,
,
, Test Bank — Foundations of Financial Management, 18th Edition (Block,
Hirt, Danielsen & Warr, 2022) | All Chapters 1–21 Covered
Chapter 1
The Goals and Functions of Financial Management
Discussion Questions
1-1 What effect did the recession of 2007-2009 have on government regulation?
It was greatly increased.
1-2 What advantages does a sole proprietorship offer? What is a major drawback of this type of
organization?
A sole proprietorship offers the advantage of simplicity of decision making and low organizational
and operating costs. A major drawback is that there is unlimited liability to the owner.
1-3 What form of partnership allows some of the investors to limit their liability? Explain briefly.
A limited partnership allows some of the partners to limit their liability. Under this arrangement,
one or more partners are designated general partners and have unlimited liability for the debts of
the firm; other partners are designated limited partners and are liable only for their initial
contribution. The limited partners are normally prohibited from being active in the management of
the firm.
1-4 In a corporation, what group has the ultimate responsibility for protecting and managing the
stockholders’ interests?
The board of directors.
1-5 What document is necessary to form a corporation?
The articles of incorporation.
1-6 What issue does agency theory examine? Why is it important in a public corporation rather
than in a private corporation?
,
, Test Bank — Foundations of Financial Management, 18th Edition (Block,
Hirt, Danielsen & Warr, 2022) | All Chapters 1–21 Covered
Chapter 1
The Goals and Functions of Financial Management
Discussion Questions
1-1 What effect did the recession of 2007-2009 have on government regulation?
It was greatly increased.
1-2 What advantages does a sole proprietorship offer? What is a major drawback of this type of
organization?
A sole proprietorship offers the advantage of simplicity of decision making and low organizational
and operating costs. A major drawback is that there is unlimited liability to the owner.
1-3 What form of partnership allows some of the investors to limit their liability? Explain briefly.
A limited partnership allows some of the partners to limit their liability. Under this arrangement,
one or more partners are designated general partners and have unlimited liability for the debts of
the firm; other partners are designated limited partners and are liable only for their initial
contribution. The limited partners are normally prohibited from being active in the management of
the firm.
1-4 In a corporation, what group has the ultimate responsibility for protecting and managing the
stockholders’ interests?
The board of directors.
1-5 What document is necessary to form a corporation?
The articles of incorporation.
1-6 What issue does agency theory examine? Why is it important in a public corporation rather
than in a private corporation?
