Solution Manual for Foundations of Financial Management 18th Edition by Stanley B. Block, Geoffrey A. Hirt & Bartley R. Danielsen – Chapters 1–21 Complete Solutions 2026

SOLUTIONMANUAL B




FoundationsofFinancialManagement,18thEdition
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byStanleyBlock,GeoffreyHirt,Chapters1–21,Complete
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,
, Chapter1 B




TheGoalsandFunctionsofFinancialManagement B B B B B B




DiscussionQuestions B




1-1 Whateffectdidtherecession of2007-2009have ongovernment regulation?
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Itwasgreatlyincreased.
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1-2 What advantagesdoesasole proprietorshipoffer?What isamajor drawbackofthistypeof
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organization?
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A soleproprietorship offers theadvantage of simplicity ofdecision making and low
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organizationalandoperatingcosts.Amajor drawbackisthat there isunlimited liabilityto the
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owner.
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1-3 Whatformofpartnership allowssomeoftheinvestorstolimittheir liability?Explain
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briefly.
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A limited partnership allows some ofthe partners to limit their liability. Under this arrangement,
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oneormorepartnersare designatedgeneral partners andhave unlimited liability forthe debts
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of thefirm;otherpartners aredesignated limited partners andare liable onlyfortheir initial
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contribution.Thelimited partnersarenormallyprohibited frombeing active in themanagement
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ofthefirm.
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1-4 Inacorporation, whatgrouphastheultimateresponsibilityforprotectingandmanaging
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the stockholders’ interests?
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Theboardofdirectors. B B B




1-5 What document isnecessaryto form acorporation?
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Thearticlesof incorporation.
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1-6 What issue does agencytheoryexamine?Whyis itimportant in apublic corporation
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rather than in aprivate corporation?
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, Agencytheoryexamines therelationshipbetween the ownersof thefirm andthemanagers of
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thefirm.In privately ownedfirms,managementandtheowners areusually thesame people.
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Managementoperatesthefirmtosatisfyitsowngoals,needs,financialrequirements and the
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like. As a companymoves fromprivateto public ownership,management now representsall
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owners.This placesmanagementinthe agencypositionofmaking decisions in the bestinterestof
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all shareholders.
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1-7 Whatareinstitutional investorsimportant in today’sbusinessworld?
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Because institutional investors such aspension funds and mutual funds owna large percentageof
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major U.S.companies,they arehaving moretosay aboutthe way publicly ownedcompanies are
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managed. As a group,they have the ability to vote largeblocks of shares forthe electionof a
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boardofdirectors, which is supposedto run thecompanyin an efficient, competitive manner. The
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threatofbeing able to replacepoorperforming boardsof directorsmakesinstitutionalinvestors
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quite influential. Since these institutions, like pension funds and mutualfunds, representindividual
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workers and investors,they have aresponsibility to see that the firm ismanaged inanefficient and
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ethical way.
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1-8 Whyisprofit maximization, byitself,an inappropriate goal? What ismeantbythe goal of
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maximization ofshareholder wealth?
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The problem with a profit maximization goal is that it fails to take account ofrisk, the timingofthe
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benefitsisnot considered,andprofitmeasurement isaveryinexact process. The goal of
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shareholders’ wealth maximization implies that the firm will attempt to achieve thehighest
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possible total valuation in themarketplace. It is theoneoverriding objective of thefirm and
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shouldinfluence everydecision.
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1-9 Whendoesinsidertradingoccur? Whatgovernmentagencyisresponsible forprotecting
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against the unethicalpracticeof insidertrading?
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Insidertrading occurs when anyone withnon-public informationbuysorsells securities to take
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advantage ofthat private information.The Securities and ExchangeCommission is responsible
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forprotectingmarketsagainstinsider trading. Inthepast, peoplehave gone to jailfor trading on
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non-public information.Thishas included companyofficers,investment bankers,printers who
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have informationbefore itispublished, and even truck drivers who deliver business magazines
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and read positive ornegative articles abouta companybeforethe magazine is on the
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newsstands andthenplace trades orhave friends place tradesbasedon thatinformation.The
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SEChasprosecuted anyone whoprofits frominside information.
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1-10 Intermsofthelifeofthesecuritiesoffered, whatisthe differencebetween moneyand
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Bcapitalmarkets? B




Moneymarketsrefertothosemarketsdealingwith short-term securitiesthathavealife of one
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yearor less. Capital markets refer to securities with a lifeofmore than one year.
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1-11 What isthedifference between aprimary anda secondarymarket?
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