Stephen A. Ross,
Massachusetts Institute of Technology
Randolph W. Westerfield,
University of Southern California
Bradford D. Jordan,
University of Kentucky
Gordon S. Roberts,
York University
| Bankruptcy | A legal proceeding for liquidating or reorganizing a business. Also, the transfer of some or all of a firm's assets to its creditors.
(See Refer to page 552)
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| Business Risk | The equity risk that comes from the nature of the firm's operating activities.
(See Refer to page 537)
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| Direct Bankruptcy Costs | The costs that are directly associated with bankruptcy, such as legal and administrative expenses.
(See Refer to page 543)
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| Financial Distress Costs | The direct and indirect costs associated with going bankrupt or experiencing financial distress.
(See Refer to page 543)
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| Financial Risk | The equity risk that comes from the financial policy (i.e., capital structure) of the firm.
(See Refer to page 537)
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| Homemade Leverage | The use of personal borrowing to change the overall amount of financial leverage to which the individual is exposed.
(See Refer to page 531)
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| Indirect Bankruptcy Costs | The difficulties of running a business that is experiencing financial distress.
(See Refer to page 533)
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| Interest Tax Shield | The tax saving attained by a firm from interest expense.
(See Refer to page 538)
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| Liquidation | Termination of the firm as a going concern.
(See Refer to page 553)
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| M&M Proposition I | The value of the firm is independent of its capital structure.
(See Refer to page 533)
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| M&M Proposition II | A firm's cost of equity capital is a positive linear function of its capital structure.
(See Refer to page 534)
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| Reorganization | Financial restructuring of a failing firm to attempt to continue operations as a going concern.
(See Refer to page 553)
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| Static Theory of Capital Structure | Theory that a firm borrows up to the point where the tax benefit from an extra dollar in debt is exactly equal to the cost that comes from the increased probability of financial distress.
(See Refer to page 544)
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| Unlevered Cost of Capital | The cost of capital of a firm that has no debt.
(See Refer to page 539)
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2002 McGraw-Hill Higher Education