SOLUTION MANUAL FOR #ax #ax
Foundations of Financial Management, 18th Edition by Stanley
#ax #ax #ax #ax #ax #ax #ax
Block, Geoffrey Hirt, Bartley Danielsen
#ax #ax #ax #ax #ax
Chapter 1-21 #ax
Chapter 1 #ax
The Goals and Functions of Financial Management
#ax #ax #ax #ax #ax #ax
Discussion Questions #ax
1-1 What #axeffect #axdid #axthe #axrecession #axof #ax2007-2009 #axhave #axon #axgovernment #axregulation?
It #axwas #axgreatly #axincreased.
1-2 What #axadvantages #axdoes #axa #axsole #axproprietorship #axoffer? #axWhat #axis #axa #axmajor #axdrawback
#axof #axthis #axtype #axof #axorganization?
A #axsole #axproprietorship #axoffers #axthe #axadvantage #axof #axsimplicity #axof #axdecision #axmaking
#axand #axlow #axorganizational #axand #axoperating #axcosts. #axA #axmajor #axdrawback #axis #axthat #axthere
#axis #axunlimited #axliability #axto #axthe #axowner.
1-3 What #axform #axof #axpartnership #axallows #axsome #axof #axthe #axinvestors #axto #axlimit #axtheir
#axliability? #axExplain #axbriefly.
A #axlimited #axpartnership #axallows #axsome #axof #axthe #axpartners #axto #axlimit #axtheir #axliability.
#axUnder #axthis #axarrangement, #axone #axor #axmore #axpartners #axare #axdesignated #axgeneral
#axpartners #axand #axhave #axunlimited #axliability #axfor #axthe #axdebts #axof #axthe #axfirm; #axother
#axpartners #axare #axdesignated #axlimited #axpartners #axand #axare #axliable #axonly #axfor #axtheir #axinitial
#axcontribution. #axThe #axlimited #axpartners #axare #axnormally #axprohibited #axfrom #axbeing #axactive
#axin #axthe #axmanagement #axof #axthe #axfirm.
1-4 In #axa #axcorporation, #axwhat #axgroup #axhas #axthe #axultimate #axresponsibility #axfor #axprotecting
#axand #axmanaging #axthe #axstockholders’ #axinterests?
The #axboard #axof #axdirectors.
1-5 What #axdocument #axis #axnecessary #axto #axform #axa #axcorporation?
The #axarticles #axof #axincorporation.
1-6 What #axissue #axdoes #axagency #axtheory #axexamine? #axWhy #axis #axit #aximportant #axin #axa #axpublic
#axcorporation #axrather #axthan #axin #axa #axprivate #axcorporation?
© #axMcGraw #axHill #axLLC. #axAll #axrights #axreserved. #axNo #axreproduction #axor #axdistribution #axwithout #axthe #axprior #axwritten
#axconsent #axof #axMcGraw #axHill #axLLC.
SCHOLARVAULT
, Agency theory examines the relationship between the owners of the firm and the
managers of the firm. In privately owned firms, management and the owners are usually
the same people. Management operates the firm to satisfy its own goals, needs, financial
requirements and the like. As a company moves from private to public ownership,
management now represents all owners. This places management in the agency position
of making decisions in the best interest of all shareholders.
1-7 What are institutional investors important in today’s business world?
Because institutional investors such as pension funds and mutual funds own a large
percentage of major U.S. companies, they are having more to say about the way publicly
owned companies are managed. As a group, they have the ability to vote large blocks of
shares for the election of a board of directors, which is supposed to run the company in an
efficient, competitive manner. The threat of being able to replace poor performing boards
of directors makes institutional investors quite influential. Since these institutions, like
pension funds and mutual funds, represent individual workers and investors, they have a
responsibility to see that the firm is managed in an efficient and ethical way.
1-8 Why is profit maximization, by itself, an inappropriate goal? What is meant by the goal
of maximization of shareholder wealth?
The problem with a profit maximization goal is that it fails to take account of risk, the
timing of the benefits is not considered, and profit measurement is a very inexact process.
The goal of shareholders’ wealth maximization implies that the firm will attempt to
achieve the highest possible total valuation in the marketplace. It is the one overriding
objective of the firm and should influence every decision.
1-9 When does insider trading occur? What government agency is responsible for protecting
against the unethical practice of insider trading?
Insider trading occurs when anyone with non-public information buys or sells securities
to take advantage of that private information. The Securities and Exchange Commission
is responsible for protecting markets against insider trading. In the past, people have gone
to jail for trading on non-public information. This has included company officers,
investment bankers, printers who have information before it is published, and even truck
drivers who deliver business magazines and read positive or negative articles about a
company before the magazine is on the newsstands and then place trades or have friends
place trades based on that information. The SEC has prosecuted anyone who profits from
inside information.
1-10 In terms of the life of the securities offered, what is the difference between money and
capital markets?
Money markets refer to those markets dealing with short-term securities that have a life
of one year or less. Capital markets refer to securities with a life of more than one year.
1-11 What is the difference between a primary and a secondary market?
© #axMcGraw #axHill #axLLC. #axAll #axrights #axreserved. #axNo #axreproduction #axor #axdistribution #axwithout #axthe #axprior #axwritten
#axconsent #axof #axMcGraw #axHill #axLLC.
SCHOLARVAULT
, A #axprimary #axmarket #axrefers #axto #axthe #axuse #axof #axthe #axfinancial #axmarkets #axto #axraise #axnew
#axfunds #axfor #axthe #axcorporation. #axAfter #axthe #axsecurities #axare #axsold #axto #axthe #axpublic
#ax(institutions #axand #axindividuals), #axthey #axtrade #axin #axthe #axsecondary #axmarket #axbetween
#axinvestors. #axIt #axis #axin #axthe #axsecondary #axmarket #axthat #axprices #axare #axcontinually #axchanging
#axas #axinvestors #axbuy #axand #axsell #axsecurities #axbased #axon #axthe #axexpectations #axof #axcorporate
#axprospects.
1-12 Assume #axyou #axare #axlooking #axat #axmany #axcompanies #axwith #axequal #axrisk. #axWhich #axones
#axwill #axhave #axthe #axhighest #axstock #axprices?
Given #axcompanies #axwith #axequal #axrisk, #axthose #axcompanies #axwith #axexpectations #axof #axhigh
#axreturn #axwill #axhave #axhigher #axcommon #axstock #axprices #axrelative #axto #axthose #axcompanies
#axwith #axexpectations #axof #axpoor #axreturns.
1-13 How #axis #axthe #axtime #axvalue #axof #axmoney #axconcept #axrelated #axto #axthe #axvaluation #axof #axstocks?
The #axvalue #axof #axan #axinvestment #axthat #axis #axexpected #axto #axearn #axmoney #axin #axthe #axfuture
#axcan #axbe #axcalculated #axusing #axtime-value #axof #axmoney #axprinciples. #axCorporations #axare
#axexpected #axto #axpay #axdividends #axto #axtheir #axshareholders. #axThe #axcurrent #axvalue #axof #axthese
#axfuture #axdividends #axis #axthe #axpresent #axvalue. #axThe #axpresent #axvalue #axof #axa #axstock’s #axfuture
#axdividends #axshould #axbe #axthe #axsame #axas #axthe #axstock’s #axcurrent #axprice.
Chapter 2 #ax
Review of Accounting
#ax #ax
Discussion Questions#ax
2-1. Discuss #axsome #axfinancial #axvariables #axthat #axaffect #axthe #axprice-earnings #axratio.
The #axprice-earnings #axratio #axwill #axbe #axinfluenced #axby #axthe #axearnings #axand #axsales
#axgrowth #axof #axthe #axfirm, #axthe #axrisk #axor #axvolatility #axin #axperformance, #axthe #axdebt-
equity #axstructure #axof #axthe #axfirm, #axthe #axdividend #axpayment #axpolicy, #axthe #axquality #axof
#axmanagement, #axand #axa #axnumber #axof #axother #axfactors. #axThe #axratio #axtends #axto #axbe
#axfuture-oriented, #axand #axthe #axmore #axpositive #axthe #axoutlook, #axthe #axhigher #axit #axwill #axbe.
2-2. What #axis #axthe #axdifference #axbetween #axbook #axvalue #axper #axshare #axof #axcommon #axstock
#axand #axmarket #axvalue #axper #axshare? #axWhy #axdoes #axthis #axdisparity #axoccur?
Book #axvalue #axper #axshare #axis #axarrived #axat #axby #axtaking #axthe #axcost #axof #axthe #axassets #axand
#axsubtracting #axout #axliabilities #axand #axpreferred #axstock #axand #axdividing #axby #axthe
© #axMcGraw #axHill #axLLC. #axAll #axrights #axreserved. #axNo #axreproduction #axor #axdistribution #axwithout #axthe #axprior #axwritten
#axconsent #axof #axMcGraw #axHill #axLLC.
SCHOLARVAULT
, number #axof #axcommon #axshares
#ax
outstanding. #axIt #axis #axbased #axon #axthe #axhistorical #axcost #axof #axthe #axassets. #axMarket #axvalue
#axper #axshare #axis
based #axon #axthe #axcurrent #axassessed #axvalue #axof #axthe #axfirm #axin #axthe #axmarketplace #axand
#axmay #axbear #axlittle #axrelationship #axto #axoriginal #axcost. #axBesides #axthe #axdisparity
#axbetween #axbook #axand #axmarket #axvalue #axcaused #axby #axthe #axhistorical #axcost #axapproach,
#axother #axcontributing #axfactors #axare #axthe #axgrowth #axprospects #axfor #axthe #axfirm, #axthe
#axquality #axof #axmanagement, #axand #axthe #axindustry #axoutlook. #axTo #axthe #axextent #axthese
#axare #axquite #axnegative #axor #axpositive; #axmarket #axvalue #axmay #axdiffer #axwidely #axfrom
#axbook #axvalue.
2-3. Explain #axhow #axdepreciation #axgenerates #axactual #axcash #axflows #axfor #axthe #axcompany.
The #axonly #axway #axdepreciation #axgenerates #axcash #axflows #axfor #axthe #axcompany #axis #axby
#axserving #axas #axa #axtax #axshield #axagainst #axreported #axincome. #axThis #axnon-cash #axdeduction
#axmay #axprovide #axcash #axflow #axequal #axto #axthe #axtax #axrate #axtimes #axthe #axdepreciation
#axcharged. #axThis #axmuch #axin #axtaxes #axwill #axbe #axsaved, #axwhile #axno #axcash #axpayments
#axoccur.
2-4. What #axis #axthe #axdifference #axbetween #axaccumulated #axdepreciation #axand #axdepreciation
#axexpense? #axHow #axare #axthey #axrelated?
Accumulated #axdepreciation #axis #axthe #axsum #axof #axall #axpast #axand #axpresent #axdepreciation
#axcharges, #axwhile #axdepreciation #axexpense #axis #axthe #axcurrent #axyear’s #axcharge. #axThey
#axare #axrelated #axin #axthat #axthe #axsum #axof #axall #axprior #axdepreciation #axexpense #axshould #axbe
#axequal #axto #axaccumulated #axdepreciation #ax(subject #axto #axsome #axdifferential #axrelated
#axto #axasset
write-offs).
2-5. How #axis #axthe #axincome #axstatement #axrelated #axto #axthe #axbalance #axsheet?
The #axearnings #ax(less #axdividends) #axreported #axin #axthe #axincome #axstatement #axis
#axtransferred #axto #axthe #axownership #axsection #axof #axthe #axbalance #axsheet #axas #axretained
#axearnings. #axThus, #axwhat #axwe #axearn #axin #axthe #axincome #axstatement #axbecomes #axpart
#axof #axthe #axownership #axinterest #axin #axthe #axbalance #axsheet.
© #axMcGraw #axHill #axLLC. #axAll #axrights #axreserved. #axNo #axreproduction #axor #axdistribution #axwithout #axthe #axprior #axwritten
#axconsent #axof #axMcGraw #axHill #axLLC.
SCHOLARVAULT
Foundations of Financial Management, 18th Edition by Stanley
#ax #ax #ax #ax #ax #ax #ax
Block, Geoffrey Hirt, Bartley Danielsen
#ax #ax #ax #ax #ax
Chapter 1-21 #ax
Chapter 1 #ax
The Goals and Functions of Financial Management
#ax #ax #ax #ax #ax #ax
Discussion Questions #ax
1-1 What #axeffect #axdid #axthe #axrecession #axof #ax2007-2009 #axhave #axon #axgovernment #axregulation?
It #axwas #axgreatly #axincreased.
1-2 What #axadvantages #axdoes #axa #axsole #axproprietorship #axoffer? #axWhat #axis #axa #axmajor #axdrawback
#axof #axthis #axtype #axof #axorganization?
A #axsole #axproprietorship #axoffers #axthe #axadvantage #axof #axsimplicity #axof #axdecision #axmaking
#axand #axlow #axorganizational #axand #axoperating #axcosts. #axA #axmajor #axdrawback #axis #axthat #axthere
#axis #axunlimited #axliability #axto #axthe #axowner.
1-3 What #axform #axof #axpartnership #axallows #axsome #axof #axthe #axinvestors #axto #axlimit #axtheir
#axliability? #axExplain #axbriefly.
A #axlimited #axpartnership #axallows #axsome #axof #axthe #axpartners #axto #axlimit #axtheir #axliability.
#axUnder #axthis #axarrangement, #axone #axor #axmore #axpartners #axare #axdesignated #axgeneral
#axpartners #axand #axhave #axunlimited #axliability #axfor #axthe #axdebts #axof #axthe #axfirm; #axother
#axpartners #axare #axdesignated #axlimited #axpartners #axand #axare #axliable #axonly #axfor #axtheir #axinitial
#axcontribution. #axThe #axlimited #axpartners #axare #axnormally #axprohibited #axfrom #axbeing #axactive
#axin #axthe #axmanagement #axof #axthe #axfirm.
1-4 In #axa #axcorporation, #axwhat #axgroup #axhas #axthe #axultimate #axresponsibility #axfor #axprotecting
#axand #axmanaging #axthe #axstockholders’ #axinterests?
The #axboard #axof #axdirectors.
1-5 What #axdocument #axis #axnecessary #axto #axform #axa #axcorporation?
The #axarticles #axof #axincorporation.
1-6 What #axissue #axdoes #axagency #axtheory #axexamine? #axWhy #axis #axit #aximportant #axin #axa #axpublic
#axcorporation #axrather #axthan #axin #axa #axprivate #axcorporation?
© #axMcGraw #axHill #axLLC. #axAll #axrights #axreserved. #axNo #axreproduction #axor #axdistribution #axwithout #axthe #axprior #axwritten
#axconsent #axof #axMcGraw #axHill #axLLC.
SCHOLARVAULT
, Agency theory examines the relationship between the owners of the firm and the
managers of the firm. In privately owned firms, management and the owners are usually
the same people. Management operates the firm to satisfy its own goals, needs, financial
requirements and the like. As a company moves from private to public ownership,
management now represents all owners. This places management in the agency position
of making decisions in the best interest of all shareholders.
1-7 What are institutional investors important in today’s business world?
Because institutional investors such as pension funds and mutual funds own a large
percentage of major U.S. companies, they are having more to say about the way publicly
owned companies are managed. As a group, they have the ability to vote large blocks of
shares for the election of a board of directors, which is supposed to run the company in an
efficient, competitive manner. The threat of being able to replace poor performing boards
of directors makes institutional investors quite influential. Since these institutions, like
pension funds and mutual funds, represent individual workers and investors, they have a
responsibility to see that the firm is managed in an efficient and ethical way.
1-8 Why is profit maximization, by itself, an inappropriate goal? What is meant by the goal
of maximization of shareholder wealth?
The problem with a profit maximization goal is that it fails to take account of risk, the
timing of the benefits is not considered, and profit measurement is a very inexact process.
The goal of shareholders’ wealth maximization implies that the firm will attempt to
achieve the highest possible total valuation in the marketplace. It is the one overriding
objective of the firm and should influence every decision.
1-9 When does insider trading occur? What government agency is responsible for protecting
against the unethical practice of insider trading?
Insider trading occurs when anyone with non-public information buys or sells securities
to take advantage of that private information. The Securities and Exchange Commission
is responsible for protecting markets against insider trading. In the past, people have gone
to jail for trading on non-public information. This has included company officers,
investment bankers, printers who have information before it is published, and even truck
drivers who deliver business magazines and read positive or negative articles about a
company before the magazine is on the newsstands and then place trades or have friends
place trades based on that information. The SEC has prosecuted anyone who profits from
inside information.
1-10 In terms of the life of the securities offered, what is the difference between money and
capital markets?
Money markets refer to those markets dealing with short-term securities that have a life
of one year or less. Capital markets refer to securities with a life of more than one year.
1-11 What is the difference between a primary and a secondary market?
© #axMcGraw #axHill #axLLC. #axAll #axrights #axreserved. #axNo #axreproduction #axor #axdistribution #axwithout #axthe #axprior #axwritten
#axconsent #axof #axMcGraw #axHill #axLLC.
SCHOLARVAULT
, A #axprimary #axmarket #axrefers #axto #axthe #axuse #axof #axthe #axfinancial #axmarkets #axto #axraise #axnew
#axfunds #axfor #axthe #axcorporation. #axAfter #axthe #axsecurities #axare #axsold #axto #axthe #axpublic
#ax(institutions #axand #axindividuals), #axthey #axtrade #axin #axthe #axsecondary #axmarket #axbetween
#axinvestors. #axIt #axis #axin #axthe #axsecondary #axmarket #axthat #axprices #axare #axcontinually #axchanging
#axas #axinvestors #axbuy #axand #axsell #axsecurities #axbased #axon #axthe #axexpectations #axof #axcorporate
#axprospects.
1-12 Assume #axyou #axare #axlooking #axat #axmany #axcompanies #axwith #axequal #axrisk. #axWhich #axones
#axwill #axhave #axthe #axhighest #axstock #axprices?
Given #axcompanies #axwith #axequal #axrisk, #axthose #axcompanies #axwith #axexpectations #axof #axhigh
#axreturn #axwill #axhave #axhigher #axcommon #axstock #axprices #axrelative #axto #axthose #axcompanies
#axwith #axexpectations #axof #axpoor #axreturns.
1-13 How #axis #axthe #axtime #axvalue #axof #axmoney #axconcept #axrelated #axto #axthe #axvaluation #axof #axstocks?
The #axvalue #axof #axan #axinvestment #axthat #axis #axexpected #axto #axearn #axmoney #axin #axthe #axfuture
#axcan #axbe #axcalculated #axusing #axtime-value #axof #axmoney #axprinciples. #axCorporations #axare
#axexpected #axto #axpay #axdividends #axto #axtheir #axshareholders. #axThe #axcurrent #axvalue #axof #axthese
#axfuture #axdividends #axis #axthe #axpresent #axvalue. #axThe #axpresent #axvalue #axof #axa #axstock’s #axfuture
#axdividends #axshould #axbe #axthe #axsame #axas #axthe #axstock’s #axcurrent #axprice.
Chapter 2 #ax
Review of Accounting
#ax #ax
Discussion Questions#ax
2-1. Discuss #axsome #axfinancial #axvariables #axthat #axaffect #axthe #axprice-earnings #axratio.
The #axprice-earnings #axratio #axwill #axbe #axinfluenced #axby #axthe #axearnings #axand #axsales
#axgrowth #axof #axthe #axfirm, #axthe #axrisk #axor #axvolatility #axin #axperformance, #axthe #axdebt-
equity #axstructure #axof #axthe #axfirm, #axthe #axdividend #axpayment #axpolicy, #axthe #axquality #axof
#axmanagement, #axand #axa #axnumber #axof #axother #axfactors. #axThe #axratio #axtends #axto #axbe
#axfuture-oriented, #axand #axthe #axmore #axpositive #axthe #axoutlook, #axthe #axhigher #axit #axwill #axbe.
2-2. What #axis #axthe #axdifference #axbetween #axbook #axvalue #axper #axshare #axof #axcommon #axstock
#axand #axmarket #axvalue #axper #axshare? #axWhy #axdoes #axthis #axdisparity #axoccur?
Book #axvalue #axper #axshare #axis #axarrived #axat #axby #axtaking #axthe #axcost #axof #axthe #axassets #axand
#axsubtracting #axout #axliabilities #axand #axpreferred #axstock #axand #axdividing #axby #axthe
© #axMcGraw #axHill #axLLC. #axAll #axrights #axreserved. #axNo #axreproduction #axor #axdistribution #axwithout #axthe #axprior #axwritten
#axconsent #axof #axMcGraw #axHill #axLLC.
SCHOLARVAULT
, number #axof #axcommon #axshares
#ax
outstanding. #axIt #axis #axbased #axon #axthe #axhistorical #axcost #axof #axthe #axassets. #axMarket #axvalue
#axper #axshare #axis
based #axon #axthe #axcurrent #axassessed #axvalue #axof #axthe #axfirm #axin #axthe #axmarketplace #axand
#axmay #axbear #axlittle #axrelationship #axto #axoriginal #axcost. #axBesides #axthe #axdisparity
#axbetween #axbook #axand #axmarket #axvalue #axcaused #axby #axthe #axhistorical #axcost #axapproach,
#axother #axcontributing #axfactors #axare #axthe #axgrowth #axprospects #axfor #axthe #axfirm, #axthe
#axquality #axof #axmanagement, #axand #axthe #axindustry #axoutlook. #axTo #axthe #axextent #axthese
#axare #axquite #axnegative #axor #axpositive; #axmarket #axvalue #axmay #axdiffer #axwidely #axfrom
#axbook #axvalue.
2-3. Explain #axhow #axdepreciation #axgenerates #axactual #axcash #axflows #axfor #axthe #axcompany.
The #axonly #axway #axdepreciation #axgenerates #axcash #axflows #axfor #axthe #axcompany #axis #axby
#axserving #axas #axa #axtax #axshield #axagainst #axreported #axincome. #axThis #axnon-cash #axdeduction
#axmay #axprovide #axcash #axflow #axequal #axto #axthe #axtax #axrate #axtimes #axthe #axdepreciation
#axcharged. #axThis #axmuch #axin #axtaxes #axwill #axbe #axsaved, #axwhile #axno #axcash #axpayments
#axoccur.
2-4. What #axis #axthe #axdifference #axbetween #axaccumulated #axdepreciation #axand #axdepreciation
#axexpense? #axHow #axare #axthey #axrelated?
Accumulated #axdepreciation #axis #axthe #axsum #axof #axall #axpast #axand #axpresent #axdepreciation
#axcharges, #axwhile #axdepreciation #axexpense #axis #axthe #axcurrent #axyear’s #axcharge. #axThey
#axare #axrelated #axin #axthat #axthe #axsum #axof #axall #axprior #axdepreciation #axexpense #axshould #axbe
#axequal #axto #axaccumulated #axdepreciation #ax(subject #axto #axsome #axdifferential #axrelated
#axto #axasset
write-offs).
2-5. How #axis #axthe #axincome #axstatement #axrelated #axto #axthe #axbalance #axsheet?
The #axearnings #ax(less #axdividends) #axreported #axin #axthe #axincome #axstatement #axis
#axtransferred #axto #axthe #axownership #axsection #axof #axthe #axbalance #axsheet #axas #axretained
#axearnings. #axThus, #axwhat #axwe #axearn #axin #axthe #axincome #axstatement #axbecomes #axpart
#axof #axthe #axownership #axinterest #axin #axthe #axbalance #axsheet.
© #axMcGraw #axHill #axLLC. #axAll #axrights #axreserved. #axNo #axreproduction #axor #axdistribution #axwithout #axthe #axprior #axwritten
#axconsent #axof #axMcGraw #axHill #axLLC.
SCHOLARVAULT
