Chapter 1: Goals and Governance of the Firm Flashcards
capital budgeting decision (or investment decision)
decision about which real assets the firm should acquire
financing decision
decision on how to raise the money to pay for investments in real assets
capital structure
a firm’s mix of long-term financing
real assets
assets used to produce goods and services
financial assets
claims to the income generated by real assets (also called securities)
public company
corporation whose shares are listed for trading on a stock exchange
private company
corporation whose shares are privately owned
corporation
business owned by shareholders who are not personally liable for the business’s liabilities
limited liability
principle that the owners of the corporation are not personally responsible for its obligations
sole proprietor
sole owner of a business that has no partners and no shareholders; personally liable for all the firm’s obligations
partnership
business owned by two or more people who are personally responsible for all its liabilities
treasurer
manager responsible for financing, cash management, and relationships with financial markets and institutions
controller
officer responsible for budgeting, accounting, and auditing
chief financial offer (CFO)
officer who oversees the treasurer and controller and sets overall financial strategy
agency problems
conflict of interest between the firm’s owners and managers
