Chapter 1 Flashcards
Sarbanes-Oxley Act
a law passed by congress that requires the CEO and CFO to certify that their firm’s financial statements are accurate
proprietorship
an unincorporated business owned by one individual
partnership
an unincorporated business owned by two or more persons
corporation
a legal entity created by a state, separate and distinct from its owners and managers, having unlimited life, easy transferability ow ownership, and limited liability
S corporation
a special designation that allows small businesses that meet qualifications to be taxed as if they were a proprietorship or a partnership rather than a corporation
LLC
a popular type of organization that is a hybrid between a partnership and a corporation
LLP
similar to an LLC but used for professional firms in the fields of accounting, law, and architecture. it provides person asset protection from business debts and liabilities but is taxed as a partnership
intrinsic value
an estimate of a stock’s true value baed on accurate risk and return data. the intrinsic value can be estimated but not measured precisely
market price
the stock value based on perceived but possible correct info as seen by the marginal investor
marginal investor
an investor whose views determine the actual stock price
equilibrium
the situation in which the actual market price equals the intrinsic value, so investors are indifferent between buying and selling a stock
corporate raiders
individuals who target corporations for takeover because they are undervalued
hostile takeover
the acquisition of a company over the opposition of its management
shareholder wealth maximization
the primary financial goal for managers of publicly owned companies implies that decisions should be made to maximize the long run value of the firm’s common stock
