Corporate Finance A Focused Approach,
z z z z
8th Edition by z z
Michael C. Ehrhardt
z z z
Complete Chapter Solutions Manual
z z z
areincluded (Ch 1 to 17)
z z z z z z
** Immediate Download
z z
** Swift Response
z z
** All Chapters included
z z z
** Build a Model Solution
z z z z
,Brigham/Ehrhardt zFinancial zManagement: zTheory z& zPractice--Ehrhardt/Brigham zCorporate zFinance: zA zFocused
zApproach
Solution and Answer Guide z z z
CHAPTER z 1: z AN z OVERVIEW z OF z FINANCIAL z MANAGEMENT z AND z THE z FINANCIAL z ENVIRONMENT
TABLE zOF zCONTENTS
ANSWERS zTO zEND-OF-CHAPTER zQUESTIONS .................................................. 1
MINI zCASE .................................................................................... 5
ANSWERS zTO zEND-OF-CHAPTER zQUESTIONS
1-1 Define zeach zof zthe zfollowing zterms:
a. Proprietorship; zpartnership; zcorporation; zcharter; zbylaws
b. Limited zpartnership; zlimited zliability zpartnership; zprofessional zcorporation
c. Stockholder zwealth zmaximization
d. Money zmarket; zcapital zmarket; zprimary zmarket; zsecondary zmarket
e. Private zmarkets; zpublic zmarkets; zderivatives
f. Investment zbank; zfinancial zservices zcorporation; zfinancial zintermediary
g. Mutual zfund; zmoney zmarket zfund
h. Open zoutcry zauction; zdealer zmarket; zautomated ztrading zplatform
i. Production zopportunities; ztime zpreferences zfor zconsumption
j. Foreign ztrade zdeficit
k. Algorithmic ztrading; zhigh-frequency ztrading
Answer:
a. A zproprietorship, zor zsole zproprietorship, zis za zbusiness zowned zby zone
zindividual. zA zpartnership zexists zwhen ztwo zor zmore zpersons zassociate zto
zconduct za zbusiness. zIn zcontrast, za zcorporation zis za zlegal zentity zcreated
zby za zstate. zThe zcorporation zis zseparate zand zdistinct zfrom zits zowners zand
zmanagers. zA zcompany zmust zfile za zcharterzto zbecome za zcorporation. zA
zcharter zincludes zthe zfollowing zinformation: z(1) zname zof zthe zproposed
zcorporation, z(2) ztypes zof zactivities zit zwill zpursue, z(3) zamount zof zcapital
zstock, z(4) znumber zof zdirectors, zand z(5) znames zand zaddresses zof zdirectors.
zThe zbylawszare za zset zof zrules zdrawn zup zby zthe zfounders zof zthe
zcorporation. zIncluded zare zsuch zpoints zas: z(1) zhow zdirectors zare zto zbe
zelected z(all zelected zeach zyear zor zperhaps zone-zthird zeach zyear zfor z3-year
zterms), z(2) zwhether zthe zexisting zstockholders zwill zhave zthe zfirst zright zto zbuy
zany znew zshares zthe zfirm zissues, zand z(3) zprocedures zfor zchanging zthezbylaws
zthemselves, zshould zconditions zrequire zit.
b. In za zlimited zpartnership, zlimited zpartners’ zliabilities, zinvestment zreturns zand
zcontrol zare zlimited, zwhile zgeneral zpartners zhave zunlimited zliability zand
zcontrol. zIn zlimited zpartnership, zat zleast zone zpartner zis zliable zfor zall zthe
zdebts zin zthe zpartnership. zA zlimited zliability zpartnership z(LLP), zsometimes
zcalled za zlimited zliability zcompany z(LLC),zcombines zthe zlimited zliability
zadvantage zof za zcorporation zwith zthe ztax zadvantages zofza zpartnership. zA
zprofessional zcorporation z(PC), zknown zin zsome zstates zas za zprofessional
zassociation z(PA), zhas zmost zof zthe zbenefits zof zincorporation zbut zthe
1
,Brigham/Ehrhardt zFinancial zManagement: zTheory z& zPractice--Ehrhardt/Brigham zCorporate zFinance: zA zFocused
zApproach zparticipants zare znot zrelieved zof zprofessional z(malpractice) zliability.
2
, Brigham/Ehrhardt zFinancial zManagement: zTheory z& zPractice--Ehrhardt/Brigham zCorporate zFinance: zA zFocused
zApproach c. Stockholder zwealth zmaximization zis zthe zappropriate zgoal zfor zmanagement
zdecisions.zThe zrisk zand ztiming zassociated zwith zexpected zearnings zper zshare
zand zcash zflows zare zconsidered zin zorder zto zmaximize zthe zprice zof zthe zfirm’s
zcommon zstock. zMaximizing zshareholder’s zwealth zis za zduty zthat zneeds zto
zbe zfulfill zby zcorporations.
d. A zmoney zmarket zis za zfinancial zmarket zfor zdebt zsecurities zwith
zmaturities zof zless zthan z1 zyear z(short-term). zThe zNew zYork zmoney zmarket
zis zthe zexample zof zmoney zmarket. zCapital zmarkets zare zthe zfinancial
zmarkets zfor zlong-term zdebt zand zcorporate zstocks. zThe zNew zYork
zStock zExchange zis zan zexample zof za zcapital zmarket. zPrimary zmarkets
zare zthe zmarkets zin zwhich znewly zissued zsecurities zarezsold zfor zthe zfirst
ztime. zSecondary zmarkets zare zwhere zsecurities zare zresold zafterzinitial
zissue zin z the z primary z market. z The z New zYork zStock zExchange z is za
z secondaryzmarket.
e. In zprivate zmarkets, ztransactions zare zworked zout zdirectly zbetween ztwo
zparties zand zstructured zin zany zmanners zthat zappeal zto zthem. zBank zloans
zand zprivate zplacements zof zdebt zwith zinsurance zcompanies zare zexamples zof
zprivate zmarket ztransactions. zIn zpublic zmarkets, zstandardized zcontracts zare
ztraded zon zorganized zexchanges. zSecurities zthat zare zissued zin zpublic
zmarkets, zsuch zas zcommon zstock zand zcorporate zbonds, zare zultimately zheld
zby za zlarge znumber zof zindividuals. zPrivate zmarket zsecuritieszare zmore ztailor-
made zbut zless zliquid, zwhereas zpublic zmarket zsecurities zare zmore zliquid zbut
zsubject zto zgreater zstandardization. zDerivatives zare zthose zunderlying zasset
zthat zderives ztheir zvalue zfrom zother ztraded zassets. zFutures, zoptions,
zforwards zare zthezexamples zof zderivative zmarket. zTherefore, zthe zvalue zof za
zderivative zsecurity zis zderived zfrom zthe zvalue zof zan zunderlying zreal zasset.
f. An zinvestment zbanker zis za zfacilitator zbetween zbusinesses zand zsavers.
zInvestment zbanking zhouses zassist zin zthe zdesign zof zcorporate zsecurities
zand zthen zsell zthem zto zsavers z(investors) zin zthe zprimary zmarkets. zFinancial
zservice zcorporations zoffer za zwide zrange zof zfinancial zservices zsuch zas
zbrokerage zoperations, zinsurance, zand zcommercial zbanking. zA zfinancial
zintermediary zbuys zsecurity zwith zfunds zthat zis zobtained zby zissuing zits zown
zsecurities. zAn zexample zis za zcommon zstock zmutual zfund zthat zbuys
zcommon zstocks zwith zfunds zobtained zby zissuing zshares zin zthe zmutual
zfund.
g. A zmutual zfund zis zan zorganization zthat zpools zthe zmoney zdeposited zby
zsavers zto zbuy zfinancial zinstruments. zThese zinstruments zreceive zdividends
zand zinterest zon zit.zThe zresulting zdividends, zinterest, zand zcapital zgains zare
zdistributed zto zthe zfund’s zshareholders zafter zthe zdeduction zof zoperating
zexpenses. zDifferent zfunds zare zdesigned zto zmeet zdifferent zobjectives.
zMoney zmarket zfunds zare zmutual zfunds zwhich zinvest zin zshort-term
zsecurities z carry zlow-risk zand zalso zoffer ztheir zshareholders zinterest-
bearing zchecking zaccounts.
h. An zopen zoutcry zauction zis za zmethod zwhere ztraders zmeet zface zto zface zat
zparticularzlocation zat zan zagreed zprice zand zquantity. zThese ztraders
zcommunicate zwith zeach zother zthrough zhand zsignals zand zshouts. zIn za
zdealer zmarket, za zdealer zholds zan zinventory zof zthe zsecurity zand zmakes
za zmarket zby zoffering zto zbuy zor zsell. zOthers zwho zwish zto zbuy zor zsell
zcan zsee zthe zoffers zmade zby zthe zdealers, zand zcan zcontactzthe zdealer zof
3
z z z z
8th Edition by z z
Michael C. Ehrhardt
z z z
Complete Chapter Solutions Manual
z z z
areincluded (Ch 1 to 17)
z z z z z z
** Immediate Download
z z
** Swift Response
z z
** All Chapters included
z z z
** Build a Model Solution
z z z z
,Brigham/Ehrhardt zFinancial zManagement: zTheory z& zPractice--Ehrhardt/Brigham zCorporate zFinance: zA zFocused
zApproach
Solution and Answer Guide z z z
CHAPTER z 1: z AN z OVERVIEW z OF z FINANCIAL z MANAGEMENT z AND z THE z FINANCIAL z ENVIRONMENT
TABLE zOF zCONTENTS
ANSWERS zTO zEND-OF-CHAPTER zQUESTIONS .................................................. 1
MINI zCASE .................................................................................... 5
ANSWERS zTO zEND-OF-CHAPTER zQUESTIONS
1-1 Define zeach zof zthe zfollowing zterms:
a. Proprietorship; zpartnership; zcorporation; zcharter; zbylaws
b. Limited zpartnership; zlimited zliability zpartnership; zprofessional zcorporation
c. Stockholder zwealth zmaximization
d. Money zmarket; zcapital zmarket; zprimary zmarket; zsecondary zmarket
e. Private zmarkets; zpublic zmarkets; zderivatives
f. Investment zbank; zfinancial zservices zcorporation; zfinancial zintermediary
g. Mutual zfund; zmoney zmarket zfund
h. Open zoutcry zauction; zdealer zmarket; zautomated ztrading zplatform
i. Production zopportunities; ztime zpreferences zfor zconsumption
j. Foreign ztrade zdeficit
k. Algorithmic ztrading; zhigh-frequency ztrading
Answer:
a. A zproprietorship, zor zsole zproprietorship, zis za zbusiness zowned zby zone
zindividual. zA zpartnership zexists zwhen ztwo zor zmore zpersons zassociate zto
zconduct za zbusiness. zIn zcontrast, za zcorporation zis za zlegal zentity zcreated
zby za zstate. zThe zcorporation zis zseparate zand zdistinct zfrom zits zowners zand
zmanagers. zA zcompany zmust zfile za zcharterzto zbecome za zcorporation. zA
zcharter zincludes zthe zfollowing zinformation: z(1) zname zof zthe zproposed
zcorporation, z(2) ztypes zof zactivities zit zwill zpursue, z(3) zamount zof zcapital
zstock, z(4) znumber zof zdirectors, zand z(5) znames zand zaddresses zof zdirectors.
zThe zbylawszare za zset zof zrules zdrawn zup zby zthe zfounders zof zthe
zcorporation. zIncluded zare zsuch zpoints zas: z(1) zhow zdirectors zare zto zbe
zelected z(all zelected zeach zyear zor zperhaps zone-zthird zeach zyear zfor z3-year
zterms), z(2) zwhether zthe zexisting zstockholders zwill zhave zthe zfirst zright zto zbuy
zany znew zshares zthe zfirm zissues, zand z(3) zprocedures zfor zchanging zthezbylaws
zthemselves, zshould zconditions zrequire zit.
b. In za zlimited zpartnership, zlimited zpartners’ zliabilities, zinvestment zreturns zand
zcontrol zare zlimited, zwhile zgeneral zpartners zhave zunlimited zliability zand
zcontrol. zIn zlimited zpartnership, zat zleast zone zpartner zis zliable zfor zall zthe
zdebts zin zthe zpartnership. zA zlimited zliability zpartnership z(LLP), zsometimes
zcalled za zlimited zliability zcompany z(LLC),zcombines zthe zlimited zliability
zadvantage zof za zcorporation zwith zthe ztax zadvantages zofza zpartnership. zA
zprofessional zcorporation z(PC), zknown zin zsome zstates zas za zprofessional
zassociation z(PA), zhas zmost zof zthe zbenefits zof zincorporation zbut zthe
1
,Brigham/Ehrhardt zFinancial zManagement: zTheory z& zPractice--Ehrhardt/Brigham zCorporate zFinance: zA zFocused
zApproach zparticipants zare znot zrelieved zof zprofessional z(malpractice) zliability.
2
, Brigham/Ehrhardt zFinancial zManagement: zTheory z& zPractice--Ehrhardt/Brigham zCorporate zFinance: zA zFocused
zApproach c. Stockholder zwealth zmaximization zis zthe zappropriate zgoal zfor zmanagement
zdecisions.zThe zrisk zand ztiming zassociated zwith zexpected zearnings zper zshare
zand zcash zflows zare zconsidered zin zorder zto zmaximize zthe zprice zof zthe zfirm’s
zcommon zstock. zMaximizing zshareholder’s zwealth zis za zduty zthat zneeds zto
zbe zfulfill zby zcorporations.
d. A zmoney zmarket zis za zfinancial zmarket zfor zdebt zsecurities zwith
zmaturities zof zless zthan z1 zyear z(short-term). zThe zNew zYork zmoney zmarket
zis zthe zexample zof zmoney zmarket. zCapital zmarkets zare zthe zfinancial
zmarkets zfor zlong-term zdebt zand zcorporate zstocks. zThe zNew zYork
zStock zExchange zis zan zexample zof za zcapital zmarket. zPrimary zmarkets
zare zthe zmarkets zin zwhich znewly zissued zsecurities zarezsold zfor zthe zfirst
ztime. zSecondary zmarkets zare zwhere zsecurities zare zresold zafterzinitial
zissue zin z the z primary z market. z The z New zYork zStock zExchange z is za
z secondaryzmarket.
e. In zprivate zmarkets, ztransactions zare zworked zout zdirectly zbetween ztwo
zparties zand zstructured zin zany zmanners zthat zappeal zto zthem. zBank zloans
zand zprivate zplacements zof zdebt zwith zinsurance zcompanies zare zexamples zof
zprivate zmarket ztransactions. zIn zpublic zmarkets, zstandardized zcontracts zare
ztraded zon zorganized zexchanges. zSecurities zthat zare zissued zin zpublic
zmarkets, zsuch zas zcommon zstock zand zcorporate zbonds, zare zultimately zheld
zby za zlarge znumber zof zindividuals. zPrivate zmarket zsecuritieszare zmore ztailor-
made zbut zless zliquid, zwhereas zpublic zmarket zsecurities zare zmore zliquid zbut
zsubject zto zgreater zstandardization. zDerivatives zare zthose zunderlying zasset
zthat zderives ztheir zvalue zfrom zother ztraded zassets. zFutures, zoptions,
zforwards zare zthezexamples zof zderivative zmarket. zTherefore, zthe zvalue zof za
zderivative zsecurity zis zderived zfrom zthe zvalue zof zan zunderlying zreal zasset.
f. An zinvestment zbanker zis za zfacilitator zbetween zbusinesses zand zsavers.
zInvestment zbanking zhouses zassist zin zthe zdesign zof zcorporate zsecurities
zand zthen zsell zthem zto zsavers z(investors) zin zthe zprimary zmarkets. zFinancial
zservice zcorporations zoffer za zwide zrange zof zfinancial zservices zsuch zas
zbrokerage zoperations, zinsurance, zand zcommercial zbanking. zA zfinancial
zintermediary zbuys zsecurity zwith zfunds zthat zis zobtained zby zissuing zits zown
zsecurities. zAn zexample zis za zcommon zstock zmutual zfund zthat zbuys
zcommon zstocks zwith zfunds zobtained zby zissuing zshares zin zthe zmutual
zfund.
g. A zmutual zfund zis zan zorganization zthat zpools zthe zmoney zdeposited zby
zsavers zto zbuy zfinancial zinstruments. zThese zinstruments zreceive zdividends
zand zinterest zon zit.zThe zresulting zdividends, zinterest, zand zcapital zgains zare
zdistributed zto zthe zfund’s zshareholders zafter zthe zdeduction zof zoperating
zexpenses. zDifferent zfunds zare zdesigned zto zmeet zdifferent zobjectives.
zMoney zmarket zfunds zare zmutual zfunds zwhich zinvest zin zshort-term
zsecurities z carry zlow-risk zand zalso zoffer ztheir zshareholders zinterest-
bearing zchecking zaccounts.
h. An zopen zoutcry zauction zis za zmethod zwhere ztraders zmeet zface zto zface zat
zparticularzlocation zat zan zagreed zprice zand zquantity. zThese ztraders
zcommunicate zwith zeach zother zthrough zhand zsignals zand zshouts. zIn za
zdealer zmarket, za zdealer zholds zan zinventory zof zthe zsecurity zand zmakes
za zmarket zby zoffering zto zbuy zor zsell. zOthers zwho zwish zto zbuy zor zsell
zcan zsee zthe zoffers zmade zby zthe zdealers, zand zcan zcontactzthe zdealer zof
3
