Chapter 1 Flashcards
Agency problem
Problems and conflicts resulting from the separation of the management and ownership of the firm.
Capital budgeting
the decision-making process with respect to investment in fixed assets
Capital structure decisions
the decision-making process with funding choices and the mix of long-term sources of funds
Corporation
an entity that legally functions separate and apart from its owners
Efficient market
a market in which the prices of securities at any instant in time fully reflect all publicly available information about the securities and their actual public values
Financial markets
those institutions and procedures that facilitate transactions in all types of financial claims
General partnership
a partnership in which all partners are fully liable for theindebtedness incurred by the partnership.
Incremental cash flow
the difference between the cash flows a company will produce both with and without the investment it is thinking about making
Limited Liability Company (LLC)
a cross between a partnership and a corporation under which the owners retain limited liability but the company is run and is taxed like a partnership.
Limited partnership
a partnershipin which one or more of the partners has limited liability, restricted to the amount of capital he or she invests in thepartnership.
Partnership
an association of two or more individuals joining together as co-owners to operate a business for profit.
Opportunity cost
the cost of making a choice defined in terms of the next best alternative that is foregone
S-corporation
a corporation that, because of specific qualifications, is taxedas though it were a partnership.
Sole proprietorship
a business owned by a single individual.
Working capital management
the management of the firm’s investment in current assets and current liabilities
