NEW FIN: Ch. 1 Vocab

incremental, cash flows

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

opportunity cost

the cost of making a choice defined in terms of the next best alternative that is foregone.

efficient market

a 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

the decision-making process with respect to investment in fixed assets.

capital structure decisions

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

working capital management

the management of the firm’s investment in current assets and current liabilities.

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 two or more individuals joining together as co-owners to operate a business for profit.

general partnership

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

limited partnerships

a partnership in which 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 functions 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 the owners retain limited liability but the company is run and is taxed like a partnership.