term funding

sources and finances its temporary

or seasonal asset requirements with

short-term debt.

material requirements planning

(MRP) A computerised system

used to control the flow of resources,

particularly inventory, within the

production-sale process.

maturity date The date when a bond’s

life ends and the borrower must make

the final interest payment and repay

the principal.

merger A transaction in which two or

more business organisations combine

into a single entity.

merger of equals A merger of two

companies that are roughly the same

size; usually friendly.

mezzanine debt A hybrid form of

debt funding that is structured with

some sort of equity component – for

example, a convertible structure, like

a warrant. This allows mezzanine

investors to be placed ahead of equity

investors in terms of seniority, should

the company receiving funding fall

into financial difficulty. However, it

also gives the mezzanine investors the

option to convert their investments

into an equity stake and benefit from

the upside of equity ownership,

should the company become

extremely successful.

mixed offerings A merger financed

with a combination of cash and

securities.

mixed stream A series of unequal cash

flows reflecting no particular pattern.

money market mutual

funds Professionally managed short-

term investment portfolios used by

many small companies and some large

companies.

Monte Carlo simulation A sophisticated

form of sensitivity analysis that

calculates the decision variable, such

as NPV, using a range or distribution

of potential outcomes for each of a

model’s assumptions.

mortgage bond A bond secured by real

estate or buildings.

multinational corporations

(MNCs) Businesses that operate in

many different countries.

mutually exclusive projects Two or

more projects for which accepting one

project implies that the others cannot

be undertaken.