SOLUTIONMANUAL g
Foundations of Financial Management, 18th Edition
g g g g g
by Stanley Block, Geoffrey Hirt, Chapters 1 – 21, Complete
g g g g g g g g g
,
, Chapter 1 g
The Goals and Functions of Financial Management
g g g g g g
Discussion Questions
g
1-1 What geffect gdid gthe grecession gof g2007-2009 ghave gon ggovernment gregulation?
It gwas ggreatly gincreased.
1-2 What gadvantages gdoes ga gsole gproprietorship goffer? gWhat gis ga gmajor gdrawback gof gthis
gtype gof g organization?
A gsole gproprietorship goffers gthe gadvantage gof gsimplicity gof gdecision gmaking gand glow
g organizational gand goperating gcosts. gA gmajor gdrawback gis gthat gthere gis gunlimited gliability
gto gthe g owner.
1-3 What gform gof gpartnership gallows gsome gof gthe ginvestors gto glimit gtheir gliability?
gExplain g briefly.
A glimited gpartnership gallows gsome gof gthe gpartners gto glimit gtheir gliability. gUnder gthis
g arrangement, gone gor gmore gpartners gare gdesignated ggeneral gpartners gand ghave
gunlimited g liability gfor gthe gdebts gof gthe gfirm; gother gpartners gare gdesignated glimited
gpartners gand gare gliable g only gfor gtheir ginitial gcontribution. gThe glimited gpartners gare
gnormally gprohibited gfrom gbeing g active gin gthe gmanagement gof gthe gfirm.
1-4 In ga gcorporation, gwhat ggroup ghas gthe gultimate gresponsibility gfor gprotecting gand gmanaging
the gstockholders’ ginterests?
The gboard gof gdirectors.
1-5 What gdocument gis gnecessary gto gform ga gcorporation?
The garticles gof gincorporation.
1-6 What gissue gdoes gagency gtheory gexamine? gWhy gis git gimportant gin ga gpublic
gcorporation g rather gthan gin ga gprivate gcorporation?
, Agency gtheory gexamines gthe grelationship gbetween gthe gowners gof gthe gfirm gand gthe
gmanagers g of gthe gfirm. gIn gprivately gowned gfirms, gmanagement gand gthe gowners gare
gusually gthe gsame g people. gManagement goperates gthe gfirm gto gsatisfy gits gown ggoals,
gneeds, gfinancial grequirements g and gthe glike. gAs ga gcompany gmoves gfrom gprivate gto
gpublic gownership, gmanagement gnow g represents gall gowners. gThis gplaces gmanagement gin
gthe g agency gposition gof gmaking gdecisions gin g the gbest ginterest gof gall gshareholders.
1-7 What gare ginstitutional ginvestors gimportant gin gtoday’s gbusiness gworld?
Because ginstitutional ginvestors gsuch gas gpension gfunds gand gmutual gfunds gown ga glarge
g percentage gof gmajor gU.S. gcompanies, gthey gare ghaving gmore gto gsay gabout gthe gway
gpublicly g owned gcompanies gare gmanaged. gAs ga ggroup, gthey ghave gthe gability gto gvote
glarge gblocks gof g shares gfor gthe gelection gof ga gboard gof gdirectors, gwhich gis gsupposed gto grun
gthe gcompany gin gan g efficient, gcompetitive gmanner. gThe gthreat gof gbeing gable gto greplace
gpoor gperforming gboards gof g directors gmakes ginstitutional ginvestors gquite ginfluential. gSince
gthese ginstitutions, glike gpension g funds gand gmutual gfunds, grepresent gindividual gworkers gand
ginvestors, gthey ghave ga gresponsibility g to gsee gthat gthe gfirm gis gmanaged gin gan gefficient gand
gethical gway.
1-8 Why gis gprofit gmaximization, gby gitself, gan ginappropriate ggoal? gWhat gis gmeant gby gthe
ggoal gof g maximization gof gshareholder gwealth?
The gproblem gwith ga gprofit gmaximization ggoal gis gthat git gfails gto gtake gaccount gof grisk, gthe
g timing gof gthe gbenefits gis gnot gconsidered, gand gprofit gmeasurement gis ga gvery ginexact
gprocess. g The ggoal gof gshareholders’ gwealth gmaximization g implies gthat gthe gfirm g will
gattempt gto g achieve g the ghighest gpossible gtotal gvaluation gin gthe gmarketplace. gIt gis gthe gone
goverriding gobjective gof g the gfirm gand gshould ginfluence gevery gdecision.
1-9 When gdoes ginsider gtrading goccur? gWhat ggovernment gagency gis gresponsible gfor
gprotecting g against gthe gunethical gpractice gof ginsider gtrading?
Insider gtrading goccurs gwhen ganyone gwith gnon-public ginformation gbuys gor gsells gsecurities gto
g take gadvantage gof gthat gprivate ginformation. gThe gSecurities gand gExchange gCommission
gis g responsible gfor gprotecting gmarkets gagainst ginsider gtrading. gIn gthe gpast, gpeople ghave
ggone gto g jail gfor gtrading gon gnon-public ginformation. gThis ghas gincluded g company gofficers,
ginvestment g bankers, gprinters gwho ghave ginformation gbefore git gis gpublished, gand geven
gtruck gdrivers gwho g deliver gbusiness gmagazines gand gread gpositive gor gnegative garticles
gabout ga gcompany gbefore gthe g magazine gis gon gthe gnewsstands gand gthen gplace g trades gor
ghave gfriends gplace gtrades gbased gon g that ginformation. gThe gSEC ghas gprosecuted ganyone
gwho gprofits gfrom ginside ginformation.
1-10 In gterms gof gthe glife gof gthe gsecurities goffered, gwhat gis gthe gdifference gbetween gmoney
gand g capital gmarkets?
Money gmarkets grefer gto gthose gmarkets gdealing gwith gshort-term gsecurities gthat ghave ga
glife gof g one gyear gor gless. gCapital gmarkets grefer gto gsecurities gwith ga glife gof gmore gthan
gone gyear.
1-11 What gis gthe gdifference gbetween ga gprimary gand ga gsecondary gmarket?
Foundations of Financial Management, 18th Edition
g g g g g
by Stanley Block, Geoffrey Hirt, Chapters 1 – 21, Complete
g g g g g g g g g
,
, Chapter 1 g
The Goals and Functions of Financial Management
g g g g g g
Discussion Questions
g
1-1 What geffect gdid gthe grecession gof g2007-2009 ghave gon ggovernment gregulation?
It gwas ggreatly gincreased.
1-2 What gadvantages gdoes ga gsole gproprietorship goffer? gWhat gis ga gmajor gdrawback gof gthis
gtype gof g organization?
A gsole gproprietorship goffers gthe gadvantage gof gsimplicity gof gdecision gmaking gand glow
g organizational gand goperating gcosts. gA gmajor gdrawback gis gthat gthere gis gunlimited gliability
gto gthe g owner.
1-3 What gform gof gpartnership gallows gsome gof gthe ginvestors gto glimit gtheir gliability?
gExplain g briefly.
A glimited gpartnership gallows gsome gof gthe gpartners gto glimit gtheir gliability. gUnder gthis
g arrangement, gone gor gmore gpartners gare gdesignated ggeneral gpartners gand ghave
gunlimited g liability gfor gthe gdebts gof gthe gfirm; gother gpartners gare gdesignated glimited
gpartners gand gare gliable g only gfor gtheir ginitial gcontribution. gThe glimited gpartners gare
gnormally gprohibited gfrom gbeing g active gin gthe gmanagement gof gthe gfirm.
1-4 In ga gcorporation, gwhat ggroup ghas gthe gultimate gresponsibility gfor gprotecting gand gmanaging
the gstockholders’ ginterests?
The gboard gof gdirectors.
1-5 What gdocument gis gnecessary gto gform ga gcorporation?
The garticles gof gincorporation.
1-6 What gissue gdoes gagency gtheory gexamine? gWhy gis git gimportant gin ga gpublic
gcorporation g rather gthan gin ga gprivate gcorporation?
, Agency gtheory gexamines gthe grelationship gbetween gthe gowners gof gthe gfirm gand gthe
gmanagers g of gthe gfirm. gIn gprivately gowned gfirms, gmanagement gand gthe gowners gare
gusually gthe gsame g people. gManagement goperates gthe gfirm gto gsatisfy gits gown ggoals,
gneeds, gfinancial grequirements g and gthe glike. gAs ga gcompany gmoves gfrom gprivate gto
gpublic gownership, gmanagement gnow g represents gall gowners. gThis gplaces gmanagement gin
gthe g agency gposition gof gmaking gdecisions gin g the gbest ginterest gof gall gshareholders.
1-7 What gare ginstitutional ginvestors gimportant gin gtoday’s gbusiness gworld?
Because ginstitutional ginvestors gsuch gas gpension gfunds gand gmutual gfunds gown ga glarge
g percentage gof gmajor gU.S. gcompanies, gthey gare ghaving gmore gto gsay gabout gthe gway
gpublicly g owned gcompanies gare gmanaged. gAs ga ggroup, gthey ghave gthe gability gto gvote
glarge gblocks gof g shares gfor gthe gelection gof ga gboard gof gdirectors, gwhich gis gsupposed gto grun
gthe gcompany gin gan g efficient, gcompetitive gmanner. gThe gthreat gof gbeing gable gto greplace
gpoor gperforming gboards gof g directors gmakes ginstitutional ginvestors gquite ginfluential. gSince
gthese ginstitutions, glike gpension g funds gand gmutual gfunds, grepresent gindividual gworkers gand
ginvestors, gthey ghave ga gresponsibility g to gsee gthat gthe gfirm gis gmanaged gin gan gefficient gand
gethical gway.
1-8 Why gis gprofit gmaximization, gby gitself, gan ginappropriate ggoal? gWhat gis gmeant gby gthe
ggoal gof g maximization gof gshareholder gwealth?
The gproblem gwith ga gprofit gmaximization ggoal gis gthat git gfails gto gtake gaccount gof grisk, gthe
g timing gof gthe gbenefits gis gnot gconsidered, gand gprofit gmeasurement gis ga gvery ginexact
gprocess. g The ggoal gof gshareholders’ gwealth gmaximization g implies gthat gthe gfirm g will
gattempt gto g achieve g the ghighest gpossible gtotal gvaluation gin gthe gmarketplace. gIt gis gthe gone
goverriding gobjective gof g the gfirm gand gshould ginfluence gevery gdecision.
1-9 When gdoes ginsider gtrading goccur? gWhat ggovernment gagency gis gresponsible gfor
gprotecting g against gthe gunethical gpractice gof ginsider gtrading?
Insider gtrading goccurs gwhen ganyone gwith gnon-public ginformation gbuys gor gsells gsecurities gto
g take gadvantage gof gthat gprivate ginformation. gThe gSecurities gand gExchange gCommission
gis g responsible gfor gprotecting gmarkets gagainst ginsider gtrading. gIn gthe gpast, gpeople ghave
ggone gto g jail gfor gtrading gon gnon-public ginformation. gThis ghas gincluded g company gofficers,
ginvestment g bankers, gprinters gwho ghave ginformation gbefore git gis gpublished, gand geven
gtruck gdrivers gwho g deliver gbusiness gmagazines gand gread gpositive gor gnegative garticles
gabout ga gcompany gbefore gthe g magazine gis gon gthe gnewsstands gand gthen gplace g trades gor
ghave gfriends gplace gtrades gbased gon g that ginformation. gThe gSEC ghas gprosecuted ganyone
gwho gprofits gfrom ginside ginformation.
1-10 In gterms gof gthe glife gof gthe gsecurities goffered, gwhat gis gthe gdifference gbetween gmoney
gand g capital gmarkets?
Money gmarkets grefer gto gthose gmarkets gdealing gwith gshort-term gsecurities gthat ghave ga
glife gof g one gyear gor gless. gCapital gmarkets grefer gto gsecurities gwith ga glife gof gmore gthan
gone gyear.
1-11 What gis gthe gdifference gbetween ga gprimary gand ga gsecondary gmarket?
