Complete Solutions Manual — Fundamentals of Corporate Finance, 11th Canadian Edition — Stephen A. Ross — ISBN 9781260881387 — (All Chapters Covered 1–26, Solutions Included)

Fundamentals of Corporate
Finance 11th Edition
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SOLUTIONS
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MANUAL
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Stephen A. Ross
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Randolph W. Westerfield
Bradford D. Jordan
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J. Ari Pandes
Thomas Holloway

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Comprehensive Solutions Manual for Instructors
and Students
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© Stephen A. Ross, Randolph W. Westerfield, Bradford D. Jordan, J. Ari Pandes & Thomas
Holloway. All rights reserved. Reproduction or distribution without permission is prohibited.
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© Successhands

, Solutions Manual for Fundamentals of Corporate Finance (11th Canadian
Edition)
Stephen A. Ross, Randolph W. Westerfield, Bradford D. Jordan, J. Ari Pandes
& Thomas Holloway
ISBN: 9781260881387
ST

PART 1: OVERVIEW OF CORPORATE FINANCE
1. Introduction to Corporate Finance
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2. Financial Statements, Cash Flow, and Taxes

PART 2: FINANCIAL STATEMENTS AND LONG-TERM FINANCIAL
PLANNING
3. Working with Financial Statements
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4. Long-Term Financial Planning and Corporate Growth
Appendix 4A: A Financial Planning Model for the Hoffman Company
(Available on Connect)
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Appendix 4B: Derivation of the Sustainable Growth Formula (Available on
Connect)

PART 3: VALUATION OF FUTURE CASH FLOWS
5. Introduction to Valuation: The Time Value of Money
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6. Discounted Cash Flow Valuation
7. Interest Rates and Bond Valuation
Appendix 7A: Managing Interest Rate Risk
Appendix 7B: Callable Bonds and Bond Refunding (Available on Connect)
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8. Stock Valuation

PART 4: CAPITAL BUDGETING
9. Net Present Value and Other Investment Criteria
Appendix 9A: The Modified Internal Rate of Return
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10. Making Capital Investment Decisions
11. Project Analysis and Evaluation

PART 5: RISK AND RETURN
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12. Lessons from Capital Market History
13. Return, Risk, and the Security Market Line
Appendix 13A: Derivation of the Capital Asset Pricing Model
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© Successhands

, PART 6: COST OF CAPITAL AND LONG-TERM FINANCIAL POLICY
14. Cost of Capital
Appendix 14A: Adjusted Present Value
Appendix 14B: Economic Value Added and the Measurement of Financial
Performance
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15. Raising Capital
16. Financial Leverage and Capital Structure Policy
Appendix 16A: Capital Structure and Personal Taxes
Appendix 16B: Derivation of Proposition II (Equation 16.4)
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17. Dividends and Dividend Policy

PART 7: SHORT-TERM FINANCIAL PLANNING AND
MANAGEMENT
18. Short-Term Finance and Planning
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19. Cash and Liquidity Management
Appendix 19A: Cash Management Models (Available on Connect)
20. Credit and Inventory Management
Appendix 20A: More on Credit Policy Analysis (Available on Connect)
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PART 8: TOPICS IN CORPORATE FINANCE
21. International Corporate Finance
22. Leasing
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23. Mergers and Acquisitions

PART 9: DERIVATIVE SECURITIES AND CORPORATE FINANCE
24. Enterprise Risk Management
25. Options and Corporate Securities
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26. Behavioural Finance: Implications for Financial Management
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© Successhands

, Solution Manual for
Fundamentals Of Corporate Finance 11ce Stephen A. Ross, Randolph W. Westerfield,
Bradford D. Jordan, J. Ari Pandes, Thomas Holloway
SMT
Chapter 1-26

CHAPTER 1
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INTRODUCTION TO CORPORATE FINANCE
Learning Objectives

LO1 The basic types of financial management decisions and the role of the financial manager.
LO2 The financial implications of the different forms of business organization.
LO3 The goal of financial management.
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LO4 The conflicts of interests that can arise between managers and owners.
LO5 The roles of financial institutions and markets.
LO6 Types of financial institutions.
LO7 Trends in financial markets.
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Answers to Concepts Review and Critical Thinking Questions

1. (LO1) Capital budgeting (deciding on whether to expand a manufacturing plant), capital structure
(deciding whether to issue new equity and use the proceeds to retire outstanding debt), and working
capital management (modifying the firm‘s credit collection policy with its customers). (LO1)
PNPO
2. (LO2) Disadvantages: unlimited liability, limited life, difficulty in transferring ownership, hard to
raise capital funds. Some advantages: simpler, less regulation, the owners are also the managers.

3. (LO2) The primary disadvantage of the corporate form is the double taxation to shareholders of
distributed earnings and dividends. Some advantages include: limited liability, ease of transferability,
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ability to raise capital, unlimited life, and so forth.

4. (LO4) The treasurer‘s office and the controller‘s office are the two primary organizational groups that
report directly to the chief financial officer. The controller‘s office handles cost and financial
accounting, tax management, and management information systems, while the treasurer‘s office is
responsible for cash and credit management, capital budgeting, and financial planning. Therefore, the
study of corporate finance is concentrated within the treasury group‘s functions.
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5. (LO3) To maximize the current market value (share price) of the equity of the firm (whether it‘s
publicly-traded or not).
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6. (LO4) In the corporate form of ownership, the shareholders are the owners of the firm. The
shareholders elect the directors of the corporation, who in turn appoint the firm‘s management. This
separation of ownership from control in the corporate form of organization is what causes agency
problems to exist. Management may act in its own or someone else‘s best interests, rather than those
of the shareholders. If such events occur, they may contradict the goal of maximizing the share price
of the equity of the firm.
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7. (LO5) A primary market transaction. A secondary market transaction would entail the sale between
two 3rd parties (i.e. not the corporation).




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