Introduction to Finance

Dividend reinvestment plans (DRIPS)
Allow shareholders to purchase additional 
shares automatically with all or part of the 
investor’s dividends
Cost-volume-profi t analysis
Used by man-
agers for fi nancial planning to estimate the 
fi rm’s operating profi ts at diff erent levels of 
unit sales
Covenants
Impose restrictions or extra duties 
on the fi rm
Credit bureaus
Not-for-profi t institutions 
that obtain credit information about business 
fi rms and individuals
Credit cards
Provide predetermined credit 
limits to consumers at the time the cards are 
issued
Credit money
Money backed by the credit-
worthiness of the issuer
Credit rating
Indicates the expected like-
lihood that a borrower will miss interest or 
principal payments and possibly default on 
the debt obligation in the form of a loan, 
mortgage, or bond
Credit risk (default risk)
The chance of 
nonpayment or delayed payment of interest or 
principal
Credit score
A number that indicates an 
individual’s creditworthiness or likelihood that 
a debt will be paid according to the terms that 
were initially agreed to
Credit unions
Cooperative 
nonprofi t organi-
zations that exist primarily to provide member 
depositors with consumer credit
Cross-sectional analysis
Diff erent fi rms are 
compared at the same point in time
Crowding out
Lack of funds for private 
borrowing caused by the sale of government 
obligations to cover large federal defi cits
Cumulative preferred stock
Requires 
that 
before dividends on common stock are paid, 
preferred dividends must be paid for the current 
period and for all previous periods in which 
preferred dividends were missed