Foundation of Financial Management Chap 1 & 2

Chapter 1

Even numbered discussion questions from page 20 & 21

#2What type of partnership allows some of the investors to limit their Liability? Explain.

A limited partnership allows some investors to limit their liability.

With a limited partnership some partners are known as general partners and have unlimited liability for any debts the company may have. The other partners of the company are called limited partners. This means they are only responsible for their initial contribution. Usually the limited partners do not take part in managing the company.

#4What document is necessary to form a corporation?

The document is known as Articles of Incorporation.

#6Why are institutional investors important in today’s business world?

Institutional investors are very important because they are responsible for making sure businesses are managed in an efficient and ethical manor.

#8When does insider trading occur? What government agency is responsible for protecting against the unethical practice of insider trading?

Insider trading occurs when someone has information not available to the public and uses the information to profit from trading publicly traded securities.

The Securities and Exchange Commission protects against insider trading.

#10What is the difference between a primary and secondary market?

When a corporation raises funds thru the financial market the sale of securities is made in the primary market. Once the securities are sold they are traded between the investors in the secondary market. Basically the primary market is open to many investors. The Secondary market is only for the investors who bought securities in the primary market.

#12What changes can take place under restructuring? In recent times, what group of investors has often forced restructuring to take place?

Changes in the capital structure can take place when there is a corporate restructuring. Other changes can be removing the current management team and a reduction in the workforce. Also companies have been known to merge together during this time.

Institutional investors have forced restructuring over the past decade.

Chapter 2

Even number discussion questions page 43

#2What is the difference between book value per chare of common stock and market value per share? Why does this disparity occur?

Book value is the