SOLUTION MANUAL for Foundations of Financial Management,
M M M M M M
18th Edition by Stanley Block, Geoffrey Hirt,
M M M M M M M
Chapters 1 – 21, Complete
M M M M
,
, Chapter 1 M
The Goals and Functions of Financial Management
M M M M M M
Discussion Questions
M
1-1 WhatMeffectMdidMtheMrecessionMofM2007-2009MhaveMonMgovernmentMregulation?
ItMwasMgreatlyMincreased.
1-2 WhatMadvantagesMdoesMaMsoleMproprietorshipMoffer?MWhatMisMaMmajorMdrawbackMofMthisMtypeMofMorg
anization?
AMsoleMproprietorshipMoffersMtheMadvantageMofMsimplicityMofMdecisionMmakingMandMlowMorganization
alMandMoperatingMcosts.MAMmajorMdrawbackMisMthatMthereMisMunlimitedMliabilityMtoMtheMowner.
1-3 WhatMformMofMpartnershipMallowsMsomeMofMtheMinvestorsMtoMlimitMtheirMliability?MExplainMbriefl
y.
AMlimitedMpartnershipMallowsMsomeMofMtheMpartnersMtoMlimitMtheirMliability.MUnderMthisMarrangemen
t,MoneMorMmoreMpartnersMareMdesignatedMgeneralMpartnersMandMhaveMunlimitedMliabilityMforMtheMdebt
sMofMtheMfirm;MotherMpartnersMareMdesignatedMlimitedMpartnersMandMareMliableMonlyMforMtheirMinitialMc
ontribution.MTheMlimitedMpartnersMareMnormallyMprohibitedMfromMbeingMactiveMinMtheMmanagementM
ofMtheMfirm.
1-4 InMaMcorporation,MwhatMgroupMhasMtheMultimateMresponsibilityMforMprotectingMandMmanagingMtheMst
ockholders’Minterests?
TheMboardMofMdirectors.
1-5 WhatMdocumentMisMnecessaryMtoMformMaMcorporation?
TheMarticlesMofMincorporation.
1-6 WhatMissueMdoesMagencyMtheoryMexamine?MWhyMisMitMimportantMinMaMpublicMcorporationMrathe
rMthanMinMaMprivateMcorporation?
, AgencyMtheoryMexaminesMtheMrelationshipMbetweenMtheMownersMofMtheMfirmMandMtheMmanagersMofMt
heMfirm.MInMprivatelyMownedMfirms,MmanagementMandMtheMownersMareMusuallyMtheMsameMpeople.MMa
nagementMoperatesMtheMfirmMtoMsatisfyMitsMownMgoals,Mneeds,MfinancialMrequirementsMandMtheMlike.M
AsMaMcompanyMmovesMfromMprivateMtoMpublicMownership,MmanagementMnowMrepresentsMallMowners
.MThisMplacesMmanagementMinMtheMagencyMpositionMofMmakingMdecisionsMinMtheMbestMinterestMofMallMs
hareholders.
1-7 WhatMareMinstitutionalMinvestorsMimportantMinMtoday’sMbusinessMworld?
BecauseMinstitutionalMinvestorsMsuchMasMpensionMfundsMandMmutualMfundsMownMaMlargeMpercentageMofM
majorMU.S.Mcompanies,MtheyMareMhavingMmoreMtoMsayMaboutMtheMwayMpubliclyMownedMcompaniesMare
Mmanaged.MAsMaMgroup,MtheyMhaveMtheMabilityMtoMvoteMlargeMblocksMofMsharesMforMtheMelectionMofMaMbo
ardMofMdirectors,MwhichMisMsupposedMtoMrunMtheMcompanyMinManMefficient,McompetitiveMmanner.MTheM
threatMofMbeingMableMtoMreplaceMpoorMperformingMboardsMofMdirectorsMmakesMinstitutionalMinvestorsMq
uiteMinfluential.MSinceMtheseMinstitutions,MlikeMpensionMfundsMandMmutualMfunds,MrepresentMindividual
MworkersMandMinvestors,MtheyMhaveMaMresponsibilityMtoMseeMthatMtheMfirmMisMmanagedMinManMefficientMa
ndMethicalMway.
1-8 WhyMisMprofitMmaximization,MbyMitself,ManMinappropriateMgoal?MWhatMisMmeantMbyMtheMgoalMofMma
ximizationMofMshareholderMwealth?
TheMproblemMwithMaMprofitMmaximizationMgoalMisMthatMitMfailsMtoMtakeMaccountMofMrisk,MtheMtimingMo
fMtheMbenefitsMisMnotMconsidered,MandMprofitMmeasurementMisMaMveryMinexactMprocess.MTheMgoalMofMs
hareholders’MwealthMmaximizationMimpliesMthatMtheMfirmMwillMattemptMtoMachieveMtheMhighestMpossi
bleMtotalMvaluationMinMtheMmarketplace.MItMisMtheMoneMoverridingMobjectiveMofMtheMfirmMandMshouldMi
nfluenceMeveryMdecision.
1-9 WhenMdoesMinsiderMtradingMoccur?MWhatMgovernmentMagencyMisMresponsibleMforMprotectingMagains
tMtheMunethicalMpracticeMofMinsiderMtrading?
InsiderMtradingMoccursMwhenManyoneMwithMnon-
publicMinformationMbuysMorMsellsMsecuritiesMtoMtakeMadvantageMofMthatMprivateMinformation.MTheMSe
curitiesMandMExchangeMCommissionMisMresponsibleMforMprotectingMmarketsMagainstMinsiderMtrading.M
InMtheMpast,MpeopleMhaveMgoneMtoMjailMforMtradingMonMnon-
publicMinformation.MThisMhasMincludedMcompanyMofficers,MinvestmentMbankers,MprintersMwhoMhaveM
informationMbeforeMitMisMpublished,MandMevenMtruckMdriversMwhoMdeliverMbusinessMmagazinesMandMr
eadMpositiveMorMnegativeMarticlesMaboutMaMcompanyMbeforeMtheMmagazineMisMonMtheMnewsstandsMand
MthenMplaceMtradesMorMhaveMfriendsMplaceMtradesMbasedMonMthatMinformation.MTheMSECMhasMprosecut
edManyoneMwhoMprofitsMfromMinsideMinformation.
1-10 InMtermsMofMtheMlifeMofMtheMsecuritiesMoffered,MwhatMisMtheMdifferenceMbetweenMmoneyMandMcapit
alMmarkets?
MoneyMmarketsMreferMtoMthoseMmarketsMdealingMwithMshort-
termMsecuritiesMthatMhaveMaMlifeMofMoneMyearMorMless.MCapitalMmarketsMreferMtoMsecuritiesMwithMaMlif
eMofMmoreMthanMoneMyear.
1-11 WhatMisMtheMdifferenceMbetweenMaMprimaryMandMaMsecondaryMmarket?
M M M M M M
18th Edition by Stanley Block, Geoffrey Hirt,
M M M M M M M
Chapters 1 – 21, Complete
M M M M
,
, Chapter 1 M
The Goals and Functions of Financial Management
M M M M M M
Discussion Questions
M
1-1 WhatMeffectMdidMtheMrecessionMofM2007-2009MhaveMonMgovernmentMregulation?
ItMwasMgreatlyMincreased.
1-2 WhatMadvantagesMdoesMaMsoleMproprietorshipMoffer?MWhatMisMaMmajorMdrawbackMofMthisMtypeMofMorg
anization?
AMsoleMproprietorshipMoffersMtheMadvantageMofMsimplicityMofMdecisionMmakingMandMlowMorganization
alMandMoperatingMcosts.MAMmajorMdrawbackMisMthatMthereMisMunlimitedMliabilityMtoMtheMowner.
1-3 WhatMformMofMpartnershipMallowsMsomeMofMtheMinvestorsMtoMlimitMtheirMliability?MExplainMbriefl
y.
AMlimitedMpartnershipMallowsMsomeMofMtheMpartnersMtoMlimitMtheirMliability.MUnderMthisMarrangemen
t,MoneMorMmoreMpartnersMareMdesignatedMgeneralMpartnersMandMhaveMunlimitedMliabilityMforMtheMdebt
sMofMtheMfirm;MotherMpartnersMareMdesignatedMlimitedMpartnersMandMareMliableMonlyMforMtheirMinitialMc
ontribution.MTheMlimitedMpartnersMareMnormallyMprohibitedMfromMbeingMactiveMinMtheMmanagementM
ofMtheMfirm.
1-4 InMaMcorporation,MwhatMgroupMhasMtheMultimateMresponsibilityMforMprotectingMandMmanagingMtheMst
ockholders’Minterests?
TheMboardMofMdirectors.
1-5 WhatMdocumentMisMnecessaryMtoMformMaMcorporation?
TheMarticlesMofMincorporation.
1-6 WhatMissueMdoesMagencyMtheoryMexamine?MWhyMisMitMimportantMinMaMpublicMcorporationMrathe
rMthanMinMaMprivateMcorporation?
, AgencyMtheoryMexaminesMtheMrelationshipMbetweenMtheMownersMofMtheMfirmMandMtheMmanagersMofMt
heMfirm.MInMprivatelyMownedMfirms,MmanagementMandMtheMownersMareMusuallyMtheMsameMpeople.MMa
nagementMoperatesMtheMfirmMtoMsatisfyMitsMownMgoals,Mneeds,MfinancialMrequirementsMandMtheMlike.M
AsMaMcompanyMmovesMfromMprivateMtoMpublicMownership,MmanagementMnowMrepresentsMallMowners
.MThisMplacesMmanagementMinMtheMagencyMpositionMofMmakingMdecisionsMinMtheMbestMinterestMofMallMs
hareholders.
1-7 WhatMareMinstitutionalMinvestorsMimportantMinMtoday’sMbusinessMworld?
BecauseMinstitutionalMinvestorsMsuchMasMpensionMfundsMandMmutualMfundsMownMaMlargeMpercentageMofM
majorMU.S.Mcompanies,MtheyMareMhavingMmoreMtoMsayMaboutMtheMwayMpubliclyMownedMcompaniesMare
Mmanaged.MAsMaMgroup,MtheyMhaveMtheMabilityMtoMvoteMlargeMblocksMofMsharesMforMtheMelectionMofMaMbo
ardMofMdirectors,MwhichMisMsupposedMtoMrunMtheMcompanyMinManMefficient,McompetitiveMmanner.MTheM
threatMofMbeingMableMtoMreplaceMpoorMperformingMboardsMofMdirectorsMmakesMinstitutionalMinvestorsMq
uiteMinfluential.MSinceMtheseMinstitutions,MlikeMpensionMfundsMandMmutualMfunds,MrepresentMindividual
MworkersMandMinvestors,MtheyMhaveMaMresponsibilityMtoMseeMthatMtheMfirmMisMmanagedMinManMefficientMa
ndMethicalMway.
1-8 WhyMisMprofitMmaximization,MbyMitself,ManMinappropriateMgoal?MWhatMisMmeantMbyMtheMgoalMofMma
ximizationMofMshareholderMwealth?
TheMproblemMwithMaMprofitMmaximizationMgoalMisMthatMitMfailsMtoMtakeMaccountMofMrisk,MtheMtimingMo
fMtheMbenefitsMisMnotMconsidered,MandMprofitMmeasurementMisMaMveryMinexactMprocess.MTheMgoalMofMs
hareholders’MwealthMmaximizationMimpliesMthatMtheMfirmMwillMattemptMtoMachieveMtheMhighestMpossi
bleMtotalMvaluationMinMtheMmarketplace.MItMisMtheMoneMoverridingMobjectiveMofMtheMfirmMandMshouldMi
nfluenceMeveryMdecision.
1-9 WhenMdoesMinsiderMtradingMoccur?MWhatMgovernmentMagencyMisMresponsibleMforMprotectingMagains
tMtheMunethicalMpracticeMofMinsiderMtrading?
InsiderMtradingMoccursMwhenManyoneMwithMnon-
publicMinformationMbuysMorMsellsMsecuritiesMtoMtakeMadvantageMofMthatMprivateMinformation.MTheMSe
curitiesMandMExchangeMCommissionMisMresponsibleMforMprotectingMmarketsMagainstMinsiderMtrading.M
InMtheMpast,MpeopleMhaveMgoneMtoMjailMforMtradingMonMnon-
publicMinformation.MThisMhasMincludedMcompanyMofficers,MinvestmentMbankers,MprintersMwhoMhaveM
informationMbeforeMitMisMpublished,MandMevenMtruckMdriversMwhoMdeliverMbusinessMmagazinesMandMr
eadMpositiveMorMnegativeMarticlesMaboutMaMcompanyMbeforeMtheMmagazineMisMonMtheMnewsstandsMand
MthenMplaceMtradesMorMhaveMfriendsMplaceMtradesMbasedMonMthatMinformation.MTheMSECMhasMprosecut
edManyoneMwhoMprofitsMfromMinsideMinformation.
1-10 InMtermsMofMtheMlifeMofMtheMsecuritiesMoffered,MwhatMisMtheMdifferenceMbetweenMmoneyMandMcapit
alMmarkets?
MoneyMmarketsMreferMtoMthoseMmarketsMdealingMwithMshort-
termMsecuritiesMthatMhaveMaMlifeMofMoneMyearMorMless.MCapitalMmarketsMreferMtoMsecuritiesMwithMaMlif
eMofMmoreMthanMoneMyear.
1-11 WhatMisMtheMdifferenceMbetweenMaMprimaryMandMaMsecondaryMmarket?
