Question

Write short notes on the following concepts

1. Capitalization
2. Capital market
3. Capital market line
4. Capital rationing
5. Capital structure

                                     (f )Cash budget

1. Payback rule
2. Perpetuity
3. Preferred stocks
4. Primary issue
5. Principle agent problem
6. Profitability index
7. Return on investments
8. Re-purchase agreement
1. Salvage value
10. Secondary issue
11. Secondary market

Answer 1

A.Capitalization, in accounting, is when the costs to acquire an asset are expensed over the life of that asset rather than in the period it was incurred. In finance, capitalization is the sum of a corporation's stock, long-term debt, and retained earnings.

B.Capital Market, is used to mean the market for long term investments, that have explicit or implicit claims to capital. Long term investments refers to those investments whose lock-in period is greater than one year.

C.Capital market line (CML) is a graph that reflects the expected return of a portfolio consisting of all possible proportions between the market portfolio and a risk-free asset.

D.Capital rationing is a process through which a limited capital budget is allocated between different projects in a way that maximizes the shareholder's wealth.