Solutions Manual for Foundations of Financial Management, 12th Edition
by Stanley B. Block & Geoffrey A. Hirt | Complete Chapter-by-Chapter
Solutions (Chapters 1–21) | Instructor Resource (2026–2027)
All chapters covered
➢ Foundations of Financial Management Solutions Manual
➢ Foundations of Financial Management 12th Edition
➢ Stanley B. Block Solutions Manual
➢ Geoffrey A. Hirt Solutions Manual
➢ Financial Management Solutions Manual
➢ Corporate Finance Solutions Manual
Foundations of Fin. Mgt. 12Ce
l l l l
3 -1
l l
Block, Hirt, Danielsen, Short
l l l
,Solution Manual For Foundations Of Financial Management 12th Edition l l l l l l l l
Stanley B Block, Geoffrey A Hirt Chapter 1-21 l l l l l l l l
Chapter1 l
DiscussionQuestions l
1-1. Regulation was greatly increased with the Dodd – Frank Act and other measures. l l l l l l l l l l l l
1-2. The student should be prepared to pay a higher price for the promised $2 from the Royal Bank.
l l l l l l l l l l l l l l l l l l l
The risk is lower. l l l l
1-3. l l The goal of shareholder wealth maximization implies that the firm will attempt to achieve the
l l l l l l l l l l l l l l
l highest possible valuation in the marketplace. It is the one overriding objective of the firm and
l l l l l l l l l l l l l l l
l should influence every decision. The problem with a profit maximization goal is that it fails to
l l l l l l l l l l l l l l l
l take account of risk, the timing of the benefits is not considered, and profit measurement is a
l l l l l l l l l l l l l l l l
l very inexact process. l l
1-4. Agency theory examines the relationship between the owners of the firm and the
l l l l l l l l l l l l l
managers of the firm. In privately owned firms, management and the owners are usually the
l l l l l l l l l l l l l l l
same people. Management operates the firm to satisfy its own goals, needs, financial
l l l l l l l l l l l l l
requirements and the like. As a company moves from private to public ownership,
l l l l l l l l l l l l l
management now represents all owners. This places management in the agency position of
l l l l l l l l l l l l l
making decisions in the best interest of all shareholders.
l l l l l l l l l
1-5. l l Because institutional investors such as pension funds (Ontario Teachers‘, CPP) and l l l l l l l l l l
mutual funds own a large percentage of major companies, they are having more to say about the
l l l l l l l l l l l l l l l l l
way publicly owned companies are managed. As a group, they have the ability to vote large
l l l l l l l l l l l l l l l l
blocks of shares for the election of a board of directors, which is supposed to run the company in
l l l l l l l l l l l l l l l l l l l
an efficient, competitive manner. The threat of being able to replace poor performing boards of
l l l l l l l l l l l l l l l
directors makes institutional investors quite influential. Since these institutions, like pension
l l l l l l l l l l l
funds and mutual funds, represent individual workers and investors, they have a responsibility
l l l l l l l l l l l l l
to see that the firm is managed in an efficient and ethical way.
l l l l l l l l l l l l l
1-6. l l Insider trading occurs when someone has information that is not available to the public and
l l l l l l l l l l l l l l
l then uses the information to profit from trading in a company‘s common stock. The provincial
l l l l l l l l l l l l l l
l securities commissions are responsible for protecting against insider trading. l l l l l l l l
1-7. l Regulations set the —rules of the game‖ in which the firm operates. Shareholder wealth l l l l l l l l l l l l l
maximization can and should still be sought within the rules, for economic efficiency to be
l l l l l l l l l l l l l l l
achieved. Society judge‘s deregulation benefits against the costs of regulation.
l l l l l l l l l l
1-8. Management operates within a competitive market and they should be paid their opportunity
l l l l l l l l l l l l l
cost. If managers do not act to maximize shareholder wealth, share prices will become
l l l l l l l l l l l l l l
depressed. To the extent manager‘s compensation is tied to share price
l l l l l l l l l l l
Foundations of Fin. Mgt. 12Ce l l l l
3 -2 l l
Block, Hirt, Danielsen, Short l l l
, performance, shareholders can fire managers, and there exists a market for corporate control, l l l l l l l l l l l l
management will be compensated based on their economic contribution.
l l l l l l l l l
1-9. Daily functions- cash management, inventory control, receipt and disbursement of funds.
l l l l l l l l l l
Occasional- share issue, bond issue, capital budgeting and dividend decisions. l l l l l l l l l
1-10. There is unlimited liability for the sole proprietorship and partnership forms of
l l l l l l l l l l l l
ownership. Under the limited partnership, only the general partner(s) has unlimited liability,
l l l l l l l l l l l l
with limited partners obligated only to the extent of their initial contribution. Finally, all
l l l l l l l l l l l l l l
shareholders in a corporation have limited liability, although owner/ shareholders of small
l l l l l l l l l l l l
businesses often have to give banks their personal guarantees.
l l l l l l l l l
1-11. The corporate form is best suited to large organizations because of the easy divisibility of
l l l l l l l l l l l l l l l
ownership through issuance of shares. Also, the corporation has continued existence
l l l l l l l l l l l
independent of any shareholder.
l l l l
1-12. Money markets refer to those markets dealing with short-term securities that have a life of one
l l l l l l l l l l l l l l l l
year or less. Capital markets refer to securities with a life of more than one year.
l l l l l l l l l l l l l l l l
1-13. A primary market refers to the use of the financial markets to raise new funds. After the
l l l l l l l l l l l l l l l l l
securities are sold to the public (institutions and individuals), they trade in the secondary
l l l l l l l l l l l l l l
market between investors. It is in the secondary market that prices are continually changing as
l l l l l l l l l l l l l l l
investors buy and sell securities based on the expectations of corporate prospects. A liquid
l l l l l l l l l l l l l l
secondary market promotes a successful primary market.
l l l l l l l
1-14. Government debt loads require financing. This puts large demands ($1 trillion in accumulated
l l l l l l l l l l l l l
federal and provincial debt in 2017) on the capital markets, putting upward pressure on interest
l l l l l l l l l l l l l l l
rates and a corporation‘s ability to invest in capital projects. When governments finance their
l l l l l l l l l l l l l l
deficits abroad they place Canada‘s economic levers outside of our control and debt servicing
l l l l l l l l l l l l l l
payments can impact the foreign exchange markets. As the government debt load relative to
l l l l l l l l l l l l l l
GDP been reduced in recent years there has been less pressure on interest rates,
l l l l l l l l l l l l l l
corporations have borrowed more, but there have been less
l l l l l l l l l
‗risk free‘ government securities available (causing liquidity problems particularly in the
l l l l l l l l l l
money markets). l l
1-15. Stakeholders include: shareholders, creditors, employees, unions, environmentalists,
l l l l l l l
consumer groups, Canada Revenue Agency, government regulatory bodies, customers,
l l l l l l l l l
managers and others. l l l
Internet Resources and Questions l l l
1. www.nobelprize.org
2. www.fin.gc.ca
3. www.bankofcanada.ca
4. http://www.onex.com/Our-Goals/Index?Key‘GenPage=1073751432 l
http://www.rbc.com/aboutus/visionandvalues.html
l
5. http://www.bce.ca/responsibility/corporateresponsibility
Foundations of Fin. Mgt. 12Ce l l l l
3 -3 l l
Block, Hirt, Danielsen, Short l l l
, Problems
1-1. IncubusCorporation l
a. Commonstock (contributed capital)
l l l l $40,000
Retainedearnings(deficit) l l (7,000)
l
$33,000
b. Common stock
l l $40,000
Retainedearnings (‒7,000+15,000‒6,000) l l l l l l 2,000 l l
$42,000
c. Commonstock l $60,000
Retainedearnings(+2,000+12,000‒6,000) l l l l l l 8,000 l l
$68,000
1-2. PuppetCorporation l
a. Common stock
l l $20,000
Retainedearnings l 2,000 l l
$22,000
b. Common stock
l l $20,000
Retainedearnings (+2,000+9,000‒3,000) l l l l l l 8,000 l l
$28,000
c. Commonstock l $30,000
Retainedearnings (+8,000+5,000‒2,500) l l l l l l 10,500 l
$40,500
1-3. Two to Ten Dollar Corporation would be expected to have the higher valuation because the
l l l l l l l l l l l l l l
$10 per share dividend (although achieved later) is expected to be sustained for a much
l l l l l l l l l l l l l l l
longer period of time. Building earnings for longer term sustainability is more valuable than
l l l l l l l l l l l l l l
quick returns that peter out.
l l l l l
Foundations of Fin. Mgt. 12Ce
l l l l
3 -4 l l
Block, Hirt, Danielsen, Short
l l l
by Stanley B. Block & Geoffrey A. Hirt | Complete Chapter-by-Chapter
Solutions (Chapters 1–21) | Instructor Resource (2026–2027)
All chapters covered
➢ Foundations of Financial Management Solutions Manual
➢ Foundations of Financial Management 12th Edition
➢ Stanley B. Block Solutions Manual
➢ Geoffrey A. Hirt Solutions Manual
➢ Financial Management Solutions Manual
➢ Corporate Finance Solutions Manual
Foundations of Fin. Mgt. 12Ce
l l l l
3 -1
l l
Block, Hirt, Danielsen, Short
l l l
,Solution Manual For Foundations Of Financial Management 12th Edition l l l l l l l l
Stanley B Block, Geoffrey A Hirt Chapter 1-21 l l l l l l l l
Chapter1 l
DiscussionQuestions l
1-1. Regulation was greatly increased with the Dodd – Frank Act and other measures. l l l l l l l l l l l l
1-2. The student should be prepared to pay a higher price for the promised $2 from the Royal Bank.
l l l l l l l l l l l l l l l l l l l
The risk is lower. l l l l
1-3. l l The goal of shareholder wealth maximization implies that the firm will attempt to achieve the
l l l l l l l l l l l l l l
l highest possible valuation in the marketplace. It is the one overriding objective of the firm and
l l l l l l l l l l l l l l l
l should influence every decision. The problem with a profit maximization goal is that it fails to
l l l l l l l l l l l l l l l
l take account of risk, the timing of the benefits is not considered, and profit measurement is a
l l l l l l l l l l l l l l l l
l very inexact process. l l
1-4. Agency theory examines the relationship between the owners of the firm and the
l l l l l l l l l l l l l
managers of the firm. In privately owned firms, management and the owners are usually the
l l l l l l l l l l l l l l l
same people. Management operates the firm to satisfy its own goals, needs, financial
l l l l l l l l l l l l l
requirements and the like. As a company moves from private to public ownership,
l l l l l l l l l l l l l
management now represents all owners. This places management in the agency position of
l l l l l l l l l l l l l
making decisions in the best interest of all shareholders.
l l l l l l l l l
1-5. l l Because institutional investors such as pension funds (Ontario Teachers‘, CPP) and l l l l l l l l l l
mutual funds own a large percentage of major companies, they are having more to say about the
l l l l l l l l l l l l l l l l l
way publicly owned companies are managed. As a group, they have the ability to vote large
l l l l l l l l l l l l l l l l
blocks of shares for the election of a board of directors, which is supposed to run the company in
l l l l l l l l l l l l l l l l l l l
an efficient, competitive manner. The threat of being able to replace poor performing boards of
l l l l l l l l l l l l l l l
directors makes institutional investors quite influential. Since these institutions, like pension
l l l l l l l l l l l
funds and mutual funds, represent individual workers and investors, they have a responsibility
l l l l l l l l l l l l l
to see that the firm is managed in an efficient and ethical way.
l l l l l l l l l l l l l
1-6. l l Insider trading occurs when someone has information that is not available to the public and
l l l l l l l l l l l l l l
l then uses the information to profit from trading in a company‘s common stock. The provincial
l l l l l l l l l l l l l l
l securities commissions are responsible for protecting against insider trading. l l l l l l l l
1-7. l Regulations set the —rules of the game‖ in which the firm operates. Shareholder wealth l l l l l l l l l l l l l
maximization can and should still be sought within the rules, for economic efficiency to be
l l l l l l l l l l l l l l l
achieved. Society judge‘s deregulation benefits against the costs of regulation.
l l l l l l l l l l
1-8. Management operates within a competitive market and they should be paid their opportunity
l l l l l l l l l l l l l
cost. If managers do not act to maximize shareholder wealth, share prices will become
l l l l l l l l l l l l l l
depressed. To the extent manager‘s compensation is tied to share price
l l l l l l l l l l l
Foundations of Fin. Mgt. 12Ce l l l l
3 -2 l l
Block, Hirt, Danielsen, Short l l l
, performance, shareholders can fire managers, and there exists a market for corporate control, l l l l l l l l l l l l
management will be compensated based on their economic contribution.
l l l l l l l l l
1-9. Daily functions- cash management, inventory control, receipt and disbursement of funds.
l l l l l l l l l l
Occasional- share issue, bond issue, capital budgeting and dividend decisions. l l l l l l l l l
1-10. There is unlimited liability for the sole proprietorship and partnership forms of
l l l l l l l l l l l l
ownership. Under the limited partnership, only the general partner(s) has unlimited liability,
l l l l l l l l l l l l
with limited partners obligated only to the extent of their initial contribution. Finally, all
l l l l l l l l l l l l l l
shareholders in a corporation have limited liability, although owner/ shareholders of small
l l l l l l l l l l l l
businesses often have to give banks their personal guarantees.
l l l l l l l l l
1-11. The corporate form is best suited to large organizations because of the easy divisibility of
l l l l l l l l l l l l l l l
ownership through issuance of shares. Also, the corporation has continued existence
l l l l l l l l l l l
independent of any shareholder.
l l l l
1-12. Money markets refer to those markets dealing with short-term securities that have a life of one
l l l l l l l l l l l l l l l l
year or less. Capital markets refer to securities with a life of more than one year.
l l l l l l l l l l l l l l l l
1-13. A primary market refers to the use of the financial markets to raise new funds. After the
l l l l l l l l l l l l l l l l l
securities are sold to the public (institutions and individuals), they trade in the secondary
l l l l l l l l l l l l l l
market between investors. It is in the secondary market that prices are continually changing as
l l l l l l l l l l l l l l l
investors buy and sell securities based on the expectations of corporate prospects. A liquid
l l l l l l l l l l l l l l
secondary market promotes a successful primary market.
l l l l l l l
1-14. Government debt loads require financing. This puts large demands ($1 trillion in accumulated
l l l l l l l l l l l l l
federal and provincial debt in 2017) on the capital markets, putting upward pressure on interest
l l l l l l l l l l l l l l l
rates and a corporation‘s ability to invest in capital projects. When governments finance their
l l l l l l l l l l l l l l
deficits abroad they place Canada‘s economic levers outside of our control and debt servicing
l l l l l l l l l l l l l l
payments can impact the foreign exchange markets. As the government debt load relative to
l l l l l l l l l l l l l l
GDP been reduced in recent years there has been less pressure on interest rates,
l l l l l l l l l l l l l l
corporations have borrowed more, but there have been less
l l l l l l l l l
‗risk free‘ government securities available (causing liquidity problems particularly in the
l l l l l l l l l l
money markets). l l
1-15. Stakeholders include: shareholders, creditors, employees, unions, environmentalists,
l l l l l l l
consumer groups, Canada Revenue Agency, government regulatory bodies, customers,
l l l l l l l l l
managers and others. l l l
Internet Resources and Questions l l l
1. www.nobelprize.org
2. www.fin.gc.ca
3. www.bankofcanada.ca
4. http://www.onex.com/Our-Goals/Index?Key‘GenPage=1073751432 l
http://www.rbc.com/aboutus/visionandvalues.html
l
5. http://www.bce.ca/responsibility/corporateresponsibility
Foundations of Fin. Mgt. 12Ce l l l l
3 -3 l l
Block, Hirt, Danielsen, Short l l l
, Problems
1-1. IncubusCorporation l
a. Commonstock (contributed capital)
l l l l $40,000
Retainedearnings(deficit) l l (7,000)
l
$33,000
b. Common stock
l l $40,000
Retainedearnings (‒7,000+15,000‒6,000) l l l l l l 2,000 l l
$42,000
c. Commonstock l $60,000
Retainedearnings(+2,000+12,000‒6,000) l l l l l l 8,000 l l
$68,000
1-2. PuppetCorporation l
a. Common stock
l l $20,000
Retainedearnings l 2,000 l l
$22,000
b. Common stock
l l $20,000
Retainedearnings (+2,000+9,000‒3,000) l l l l l l 8,000 l l
$28,000
c. Commonstock l $30,000
Retainedearnings (+8,000+5,000‒2,500) l l l l l l 10,500 l
$40,500
1-3. Two to Ten Dollar Corporation would be expected to have the higher valuation because the
l l l l l l l l l l l l l l
$10 per share dividend (although achieved later) is expected to be sustained for a much
l l l l l l l l l l l l l l l
longer period of time. Building earnings for longer term sustainability is more valuable than
l l l l l l l l l l l l l l
quick returns that peter out.
l l l l l
Foundations of Fin. Mgt. 12Ce
l l l l
3 -4 l l
Block, Hirt, Danielsen, Short
l l l
