| A | B |
|---|
| agency cost or problem | An expense, either direct or indirect, that is borne by a principal as a result of having delegated authority to an agent. An example is the costs borne by shareholders to encourage managers to maximize a firm_s stock price rather than act in their own self-interests. These costs may also arise from lost efficiency and the expense of monitoring management to ensure that debtholders_ rights are protected. |
| Employee Retirement Income Security Act (ERISA) | The basic federal law governing the structure and administration of corporate pension plans. |
| equilibrium | The condition under which the intrinsic value of a security is equal to its price; also, its expected return is equal to its required return. |
| eurodollar | A U.S. dollar on deposit in a foreign bank or a foreign branch of a U.S. bank. Eurodollars are used to conduct transactions throughout Europe and the rest of the world. |
| exchange rate risk | Refers to the fluctuation in exchange rates between currencies over time. |
| FASB, Financial Accounting Standards Board | Promulgates standards for issues pertaining to private organizations. |
| foreign trade deficit | A deficit that occurs when businesses and individuals in the U.S. import more goods from foreign countries than are exported. |
| free cash flow (FCF) | The cash flow actually available for distribution to all investors after the company has made all investments in fixed assets and working capital necessary to sustain ongoing operations. |
| golden parachute | A payment made to executives that are forced out when a merger takes place. |
| insiders | The officers, directors, and major stockholders of a firm. |
| investment bank | A firm that assists in the design of an issuing firm_s corporate securities and in the sale of the new securities to investors in the primary market. |
| liquidity | Liquidity refers to a firm_s cash and marketable securities position and to its ability to meet maturing obligations. A liquid asset is any asset that can be quickly sold and converted to cash at its _fair_ value. Active markets provide liquidity. |
| publicly owned corporation | Corporation in which the stock is owned by a large number of investors, most of whom are not active in management. |
| stakeholders | All parties that have an interest, financial or otherwise, in a not-for-profit business. |
| weighted average cost of capital (WACC) | The weighted average of the after-tax component costs of capital_debt, preferred stock, and common equity. Each weighting factor is the proportion of that type of capital in the optimal, or target, capital structure. |
