,Solution manual for Financial Management Theory
& Practice, 17th Edition Eugene F. Brigham
Notes
1- The file is chapter after chapter.
2- We have shown you 10 pages.
3- The file contains all Appendix and Excel
sheet if it exists.
4- We have all what you need, we make
update at every time. There are many
new editions waiting you.
5- If you think you purchased the wrong file
You can contact us at every time, we can
replace it with true one.
Our email:
, Brigham/Ehrhardt Financial Management: Theory & Practice--Ehrhardt/Brigham Corporate Finance: A Focused Approach
Solution and Answer Guide
CHAPTER 1: AN OVERVIEW OF FINANCIAL MANAGEMENT AND THE FINANCIAL ENVIRONMENT
TABLE OF CONTENTS
ANSWERS TO END-OF-CHAPTER QUESTIONS ...................................................................... 1
MINI CASE....................................................................................................................................6
ANSWERS TO END-OF-CHAPTER QUESTIONS
1-1 Define each of the following terms:
a. Proprietorship; partnership; corporation; charter; bylaws
b. Limited partnership; limited liability partnership; professional corporation
c. Stockholder wealth maximization
d. Money market; capital market; primary market; secondary market
e. Private markets; public markets; derivatives
f. Investment bank; financial services corporation; financial intermediary
g. Mutual fund; money market fund
h. Open outcry auction; dealer market; automated trading platform
i. Production opportunities; time preferences for consumption
j. Foreign trade deficit
k. Algorithmic trading; high-frequency trading
Answer:
a. A proprietorship, or sole proprietorship, is a business owned by one individual. A partnership
exists when two or more persons associate to conduct a business. In contrast, a corporation is
a legal entity created by a state. The corporation is separate and distinct from its owners and
managers. A company must file a charter to become a corporation. A charter includes the
following information: (1) name of the proposed corporation, (2) types of activities it will pursue,
(3) amount of capital stock, (4) number of directors, and (5) names and addresses of directors.
The bylaws are a set of rules drawn up by the founders of the corporation. Included are such
points as: (1) how directors are to be elected (all elected each year or perhaps one-third each
year for 3-year terms), (2) whether the existing stockholders will have the first right to buy any
new shares the firm issues, and (3) procedures for changing the bylaws themselves, should
conditions require it.
b. In a limited partnership, limited partners’ liabilities, investment returns and control are limited,
while general partners have unlimited liability and control. In limited partnership, at least one
partner is liable for all the debts in the partnership. A limited liability partnership (LLP),
sometimes called a limited liability company (LLC), combines the limited liability advantage of a
corporation with the tax advantages of a partnership. A professional corporation (PC), known in
some states as a professional association (PA), has most of the benefits of incorporation but
the participants are not relieved of professional (malpractice) liability.
c. Stockholder wealth maximization is the appropriate goal for management decisions. The risk
and timing associated with expected earnings per share and cash flows are considered in order
© 2024 Cengage, ISBN: 9780357714485. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a 1
publicly accessible website, in whole or in part.
, Brigham/Ehrhardt Financial Management: Theory & Practice--Ehrhardt/Brigham Corporate Finance: A Focused Approach
to maximize the price of the firm’s common stock. Maximizing shareholder’s wealth is a duty
that needs to be fulfill by corporations.
d. A money market is a financial market for debt securities with maturities of less than 1 year
(short-term). The New York money market is the example of money market. Capital
markets are the financial markets for long-term debt and corporate stocks. The New York
Stock Exchange is an example of a capital market. Primary markets are the markets in
which newly issued securities are sold for the first time. Secondary markets are where
securities are resold after initial issue in the primary market. The New York Stock Exchange
is a secondary market.
e. In private markets, transactions are worked out directly between two parties and structured in
any manners that appeal to them. Bank loans and private placements of debt with insurance
companies are examples of private market transactions. In public markets, standardized
contracts are traded on organized exchanges. Securities that are issued in public markets, such
as common stock and corporate bonds, are ultimately held by a large number of individuals.
Private market securities are more tailor-made but less liquid, whereas public market securities
are more liquid but subject to greater standardization. Derivatives are those underlying asset
that derives their value from other traded assets. Futures, options, forwards are the examples of
derivative market. Therefore, the value of a derivative security is derived from the value of an
underlying real asset.
f. An investment banker is a facilitator between businesses and savers. Investment banking
houses assist in the design of corporate securities and then sell them to savers (investors) in
the primary markets. Financial service corporations offer a wide range of financial services such
as brokerage operations, insurance, and commercial banking. A financial intermediary buys
security with funds that is obtained by issuing its own securities. An example is a common stock
mutual fund that buys common stocks with funds obtained by issuing shares in the mutual fund.
g. A mutual fund is an organization that pools the money deposited by savers to buy financial
instruments. These instruments receive dividends and interest on it. The resulting
dividends, interest, and capital gains are distributed to the fund’s shareholders after the
deduction of operating expenses. Different funds are designed to meet different objectives.
Money market funds are mutual funds which invest in short-term securities carry low-risk
and also offer their shareholders interest-bearing checking accounts.
h. An open outcry auction is a method where traders meet face to face at particular location at
an agreed price and quantity. These traders communicate with each other through hand
signals and shouts. In a dealer market, a dealer holds an inventory of the security and
makes a market by offering to buy or sell. Others who wish to buy or sell can see the offers
made by the dealers, and can contact the dealer of their choice to arrange a transaction.
An automated trading platform is a computer system in which buyers and sellers post
orders and in which trades are automatically executed for matching orders.
i. Production opportunities are the cash generating activity that require cash in the present
but have the ability to generate more cash in future. The higher the production
opportunities, the more cash will be demanded now. Consumption time preferences refer to
the preferred pattern of consumption. Consumers’ time preferences for consumption
establish how much consumption they are willing to save or consume at different levels of
interest. It majorly impacts required rate of return.
j. A foreign trade deficit occurs when businesses and individuals in the United States import
more goods from foreign countries compared to exports. This cause an increase in an
interest rate. Trade deficits must be financed, and the main source of financing is debt.
© 2024 Cengage, ISBN: 9780357714485. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a 2
publicly accessible website, in whole or in part.
& Practice, 17th Edition Eugene F. Brigham
Notes
1- The file is chapter after chapter.
2- We have shown you 10 pages.
3- The file contains all Appendix and Excel
sheet if it exists.
4- We have all what you need, we make
update at every time. There are many
new editions waiting you.
5- If you think you purchased the wrong file
You can contact us at every time, we can
replace it with true one.
Our email:
, Brigham/Ehrhardt Financial Management: Theory & Practice--Ehrhardt/Brigham Corporate Finance: A Focused Approach
Solution and Answer Guide
CHAPTER 1: AN OVERVIEW OF FINANCIAL MANAGEMENT AND THE FINANCIAL ENVIRONMENT
TABLE OF CONTENTS
ANSWERS TO END-OF-CHAPTER QUESTIONS ...................................................................... 1
MINI CASE....................................................................................................................................6
ANSWERS TO END-OF-CHAPTER QUESTIONS
1-1 Define each of the following terms:
a. Proprietorship; partnership; corporation; charter; bylaws
b. Limited partnership; limited liability partnership; professional corporation
c. Stockholder wealth maximization
d. Money market; capital market; primary market; secondary market
e. Private markets; public markets; derivatives
f. Investment bank; financial services corporation; financial intermediary
g. Mutual fund; money market fund
h. Open outcry auction; dealer market; automated trading platform
i. Production opportunities; time preferences for consumption
j. Foreign trade deficit
k. Algorithmic trading; high-frequency trading
Answer:
a. A proprietorship, or sole proprietorship, is a business owned by one individual. A partnership
exists when two or more persons associate to conduct a business. In contrast, a corporation is
a legal entity created by a state. The corporation is separate and distinct from its owners and
managers. A company must file a charter to become a corporation. A charter includes the
following information: (1) name of the proposed corporation, (2) types of activities it will pursue,
(3) amount of capital stock, (4) number of directors, and (5) names and addresses of directors.
The bylaws are a set of rules drawn up by the founders of the corporation. Included are such
points as: (1) how directors are to be elected (all elected each year or perhaps one-third each
year for 3-year terms), (2) whether the existing stockholders will have the first right to buy any
new shares the firm issues, and (3) procedures for changing the bylaws themselves, should
conditions require it.
b. In a limited partnership, limited partners’ liabilities, investment returns and control are limited,
while general partners have unlimited liability and control. In limited partnership, at least one
partner is liable for all the debts in the partnership. A limited liability partnership (LLP),
sometimes called a limited liability company (LLC), combines the limited liability advantage of a
corporation with the tax advantages of a partnership. A professional corporation (PC), known in
some states as a professional association (PA), has most of the benefits of incorporation but
the participants are not relieved of professional (malpractice) liability.
c. Stockholder wealth maximization is the appropriate goal for management decisions. The risk
and timing associated with expected earnings per share and cash flows are considered in order
© 2024 Cengage, ISBN: 9780357714485. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a 1
publicly accessible website, in whole or in part.
, Brigham/Ehrhardt Financial Management: Theory & Practice--Ehrhardt/Brigham Corporate Finance: A Focused Approach
to maximize the price of the firm’s common stock. Maximizing shareholder’s wealth is a duty
that needs to be fulfill by corporations.
d. A money market is a financial market for debt securities with maturities of less than 1 year
(short-term). The New York money market is the example of money market. Capital
markets are the financial markets for long-term debt and corporate stocks. The New York
Stock Exchange is an example of a capital market. Primary markets are the markets in
which newly issued securities are sold for the first time. Secondary markets are where
securities are resold after initial issue in the primary market. The New York Stock Exchange
is a secondary market.
e. In private markets, transactions are worked out directly between two parties and structured in
any manners that appeal to them. Bank loans and private placements of debt with insurance
companies are examples of private market transactions. In public markets, standardized
contracts are traded on organized exchanges. Securities that are issued in public markets, such
as common stock and corporate bonds, are ultimately held by a large number of individuals.
Private market securities are more tailor-made but less liquid, whereas public market securities
are more liquid but subject to greater standardization. Derivatives are those underlying asset
that derives their value from other traded assets. Futures, options, forwards are the examples of
derivative market. Therefore, the value of a derivative security is derived from the value of an
underlying real asset.
f. An investment banker is a facilitator between businesses and savers. Investment banking
houses assist in the design of corporate securities and then sell them to savers (investors) in
the primary markets. Financial service corporations offer a wide range of financial services such
as brokerage operations, insurance, and commercial banking. A financial intermediary buys
security with funds that is obtained by issuing its own securities. An example is a common stock
mutual fund that buys common stocks with funds obtained by issuing shares in the mutual fund.
g. A mutual fund is an organization that pools the money deposited by savers to buy financial
instruments. These instruments receive dividends and interest on it. The resulting
dividends, interest, and capital gains are distributed to the fund’s shareholders after the
deduction of operating expenses. Different funds are designed to meet different objectives.
Money market funds are mutual funds which invest in short-term securities carry low-risk
and also offer their shareholders interest-bearing checking accounts.
h. An open outcry auction is a method where traders meet face to face at particular location at
an agreed price and quantity. These traders communicate with each other through hand
signals and shouts. In a dealer market, a dealer holds an inventory of the security and
makes a market by offering to buy or sell. Others who wish to buy or sell can see the offers
made by the dealers, and can contact the dealer of their choice to arrange a transaction.
An automated trading platform is a computer system in which buyers and sellers post
orders and in which trades are automatically executed for matching orders.
i. Production opportunities are the cash generating activity that require cash in the present
but have the ability to generate more cash in future. The higher the production
opportunities, the more cash will be demanded now. Consumption time preferences refer to
the preferred pattern of consumption. Consumers’ time preferences for consumption
establish how much consumption they are willing to save or consume at different levels of
interest. It majorly impacts required rate of return.
j. A foreign trade deficit occurs when businesses and individuals in the United States import
more goods from foreign countries compared to exports. This cause an increase in an
interest rate. Trade deficits must be financed, and the main source of financing is debt.
© 2024 Cengage, ISBN: 9780357714485. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a 2
publicly accessible website, in whole or in part.
