Essential Financial Concepts: Dividends, M&A, and Derivatives

19.The clientele effect:implies that favoring high dividend policies and the factor favouring loan dividend policies cancell each other out.Individual sin high tax brackets: zero or low dividend payouts.individuals in low tax brackets: low to medium dividend payout. Tx free institutions: medium dividend payout. corportaions: high pay out of dividends.20.Synergy in a merger and acquisition process:synergy:the additional value that rises from the merger of 2 companies.The value of Vab=Va+Vb.sources:REVENUE EVIROMENT, COSTS REDUCTIONS(ec scale), tax gains, reduced capital requirements.21.Intrinsic and time value of an option:time value: the premium that an investor is willing to ay over its aument intrinsic value. The most time that remains until expiration the higher Time value.Intinsic value: the value the option would have if it has exercised today. The amount by which the strike is in the money as compared to the stocks or bonds value on the market.23.Characteristics of a future contract: a financial derivative instrument variant of forward contracts that agree Toby or sell a particular quantity or a given asset at predetermined price in a specific date in the future.characteristics:seller can choose to deliver the whaet any day of the delivery month.Future contracts are traded on exchange market. Prices of future contracts are marked to the market daily.25.WORKING CAPITAL:shows how financing stable a company is in the short run and it is used to calculate the cash cycle and the operating cycle which are used to increase the efficiency of the companies operations.27.Operating cycle:OC:#days the company takes to acquire inventory sell it and collect for it.=inventory period+aacounts receivable period

IP=365*1/COGS/avg inventory)+ARP=365*1/credit sales/avg inventory).28.CASH CYCLE:

the days that pass before we collect the cash from a sale since the day that we pay for the inventory. The larger the cash cycle the more financing is required. CC=op cycle-payable period. PP=365*1/COGS/avg payables).31.Call and put options: call opition: the holder has teh right not the obligation to purchase a security on or before over.A given date at an agreed price. If it is not in the money is worthless. In the money= market value-strike/exercise price.put option: the holder has teh right not the obligation to sell a security on or before some time in the future and upon agreed price. In the money= strike/exercise price-market price.32.Options against financial insolvency:bankrupcy: frims that choose or are not able to make required payments to creditors on time have 2 options:.*bankrupcy liquidations:termination of the firm+ sale of its assets the process will be distributed to creditors and shareholders. *bankrupcy reorganization: the option of keeping the firm a going concern may involve issuing new securities normally involves reestructuring the capital structure of the company leaving some provisions of payments for creditors