Introduction to Corporate Finance

Glossary

G–20

and it receives the strike price as a

cash inflow.

weighted average cost of capital

(WACC) The after-tax, weighted

average required return on all types

of securities issued by a company,

where the weights equal the

percentage of each type of financing

in a company’s overall capital

structure.

wire transfer An electronic

communication that removes funds

from the payer’s bank and deposits

funds in the payee’s bank on a same-

day basis via bookkeeping entries.

Y

Yankee bonds Bonds sold by foreign

corporations to US investors.

yield curve A graph that plots the

relationship between time to maturity

and yield to maturity for a group of

equal-risk bonds.

yield spread The difference in yield

to maturity between a corporate bond

and a government bond at roughly the

same maturity.

yield to maturity (YTM) The discount

rate that equates the present value

of the bond’s cash flows to its market

price.

Z

Z-score The product of a quantitative

model for forecasting insolvency that

uses a blend of traditional financial

ratios and a statistical technique

known as multiple discriminant

analysis. In some tests, the Z score has

been found to be about 90% accurate

in forecasting insolvency one year in

the future and about 80% accurate in

forecasting it two years in the future.

zero-balance accounts (ZBAs) The

simplest approach to share valuation

that assumes a constant dividend

stream. Disbursement accounts that

always have an end-of-day balance

of zero. The purpose is to eliminate

nonearning cash balances in corporate

checking accounts.

zero growth model The simplest

approach to share valuation that

assumes a constant dividend stream.