Brigham/Ehrhardt Financial Management: Theory & Practice--Ehrhardt/Brigham Corporate Finance: A Focused Approach 17e
Solution and Answer Guide
CHAPTER 1: AN OVERVIEW OF FINANCIAL MANAGEMENT AND THE FINANCIAL ENVIRONMENT
TABLE OF CONTENTS
ANSWERS TO END-OF-CHAPTER QUESTIONS ................................................................... 1
MINI CASE ............................................................................................................................. 5
ANSWERS TO END-OF-CHAPTER QUESTIONS
1-1 Define each of the following terms:
a. Proprietorship; partnership; corporation; charter; bylaws
b. Limited partnership; limited liability partnership; professional corporation
c. Stockholder wealth maximization
d. Money market; capital market; primary market; secondary market
e. Private markets; public markets; derivatives
f. Investment bank; financial services corporation; financial intermediary
g. Mutual fund; money market fund
h. Open outcry auction; dealer market; automated trading platform
i. Production opportunities; time preferences for consumption
j. Foreign trade deficit
k. Algorithmic trading; high-frequency trading
Answer:
a. A proprietorship, or sole proprietorship, is a business owned by one individual. A
partnership exists when two or more persons associate to conduct a business. In
contrast, a corporation is a legal entity created by a state. The corporation is
separate and distinct from its owners and managers. A company must file a charter
to become a corporation. A charter includes the following information: (1) name of
the proposed corporation, (2) types of activities it will pursue, (3) amount of capital
stock, (4) number of directors, and (5) names and addresses of directors. The bylaws
are a set of rules drawn up by the founders of the corporation. Included are such
points as: (1) how directors are to be elected (all elected each year or perhaps one-
third each year for 3-year terms), (2) whether the existing stockholders will have the
first right to buy any new shares the firm issues, and (3) procedures for changing the
bylaws themselves, should conditions require it.
b. In a limited partnership, limited partners’ liabilities, investment returns and control
are limited, while general partners have unlimited liability and control. In limited
partnership, at least one partner is liable for all the debts in the partnership. A
limited liability partnership (LLP), sometimes called a limited liability company (LLC),
combines the limited liability advantage of a corporation with the tax advantages of
a partnership. A professional corporation (PC), known in some states as a
professional association (PA), has most of the benefits of incorporation but the
participants are not relieved of professional (malpractice) liability.
© 2024 1
Solution and Answer Guide
CHAPTER 1: AN OVERVIEW OF FINANCIAL MANAGEMENT AND THE FINANCIAL ENVIRONMENT
TABLE OF CONTENTS
ANSWERS TO END-OF-CHAPTER QUESTIONS ................................................................... 1
MINI CASE ............................................................................................................................. 5
ANSWERS TO END-OF-CHAPTER QUESTIONS
1-1 Define each of the following terms:
a. Proprietorship; partnership; corporation; charter; bylaws
b. Limited partnership; limited liability partnership; professional corporation
c. Stockholder wealth maximization
d. Money market; capital market; primary market; secondary market
e. Private markets; public markets; derivatives
f. Investment bank; financial services corporation; financial intermediary
g. Mutual fund; money market fund
h. Open outcry auction; dealer market; automated trading platform
i. Production opportunities; time preferences for consumption
j. Foreign trade deficit
k. Algorithmic trading; high-frequency trading
Answer:
a. A proprietorship, or sole proprietorship, is a business owned by one individual. A
partnership exists when two or more persons associate to conduct a business. In
contrast, a corporation is a legal entity created by a state. The corporation is
separate and distinct from its owners and managers. A company must file a charter
to become a corporation. A charter includes the following information: (1) name of
the proposed corporation, (2) types of activities it will pursue, (3) amount of capital
stock, (4) number of directors, and (5) names and addresses of directors. The bylaws
are a set of rules drawn up by the founders of the corporation. Included are such
points as: (1) how directors are to be elected (all elected each year or perhaps one-
third each year for 3-year terms), (2) whether the existing stockholders will have the
first right to buy any new shares the firm issues, and (3) procedures for changing the
bylaws themselves, should conditions require it.
b. In a limited partnership, limited partners’ liabilities, investment returns and control
are limited, while general partners have unlimited liability and control. In limited
partnership, at least one partner is liable for all the debts in the partnership. A
limited liability partnership (LLP), sometimes called a limited liability company (LLC),
combines the limited liability advantage of a corporation with the tax advantages of
a partnership. A professional corporation (PC), known in some states as a
professional association (PA), has most of the benefits of incorporation but the
participants are not relieved of professional (malpractice) liability.
© 2024 1
