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Fundamentals of Financial Management 15th Edition

Fundamentals of Financial Management (15th Edition)

Book Edition15th Edition
PublisherCengage Learning
Chapter 1, End of Chapter, Self-Test Questions and Problems, Exercise ST-1
Page 24

Define each of the following terms:


a.  Sarbanes-Oxley Act

b.  Proprietorship; partnership; corporation

c.  S corporation; limited liability company (LLC); limited liability partnership (LLP)

d.  Intrinsic value; market price

e.  Marginal investor; equilibrium

f.  Corporate governance

g.  Corporate raider; hostile takeover

h.  Stockholder wealth maximization i. Business ethics

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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