Chapter 3, End of Chapter, Self-Test Questions and Problems, Exercise ST-1
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Define each of the following terms:


a. Annual report; balance sheet; income statement; statement of cash flows; statement of stockholders' equity

b. Stockholders' equity; retained earnings; working capital; net working capital; net operating working capital (NOWC); total debt

c. Depreciation; amortization; operating income; EBITDA; free cash flow (FCF)

d. Net operating profit after taxes (NOPAT)

e. Market value added (MVA); economic value added (EVA)

f. Progressive tax; marginal tax rate; average tax rate

g. Tax loss carryback; carryforward; alternative minimum tax (AMT)

h. Traditional IRAs; Roth IRAs i. Capital gain (loss)

j. S corporation

Here is a tip:

Congress felt there was a need for additional investor protections against inaccurate information from companies. 


In 2002, Congress passed this act to protect shareholders, employees and the public from accounting errors and fraudulent financial practices. There were 3 key provisions:

  1. Overhauling incentives and independence in the audit process.
  2. Providing harsher penalties for providing false information.
  3. Requiring companies to validate their internal financial control processes.

Verified Answer

The Sarbanes-Oxley act, passed by Congress in 2002, is intended to improve the accuracy of information which is made public by both board members and shareholders of public companies.

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