Extra Credit 2

Key words and Definitions

Short-term financial planning – planning cash inflows and cash outflows for periods of time that are typically less than one year.

Working capital – cash used for current operations that is equal to the firm’s current assets minus its current liabilities.

Cash position – the amount of cash a firm has on hand at a point in time.

Key words and Definitions

Agency theory – the theory that attempts to explain the relationship that exists between principals (stockholders) and the agents (management) acting on their behalf.

Executive stock options – long-term rights granted to upper management to allow them to purchase a fixed number of shares of the firm’s stock at a fixed price.

Agency costs – expenses or costs incurred when an agent acts on behalf of a principal.

Key words and Definitions

Divestiture – the practice of selling a business or investment asset.

Capital budgeting – evaluating investment options for a firm.

International diversification – reducing risk by investing in more than one country.