Finance Exam 1

Front 1

sole proprietorship

Back 1

a business owned by an individual. Owner is responsible for all liabilities, and is entitled to any profits but must also absorb losses.

Front 2

partnership

Back 2

an association of two or more persons coming together as co-workers for the purpose of operating a business for profit.

Front 3

general partnership

Back 3

each partner is fully responsible for the liabilities incurred by the partnership. Each is held jointly liable without limitation..

Front 4

limited partnership

Back 4

one or more of the partners to have limited liability, restricted to the amount of capital invested in the partnership.
one general partner must have unlimited liability, the names of the limited partners cannot be in the name of teh firm, and the limited partners may not participate in the management of the firm.

Front 5

corporation

Back 5

an entity that legally functions separate and apart from its owners.

Front 6

s-type corporation

Back 6

provides limited liability while allowing the business owners to be taxed as if they were a partnership; distributions back to the owners are not taxed twice as is the case with dividends distributed by regular corporations.

Front 7

limited liability company

Back 7

a cross between a partnership and a corporation. retains limited liability for its owners but runs and is taxed like a partnership. provides more flexibility for s-corporations.

Front 8

depreciation

Back 8

the means by which an asset's value is expensed over its useful life for federal tax.

Front 9

incremental cash flows

Back 9

the difference between the cash flows if the project is taken on versus what they will be if the project is not taken.

Front 10

time value of money

Back 10

a dollar recieved today is worth more than a dollar received a year from now.

Front 11

public offereing

Back 11

both individual and institutional investors have the opportunity to purchase the securities.

Front 12

private placement

Back 12

the securities are offered and sold directly to a limited number of investors

Front 13

venture capital

Back 13

investments involve risky investments in genreally innovative enterprises, many times in high-technology areas.

Front 14

primary market

Back 14

where new, and not previously owned, stocks are issued.

Front 15

over the counter market

Back 15

includes all security markets except the organized exchanges. doesnt occupy a physical location.

Front 16

dutch auction

Back 16

investors first bids on the number of shares they would like to buy and the price they are willing to pay for them. Once all bids are in, the prices that were bid along with the number of shares are ranked from the highest to the lowest price. selling price is caculated, and allows highest price for all stock to be sold.

Front 17

maturity premium

Back 17

the additional return required by investors in longer-term securities to compensate them for the greater risk of price fluctuations on those securities casued by interest rate changes.

Front 18

liquidity premium

Back 18

the additional return required by investors in securities that cannot be quickly convered into cash at a reasonably predictable price.

Front 19

flotation costs

Back 19

highest for common stock, lowest for bonds.

Front 20

market segmentation theory

Back 20

the rate of interest for a particular maturity is determined solely by demand and supply for a given maturity and that it is independent of the demand supply for securities having different maturities.

Front 21

income statement

Back 21

indicated the amount of profits generated by a firm over given period of time, often 1 year.

Front 22

balance sheet

Back 22

a firms financial position at a specific point in time. presenting asset holdings, liabilities, and owner supplied capital.

Front 23

preferred stockholdres

Back 23

receive a dividend that is fixed in an amount

Front 24

common stockholders

Back 24

residual owners of a business, receive whatever income is left over after paying all expenses

Front 25

accrual basis accounting

Back 25

records revenue when it is earned, whether or not the rvenue has been received in cash, and records expenses when incurred, even if the money has no been paid out.

Front 26

free cash flows

Back 26

once the firm has paid all of its operating expenses and taxes and made all of its investments, the remaining cash flows are free to be distributed for the firm's creditors and shareholders.