Terms for Finance Exam 1

Terms and Concepts - Chapter 1

Goal of the firm –

The fundamental goal of a business is to create value for the company’s owners (that is, its shareholders). Frequently stated as “maximization of shareholder wealth.” Thus the goal of the financial manager is to create wealth for the shareholders, by making decisions that will maximize the price of existing common stock.

Sole proprietorship –

A business owned by a single individual.

General partnership -

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

Limited partnership -

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.

Terms and Concepts - Chapter 2

Public offering -

A security offering where all investors have the opportunity to acquire a portion of the financial claims being sold.

Private placement -

A security offering limited to a small number of potential investors.

Venture capitalist -

An investment firm (or individual investor) that provides money to business start-ups.

Primary market -

A market in which securities are offered for the first time fir sale to potential investors.

Secondary market -

A market in which currently outstanding securities are traded.

Initial public offering (IPO) -

The first time a company issues its stock to the public.

Seasoned equity offering (SEO) -

The sale of additional stock by a company whose shares are already publicly traded.

Money market -

All institutions and procedures...