Introduction to Finance

Net present value (NPV)
Present value of a 
project’s cash fl ows minus its cost
Net working capital
Dollar amount of a 
fi rm’s current assets minus current liabilities; 
sometimes used as a measure of liquidity
Nominal interest rate
Interest rate that is 
observed in the marketplace and that includes a 
premium for expected infl ation
Noncumulative preferred stock
Makes 
no 
provision for the accumulation of past missed 
dividends
Nonmarketable government securities
Securities that cannot be transferred to other 
persons or institutions and can be redeemed 
only by being turned in to the U.S. government
NPV profi le
The graphical relationship 
between a project’s NPV and cost of capital
Odd lot
Sale or purchase of fewer than 100 
shares
Off er price
Price at which the security is 
sold to the investors
One-bank holding companies (OBHCs)
permits a fi rm to own and control one bank
Open-end mortgage bond
Allows the same 
assets to be used as security in future issues
Open-market operations
Buying and sell-
ing of securities in the open market by the Fed 
through its FOMC to alter bank reserves
Operating cycle
Measures the time between 
receiving raw materials and collecting cash 
from receivables
Opportunity cost
Cost of passing up the 
next best alternative
Optimum debt/equity mix
Proportionate 
use of debt and equity that minimizes the fi rm’s 
cost of capital

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GLOSSARY
Precautionary motives
Holding funds to 
meet unexpected demands
Preferred stock
Equity security that has pref-
erence, or a senior claim, to the fi rm’s earnings 
and assets over common stock