Chapter 01: The Goals and Functions of Financial Management
Chapter 1 The Goals and Functions of Financial Management Discussion Questions 1-1
What effect did the recession of 2007-2009 have on government regulation? It was greatly increased.
1-2
What advantages does a sole proprietorship offer? What is a major drawback of this type of organization? A sole proprietorship offers the advantage of simplicity of decision making and low organizational and operating costs. A major drawback is that there is unlimited liability to the owner.
1-3
What form of partnership allows some of the investors to limit their liability? Explain briefly. A limited partnership allows some of the partners to limit their liability. Under this arrangement, one or more partners are designated general partners and have unlimited liability for the debts of the firm; other partners are designated limited partners and are liable only for their initial contribution. The limited partners are normally prohibited from being active in the management of the firm.
1-4
In a corporation, what group has the ultimate responsibility for protecting and managing the stockholders’ interests? The board of directors.
1-5
What document is necessary to form a corporation? The articles of incorporation.
1-6
What issue does agency theory examine? Why is it important in a public corporation rather than in a private corporation? 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?
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Foundations of Financial Management 2025 Release 1e Block Solutions Manual