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Fin 221 unit 1

TermDefinition
Investment Decision Choosing which real assets (factories, equipment, projects) the firm should invest in.
Capital Budgeting The process of planning and evaluating long-term investment decisions; deciding which real assets to acquire.
Capital Structure The mix of debt and equity financing a company uses.
Financing Decision Deciding how to raise money to pay for investments — through debt or equity.
Financial Assets Claims on real assets or income they generate stocks, bonds, bank deposits.
Real Assets Tangible assets used to produce goods/services: factories, equipment, patents, technology.
Equity Financing Raising money by selling ownership stakes; shareholders are residual claimants
Debt Financing Borrowing money that must be repaid with interest; lenders have priority but limited upside.
Limited Liability Shareholders can only lose what they invested; personal assets are protected.
Corporation A legal entity separate from owners with limited liability, transferable shares, and perpetual life.
Double Taxation Corporate profits taxed at corporate level, then again as personal income when paid as dividends.
Perpetual Life A corporation continues to exist regardless of ownership changes or shareholder deaths.
Partnership Business with 2+ owners sharing profits/losses; typically unlimited liability.
Sole Proprietorship Business owned by one person; unlimited liability, single taxation, simplest form.
S Corporation Corporation with pass-through taxation; limited to 100 shareholders, one stock class.
LLC Limited Liability Company: hybrid form with limited liability and flexible tax treatment
Treasurer Manages cash, raises capital, oversees banking relationships. Think: Tomorrow (forward-looking).
CFO Chief Financial Officer: top executive overseeing all financial activities and strategy.
Shareholder Wealth Maximization The primary goal of the corporation: maximize the market value of shareholders' investment.
Controller Handles accounting, financial statements, budgets, taxes. Think: Counting (backward-looking).
Book Value Accounting value based on historical cost minus depreciation; what you paid, not what it's worth.
Market Value The price an asset trades for in the market; reflects future cash flows, timing, and risk.
Retained Earnings Profits kept by the company for reinvestment rather than paid as dividends.
Dividends Cash payments from corporation to shareholders out of profits.
Principal The party who hires another to act on their behalf; shareholders are principals.
Agency Problem Conflict when managers (agents) may not act in the best interest of shareholders (principals).
Board of Directors Group elected by shareholders to oversee management and protect shareholder interests.
Agent The party hired to act for another; managers are agents of shareholders.
Stock Options Compensation giving managers the right to buy shares at a fixed price; aligns interests.
Corporate Governance System of rules and processes controlling and directing a company.
Fiduciary Duty Legal obligation to act in the best interest of another party.
Stakeholders All parties with interest in the company: employees, customers, suppliers, communities.
Created by: user-2032270
 

 



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