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| an approach to the study of finance that integrates financial decisions of business firms within logical framework. |
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| applied economics or, more precisely, the economics of time and risk. |
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| process of placing a value on, or determining the worth of, resources such as buildings, equipment, and ideas; the central process of finance. |
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| a distinct legal entity defined by the contracts between individuals such as owners, creditors, workers, suppliers, consumers, those in the surrounding communities, and those in all levels of gov't. |
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| a type of business organization in which an individual, acting alone, conducts business. b/c the individual doesn't create a formal busniess organization agreement, the legal rights and responsibilities of the sole proprietorship are equivalent to the rights and responsibilities of the person who owns the business. |
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| type of business organization formed when two ro more individuals join together to conduct business. although no formal contractual agreement is required to form a partnership, the members will often voluntarily draw up a legal agreement specifying the rights and responsibilities of each partner. |
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| protection for the owners of a corporation against losing more than their original investment. |
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| everything that can produce value for the firm, including buildings, equipment, land, patents, inventories, and cash. |
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| obligations of the firm including accounts payable, bank loans, and bonds. another name for these oprganizations is liabilities. those who hold these claims are known as debtholders, creditors, or bondholders. |
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| diff btwn the value of assets and value of debt/ the equity of the firm is its common stock, and those who hold equity are often called stockholders, shareholders, or equityholders. |
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| values that the marketplace would place on items. market values contrast with historical values, which are the values placed on items when they were originally purchased. |
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| cash moving into the firm (cash inflow) or cash leaving the firm (cash outflow). net cash flow is defined as the diff btwn cash inflows and outflows. |
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| an abstraction from reality |
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| shareholder view of the corporation |
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| the view that the corporation can be influenced by and therefore to some extent owned by anyone who has a stake in the corporation's actions. |
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| shareholder wealth maximization |
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| the financial objective of the corporation. this objective states that shareholders, as owners of the corporation, desire the market value of their equity to be as high as possible. |
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| relationship in which one or more persons (the principal) contract with one or more other persons (the agent) to perform a decision-making task for them. in the case of corporate finance, the shareholders are the principals and the managers are the agents. |
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| resources utilized to align managerial goals with shareholder goals. |
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| positive marginal utility |
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| an economic principle stating that, given a choice, rational people prefer more wealth to less wealth, where wealth is defined as the sum of the values of all the things owned. |
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| the ability to make certain decisions separately or independently fropm the preferences or tastes of the beneficiary. |
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| diminishing marginal utility |
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| an economic principal asserting that more and more units of consumption create less and less additional happiness when compared with previous units of consumption. |
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| diminishing marginal return |
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| an economic principle whereby, at some point the commitment of additional resources becomes detrimental to the firm with the result that the firm is forced to limit its investment to some optimal level. |
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| an economic principle stating that the market value of a combination of commodities must be equal to the sum of the market values of all of the commodities in the combination. |
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