Financial Mgmt Chapter 1

Front 1

Fiduciary

Back 1

Someone who invests and manages money on someone else's behalf.

Front 2

Corporate finance

Back 2

The activities involved in managing money in a business environment.

Front 3

External Financing Function

Back 3

Raising capital to support companies' operations and investment programs.

Front 4

Capital Budgeting Function

Back 4

Selecting the best projects in which to invest the resources of the firm, based on each project's perceived risk and expected return.

Front 5

Financial Management Function

Back 5

Managing firms' internal cash flows and its mix of debt and equity claims on firms' and to ensure that companies can pay off their obligations when they come due.

Front 6

Corporate Governance Function

Back 6

Developing ownership and corporate governance structures for companies that ensure that managers behave ethically and make decisions that benefit shareholders.

Front 7

Risk-management function

Back 7

Managing firms' exposures to all types of risk, both insurable and uninsurable, in order to maintain optimum risk-return trade-offs and thereby maximize shareholder value.

Front 8

Venture Capitalists

Back 8

Professional investors who specialize in high-risk/high-return investments in rapidly growing entrepreneurial businesses.

Front 9

Initial Public Offering (IPO)

Back 9

Corporations offer shares for sale to the public for the first time; the first public sale of company stock to outside investors.

Front 10

Collective action problem

Back 10

When individual stockholders expend time and resources monitoring management while the benefit of their activities accrues to all shareholders.

Front 11

Sarbanes-Oxley Act of 2002 (SOX)

Back 11

Act of Congress that established new corporate governance standards for U.S. public companies and that established the Public Company Accounting Oversight Board (PCAOB)

Front 12

Debt capital

Back 12

Borrowed money.

Front 13

Equity capital

Back 13

An ownership interest usually in the form of common or preferred stock.

Front 14

Financial intermediary

Back 14

An institution that raises capital by issuing liabilities against itself, and then lends that capital to corporate and individual borrowers.

Front 15

Primary-market transactions

Back 15

Sales of securities to investors by a corporation to raise capital for the firm.

Front 16

Secondary-market transactions

Back 16

Trades between investors that generate no new cash flow for the firm.

Front 17

Joint and several liability

Back 17

A legal concept that makes each partner in a partnership legally liable for all the debts of the partnership.

Front 18

Limited partners

Back 18

One or more totally passive participants in a limited partnership, who do not take any active role in the operation of the business and who do not face personal liability for the debts of the business.

Front 19

Public company

Back 19

A corporation, the shares of which can be freely traded among investors without obtaining the permission of other investors and whose shares are listed for trading in a public security market.

Front 20

Corporation

Back 20

In U.S. law, a separate legal entity with many of the same economic rights and responsibilities as those enjoyed by individuals.

Front 21

Board of directors

Back 21

Elected by shareholders to be responsible for hiring and firing managers and setting overall corporate policies.

Front 22

Corporate charter

Back 22

The legal document created at the corporation's inception to govern its operations.

Front 23

Shareholders

Back 23

Owners of common and preferred stock of a corporation.

Front 24

Equity claimants

Back 24

Owners of a corporation's equity securities.

Front 25

President or chief executive officer (CEO)

Back 25

The top company manager with overall responsibility and authority for managing daily company affairs and carrying out policies established by the board.

Front 26

Agency costs

Back 26

Costs that arise due to conflicts of interest between shareholders and managers.

Front 27

Double taxation problem

Back 27

Taxation of corporate income at both the company and the personal levels; the single greatest disadvantage of the corporate form.

Front 28

Jobs and Growth Tax Relief Reconciliation Act of 2003

Back 28

Act of Congress that reduced the rate of personal taxation of dividend income, reducing the double taxation problem.

Front 29

S corporation

Back 29

An ordinary corporation in which the stockholders have elected to allow shareholders to be taxed as partners while still retaining their limited liability status as corporate stockholders.

Front 30

Agency problems

Back 30

The conflict between the goals of a firm's owners and its managers.

Front 31

Hostile takeover

Back 31

The acquisition of one firm by another through an open-market bid for a majority of the target's shares if the target firm's senior managers do not support (or, more likely, actively resist) the acquisition.