SOLUTION MANUAL For Foundations of Financial Management, 18th Edition by Stanley Block, Geoffrey Hirt, All Chapters Complete, Verified Edition

,
, ChapterQ1
TheQGoalsQandQFunctionsQofQFinancialQManagement

DiscussionQQuestions

1-1 WhatQeffectQdidQtheQrecessionQofQ2007-2009QhaveQonQgovernmentQregulation?

ItQwasQgreatlyQincreased.

1-2 WhatQadvantagesQdoesQaQsoleQproprietorshipQoffer?QWhatQisQaQmajorQdrawbac
kQofQthisQtypeQofQ organization?

AQsoleQproprietorshipQoffersQtheQadvantageQofQsimplicityQofQdecisionQmakingQand
QlowQ organizationalQandQoperatingQcosts.QAQmajorQdrawbackQisQthatQthereQisQunl
imitedQliabilityQtoQtheQ owner.

1-3 WhatQformQofQpartnershipQallowsQsomeQofQtheQinvestorsQtoQlimitQtheirQliabil
ity?QExplainQ briefly.

AQlimitedQpartnershipQallowsQsomeQofQtheQpartnersQtoQlimitQtheirQliability.QUnderQt
hisQ arrangement,QoneQorQmoreQpartnersQareQdesignatedQgeneralQpartnersQandQha
veQunlimitedQ liabilityQforQtheQdebtsQofQtheQfirm;QotherQpartnersQareQdesignatedQl
imitedQpartnersQandQareQliableQ onlyQforQtheirQinitialQcontribution.QTheQlimitedQpart
nersQareQnormallyQprohibitedQfromQbeingQ activeQinQtheQmanagementQofQtheQfirm.

1-4 InQaQcorporation,QwhatQgroupQhasQtheQultimateQresponsibilityQforQprotectingQandQm
anaging
theQstockholders’Qinterests?

TheQboardQofQdirectors.

1-5 WhatQdocumentQisQnecessaryQtoQformQaQcorporation?

TheQarticlesQofQincorporation.

1-6 WhatQissueQdoesQagencyQtheoryQexamine?QWhyQisQitQimportantQinQaQpub
licQcorporationQ ratherQthanQinQaQprivateQcorporation?

, AgencyQtheoryQexaminesQtheQrelationshipQbetweenQtheQownersQofQtheQfirmQandQt
heQmanagersQ ofQtheQfirm.QInQprivatelyQownedQfirms,QmanagementQandQtheQowne
rsQareQusuallyQtheQsameQ people.QManagementQoperatesQtheQfirmQtoQsatisfyQitsQo
wnQgoals,Qneeds,QfinancialQrequirementsQ andQtheQlike.QAsQaQcompanyQmovesQfro
mQprivateQtoQpublicQownership,QmanagementQnowQ representsQallQowners.QThisQpla
cesQmanagementQinQtheQ agencyQpositionQofQmakingQdecisionsQinQ theQbestQinterest
QofQallQshareholders.

1-7 WhatQareQinstitutionalQinvestorsQimportantQinQtoday’sQbusinessQworld?
BecauseQinstitutionalQinvestorsQsuchQasQpensionQfundsQandQmutualQfundsQownQaQlarg
eQ percentageQofQmajorQU.S.Qcompanies,QtheyQareQhavingQmoreQtoQsayQaboutQthe
QwayQpubliclyQ ownedQcompaniesQareQmanaged.QAsQaQgroup,QtheyQhaveQtheQabil
ityQtoQvoteQlargeQblocksQofQ sharesQforQtheQelectionQofQaQboardQofQdirectors,Qwhi
chQisQsupposedQtoQrunQtheQcompanyQinQanQ efficient,QcompetitiveQmanner.QTheQthre
atQofQbeingQableQtoQreplaceQpoorQperformingQboardsQofQ directorsQmakesQinstituti
onalQinvestorsQquiteQinfluential.QSinceQtheseQinstitutions,QlikeQpensionQ fundsQandQmut
ualQfunds,QrepresentQindividualQworkersQandQinvestors,QtheyQhaveQaQresponsibilityQ t
oQseeQthatQtheQfirmQisQmanagedQinQanQefficientQandQethicalQway.

1-8 WhyQisQprofitQmaximization,QbyQitself,QanQinappropriateQgoal?QWhatQisQmeant
QbyQtheQgoalQofQ maximizationQofQshareholderQwealth?

TheQproblemQwithQaQprofitQmaximizationQgoalQisQthatQitQfailsQtoQtakeQaccountQo
fQrisk,QtheQ timingQofQtheQbenefitsQisQnotQconsidered,QandQprofitQmeasurementQisQ
aQveryQinexactQprocess.Q TheQgoalQofQshareholders’QwealthQmaximizationQimplies
QthatQtheQfirmQwillQattemptQtoQachieveQ theQhighestQpossibleQtotalQvaluationQinQt
heQmarketplace.QItQisQtheQoneQoverridingQobjectiveQofQ theQfirmQandQshouldQinflu
enceQeveryQdecision.

1-9 WhenQdoesQinsiderQtradingQoccur?QWhatQgovernmentQagencyQisQresponsibleQfo
rQprotectingQ againstQtheQunethicalQpracticeQofQinsiderQtrading?

InsiderQtradingQoccursQwhenQanyoneQwithQnon-
publicQinformationQbuysQorQsellsQsecuritiesQtoQ takeQadvantageQofQthatQprivateQin
formation.QTheQSecuritiesQandQExchangeQCommissionQisQ responsibleQforQprotectingQ
marketsQagainstQinsiderQtrading.QInQtheQpast,QpeopleQhaveQgoneQtoQ jailQforQtrad
ingQonQnon-
publicQinformation.QThisQhasQincludedQcompanyQofficers,QinvestmentQ bankers,Qprinte
rsQwhoQhaveQinformationQbeforeQitQisQpublished,QandQevenQtruckQdriversQwhoQ de
liverQbusinessQmagazinesQandQreadQpositiveQorQnegativeQarticlesQaboutQaQcompan
yQbeforeQtheQ magazineQisQonQtheQnewsstandsQandQthenQplaceQ tradesQorQhaveQ
friendsQplaceQtradesQbasedQonQ thatQinformation.QTheQSECQhasQprosecutedQanyon
eQwhoQprofitsQfromQinsideQinformation.

1-10 InQtermsQofQtheQlifeQofQtheQsecuritiesQoffered,QwhatQisQtheQdifferenceQbetwe
enQmoneyQandQ capitalQmarkets?

MoneyQmarketsQreferQtoQthoseQmarketsQdealingQwithQshort-
termQsecuritiesQthatQhaveQaQlifeQofQ oneQyearQorQless.QCapitalQmarketsQreferQt
oQsecuritiesQwithQaQlifeQofQmoreQthanQoneQyear.

1-11 WhatQisQtheQdifferenceQbetweenQaQprimaryQandQaQsecondaryQmarket?