Glossary 631will be unintelligible to that third party. Secure Web sites use encryption to protect
confidential data that users might send them, such as credit card numbers.
Equity net cash f lows:Those cash f lows available to pay out to equity holders (in
the form of dividends) after funding operations of the business enterprise, making
necessary capital investments, and ref lecting increases or decreases in debt financing.
Equity risk premium:A rate of return in addition to a risk-free rate to compensate
for investing in equity instruments because they have a higher degree of probable risk
than risk-free instruments (a component of the cost of equity capital or equity dis-
count rate).
ERP:An integrated software package that processes and controls all the functions of
a company, including order processing, inventory control, purchasing, invoicing, fi-
nancial systems, and customer management.
Exercise price:Same as Strike price.
Exotics:Engineered derivatives that contain unusual features, or nonstandard con-
tingent cash f low formulas.
Extraordinary gains and losses: Revenues or gains and expenses or losses that are
both unusual and nonrecurring.
Fair market value: The price, expressed in terms of cash equivalents, at which
property would change hands between a hypothetical willing and able buyer and a
hypothetical willing and able seller, acting at arm’s length in an open and unre-
stricted market, when neither is under compulsion to buy or sell and when both have
reasonable knowledge of the relevant facts.
Family limited partnership:An estate planning device which may entitle a donor
to a discount on the value of gifts while allowing the donor to maintain control over
the assets given away.
FAQ : Frequently asked questions. A file of questions that are frequently asked about
a specific product or topic that is available to users through the Internet or intranet.
FASB:See Financial Accounting Standards Board.
FIFO:A method of computing cost of sales that includes the oldest inventory costs
first in the computation of cost of sales. That is, the cost of goods purchased first
(first-in) are included first (first-out) in the computation of cost of sales.
Financial Accounting Standards Board (FASB):The principal private sector
organization with the responsibility of establishing U.S. generally accepted account-
ing principles (see GAAP).
Fire wall: A hardware and software device that protects an organization’s computer
systems and data from possible electronic intrusion from external sources. Computers
that are connected to the Internet would be under constant threat from hackers and
snoops without the protection of a fire wall.
Firm underwriting:An arrangement by which the underwriters agree themselves
to purchase all the shares of a public offering.
Fixed costs: Those costs that are not responsive to changes in volume over the rele-
vant range, but which respond to factors other than volume. Fixed costs are some-
times known as “period costs” when they depend on time (e.g., rent, depreciation,
insurance).
Flexible budget: A budget prepared for more than one level of activity, covering
several levels within the relevant range of activity. Also called a dynamic budget.