solution manual for Foundations of Financial Management 12th Canadian Edition by Stanley B. Block, Geoffrey A. Hirt

Solution Manual For Foundations Of Financial Management 12th Edition S
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tanley B Block, Geoffrey A Hirt Chapter 1-21
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Chapter 1 c




Discussion Questions
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1-1. RegulationcwascgreatlycincreasedcwithcthecDoddc–cFrankcActcandcothercmeasures.

1-
2.c c Thecstudentcshouldcbecpreparedctocpaycachighercpricecforcthecpromisedc$2cfromcthecRoyal
cBank.cThecriskcisclower.




1-
3.c c Thecgoalcofcshareholdercwealthcmaximizationcimpliescthatcthecfirmcwillcattemptctocachie
vecthechighestcpossiblecvaluationcincthecmarketplace.cItcisctheconecoverridingcobjectivecofcthec
firmcandcshouldcinfluenceceverycdecision.cThecproblemcwithcacprofitcmaximizationcgoalciscth
atcitcfailsctoctakecaccountcofcrisk,cthectimingcofcthecbenefitsciscnotcconsidered,candcprofitcmeas
urementciscacverycinexactcprocess.

1-
4.c Agencyc theoryc examinesc thec relationshipc betweenc thec ownersc ofc thec firmc andc thecm
anagerscofcthecfirm.cIncprivatelycownedcfirms,cmanagementcandcthecownerscarecusuallycthecs
amecpeople.cManagementcoperatescthecfirmctocsatisfycitscowncgoals,cneeds,cfinancialcrequire
mentscandctheclike.cAscaccompanycmovescfromcprivatectocpubliccownership,cmanagementcno
wcrepresentscallcowners.cThiscplacescmanagementcincthecagencycpositioncofcmakingcdecision
scincthecbestcinterestcofcallcshareholders.

1-
5.c c Becausec institutionalc investorsc suchc asc pensionc fundsc (Ontarioc Teachers‘,c CPP)c andc
mutualcfundscowncaclargecpercentagecofcmajorccompanies,ctheycarechavingcmorectocsaycabout
cthecwaycpubliclycownedccompaniescarecmanaged. cAscacgroup,ctheychavecthecabilityctocvotecl

argecblockscofcsharescforcthecelectioncofcacboardcofcdirectors,cwhichciscsupposedctocruncthecco
mpanycincancefficient,ccompetitivecmanner.cThecthreatcofcbeingcablectocreplacecpoorcperform
ingcboardscofcdirectorscmakescinstitutionalcinvestorscquitecinfluential.cSincecthesecinstitution
s,clikecpensioncfundscandcmutualcfunds,crepresentcindividualcworkerscandcinvestors,ctheychav
ecacresponsibilityctocseecthatcthecfirmciscmanagedcincancefficientcandcethicalcway.

1-
6.c c Insiderctradingcoccurscwhencsomeonechascinformationcthatciscnotcavailablectocthecpublicc
andcthencusescthecinformationctocprofitcfromctradingcincaccompany‘sccommoncstock.cThecpro
vincialcsecuritiesccommissionscarecresponsiblecforcprotectingcagainstcinsiderctrading.

1-
7.c Regulationscsetcthec―rulescofcthecgame‖cincwhichcthecfirmcoperates.cShareholdercwealthc
maximizationccancandcshouldcstillcbecsoughtcwithincthecrules,cforceconomiccefficiencyctocbec
achieved.cSocietycjudge‘scderegulationcbenefitscagainstctheccostscofcregulation.


Foundations of Fin. Mgt. 12Ce 3-1 Block, Hirt, Danielsen, Short

,1-
8.c Managementcoperatescwithincaccompetitivecmarketcandctheycshouldcbecpaidctheircopportu
nityccost.cIfcmanagerscdocnotcactctocmaximizecshareholdercwealth,csharecpricesc willc become
c depressed.c Toc thec extentc manager‘sc compensationc isc tiedc toc sharec price




Foundations of Fin. Mgt. 12Ce 3-2 Block, Hirt, Danielsen, Short

, performance,cshareholdersccancfirecmanagers,candctherecexistscacmarketcforccorporateccontro
l,cmanagementcwillcbeccompensatedcbasedconctheirceconomicccontribution.

1-9. Dailycfunctions-ccashcmanagement,cinventoryccontrol,creceiptcandcdisbursementcofcfunds.
Occasional-csharecissue,cbondcissue,ccapitalcbudgetingcandcdividendcdecisions.
1-
10.c Therec isc unlimitedc liabilityc forc thec solec proprietorshipc andc partnershipc formsc ofcow
nership.cUnderctheclimitedcpartnership,conlycthecgeneralcpartner(s)chascunlimitedcliability,cw
ithclimitedcpartnerscobligatedconlyctocthecextentcofctheircinitialccontribution.cFinally,callcshare
holderscincaccorporationchaveclimitedcliability,calthoughcowner/cshareholderscofcsmallcbusin
essescoftenchavectocgivecbanksctheircpersonalcguarantees.
1-
11.c Theccorporatecformciscbestcsuitedctoclargecorganizationscbecausecofctheceasycdivisibilityc
ofcownershipcthroughcissuancecofcshares.cAlso,ctheccorporationchasccontinuedcexistencecinde
pendentcofcanycshareholder.
1-12.c Moneycmarketscreferctocthosecmarketscdealingcwithcshort-
termcsecuritiescthatchavecaclifec ofconecyearcorcless.cCapitalcmarketscreferctocsecuritiescwithcacl
ifecofcmorecthanconecyear.
1-
13.c Acprimarycmarketcrefersctocthecusecofcthecfinancialcmarketsctocraisecnewcfunds.cAftercthe
csecuritiescarecsoldctocthecpublicc(institutionscandcindividuals),ctheyctradecincthecsecondarycm

arketcbetweencinvestors.cItciscincthecsecondarycmarketcthatcpricescareccontinuallycchangingcas
cinvestorscbuycandcsellcsecuritiescbasedconcthecexpectationscofccorporatecprospects.cAcliquidc

secondarycmarketcpromotescacsuccessfulcprimarycmarket.
1-
14.c Governmentcdebtcloadscrequirecfinancing.cThiscputsclargecdemandsc($1ctrillioncincaccum
ulatedcfederalcandcprovincialcdebtcinc2017)conctheccapitalcmarkets,cputtingcupwardcpressurec
oncinterestcratescandcaccorporation‘scabilityctocinvestcinccapitalcprojects.cWhencgovernmentsc
financectheircdeficitscabroadctheycplacecCanada‘sceconomiccleverscoutsidecofcourccontrolcand
cdebtcservicingcpaymentsccancimpactcthecforeigncexchangecmarkets.cAscthecgovernmentcdebt

cloadcrelativectocGDPcbeencreducedcincrecentc yearsctherechascbeenclesscpressurec onc interestc r

ates,c corporationsc havec borrowedc more,c butc therec havec beenc less
‗riskcfree‘cgovernmentcsecuritiescavailablec(causingcliquiditycproblemscparticularlycincthecm
oneycmarkets).

1-
15.c Stakeholderscinclude:cshareholders,ccreditors,cemployees,cunions,cenvironmentalists,cc
onsumercgroups,cCanadacRevenuecAgency,cgovernmentcregulatorycbodies,ccustomers,cman
agerscandcothers.


Internet Resources and Questions
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1. www.nobelprize.org
2. www.fin.gc.ca
3. www.bankofcanada.ca
4. http://www.onex.com/Our-
Goals/Index?Key‘GenPage=1073751432chttp://www.rbc.com/aboutu
Foundations of Fin. Mgt. 12Ce 3-3 Block, Hirt, Danielsen, Short

, s/visionandvalues.html
5. http://www.bce.ca/responsibility/corporateresponsibility




Foundations of Fin. Mgt. 12Ce 3-4 Block, Hirt, Danielsen, Short