PRINCIPLES OF CORPORATE FINANCE
RICHARD SOLUTION MANUAL 2026
COMPLETE STUDY GUIDE
◉ Financing decision. Answer: Deciding how the firm should pay for
its investments (debt, equity, or retained earnings).
◉ Capital expenditure (CapEx). Answer: Spending on long-term real
assets used in operations.
◉ Financing. Answer: Raising money to pay for investments.
◉ Shareholder value maximization. Answer: The goal of corporate
finance: maximizing the firm's total value and stock price.
◉ Why shareholders agree on value maximization. Answer:
Financial markets let shareholders manage risk and consumption on
their own.
◉ Long-term value maximization. Answer: Maximizing value while
considering long-term effects on stakeholders.
, ◉ Stakeholders. Answer: Groups affected by the firm beyond
shareholders.
◉ Externalities. Answer: Costs or benefits to society not reflected in
firm profits.
◉ Investment trade-off. Answer: Choosing between investing cash or
returning it to shareholders.
◉ Opportunity cost of capital. Answer: The return shareholders give
up by investing in the firm instead of similar-risk alternatives.
◉ Positive investment decision. Answer: A project earning more
than the opportunity cost of capital.
◉ Negative investment decision. Answer: A project earning less than
the opportunity cost of capital.
◉ Risk-return trade-off. Answer: Investors require higher returns
for taking more risk.
◉ Time value of money. Answer: A dollar today is worth more than a
dollar in the future.
RICHARD SOLUTION MANUAL 2026
COMPLETE STUDY GUIDE
◉ Financing decision. Answer: Deciding how the firm should pay for
its investments (debt, equity, or retained earnings).
◉ Capital expenditure (CapEx). Answer: Spending on long-term real
assets used in operations.
◉ Financing. Answer: Raising money to pay for investments.
◉ Shareholder value maximization. Answer: The goal of corporate
finance: maximizing the firm's total value and stock price.
◉ Why shareholders agree on value maximization. Answer:
Financial markets let shareholders manage risk and consumption on
their own.
◉ Long-term value maximization. Answer: Maximizing value while
considering long-term effects on stakeholders.
, ◉ Stakeholders. Answer: Groups affected by the firm beyond
shareholders.
◉ Externalities. Answer: Costs or benefits to society not reflected in
firm profits.
◉ Investment trade-off. Answer: Choosing between investing cash or
returning it to shareholders.
◉ Opportunity cost of capital. Answer: The return shareholders give
up by investing in the firm instead of similar-risk alternatives.
◉ Positive investment decision. Answer: A project earning more
than the opportunity cost of capital.
◉ Negative investment decision. Answer: A project earning less than
the opportunity cost of capital.
◉ Risk-return trade-off. Answer: Investors require higher returns
for taking more risk.
◉ Time value of money. Answer: A dollar today is worth more than a
dollar in the future.
