Finance - Chapter 1

incremental cash flow

difference between the cash flows a company will produce both with and without the investment it is thinking about making

opportunity cost

cost of making a choice in terms of the next best alternative that must be foregone

efficient market

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

agency problem

problems and conflicts resulting from the separation of the management and ownership of the firm

capital budgeting

decision-making process with respect to investment in fixed assets

capital structure decision

decision-making process with funding choices and the mix of long-term sources of funds

working capital management

management of the firm's current assets and short-term financing

financial markets

those institutions and procedures that facilitate transactions in all types of financial claims

sole proprietorship

a business owned by a single individual

partnership

an association of tow or more individuals joining together as co-owners to operate a business profit

general partnership

a partnership in which all partners are fully liable for the indebtedness incurred by the partnership

limited partnership

a partnership in wihch one or more of the partners has limited liability, restricted to the amount of capital he or she invests in the partnership

corporation

an entity that legally funcitons separate and apart from its owners

S-corporation

a corporation that, because of specific qualifications, is taxed as though it were a partnership

limited liability company (LLC)

a cross between a partnership and a corporation under which owners retain limited liability but the company is run and is taxed like a partnership