Intermediate Financial Management- Chapter 1

proprietorship
a business owned by one person
corporation
a legal entity created by a state (separate and distinct from its owners and mangers)
limited liability partnership
a limited liability partnership combines the limited liability advantage of a corporation with the tax advantages of a partnership
partnership
exist when two or more persons associate to conduct a business
limited partnership
a partnership in which limited partners’ liabilities, investment returns and control are limited
limited partners
partner in a partnership were the liability is limited to the amount of the investment
general partners
partener in a partnership who has unlimited liability
limited liability company
charter
the legal document that is filled with the state to incorporate a company
bylaws
a set of rules drawn up by a company’s founders that specify such things as election of directors, stockholders rights and procedures for changing the bylaws
professional corporation
has most of the benefits of a corporation, but the participants are not relieved of professional malpractice liability
S corporations
a small corporation that elects to be taxed as a proprietorship or partnership but retains the limited liability and the benefits of the corporate form of the organization
initial public offering
occurs when a closely held corporation or its principal stockholders sell stock to the public at large
agency problem
an expense that is born by a principal as a result of having delegated authority to an agent
corporate governance
the set of rules that controls a company;s behavior toward its directors, managers, employees, shareholders, creditors, customers, competitors and community
intrinsic price
value or price that incorporates all relevant information regarding expected future cash flows and risk
fundamental price
value or price that incorporates all relevant information regarding expected future cash flows and risk
market price
stock price observed in the financial markets
weighted average cost of capital
the weighted average of the after-tax components costs of capital
investment banking house
a firm that assist in the design of an issuing firm’s corporate securities and in the sale of the new securities to investors in the primary market
financial intermediary
intermediary that buys securities with duns obtained by issuing its own securities
derivatives
claims whose value depends on what happens to the value of some other asset
savings and loan associations
financial institutions that take in most of their deposits from members of the community
cost of equity
the price of using equity capital
interest rate
the price of using debt
production opportunities
one of the factors affecting the cost of money (represents the ability to turn capital into benefits
time preferences for consumption
one of the factors affecting the cost of money (consumers would prefer to consume now rather than later)
inflation
an increase in the price level
country risk
risk that arises from investing or doing business in a particular country
exchange rate risk
refers to the flu action in exchange rates between currencies over time