SOLUTION MANUAL
Fundamentals of Corporate Finance, 5th Edition
By PARRIN, David All Chapters (1– 21) Covered.
,TABLE OF CONTENTS
CHAPTER 1: The Financial Manager and the Firm
CHAPTER 2: The Financial System and the Level of Interest Rates
CHAPTER 3: Financial Statements, Cash Flows, and Taxes
CHAPTER 4: Analyzing Financial Statements
CHAPTER 5: The Time Value of Money
CHAPTER 6: Discounted Cash Flows and Valuation
CHAPTER 7: Risk and Return
CHAPTER 8: Bond Valuation and the Structure of Interest Rates
CHAPTER 9: Stock Valuation
CHAPTER 10: The Fundamentals of Capital Budgeting
CHAPTER 11: Cash Flows and Capital Budgeting
CHAPTER 12: Evaluating Project Economics
CHAPTER 13: The Cost of Capital
CHAPTER 14: Working Capital Management
CHAPTER 15: How Firms Raise Capital
CHAPTER 16: Capital Structure Policy
CHAPTER 17: Dividends, Stock Repurchases, and Payout Policy
CHAPTER 18: Business Formation, Growth, and Valuation
CHAPTER 19: Financial Planning and Managing Growth
CHAPTER 20: Options and Corporate Finance
CHAPTER 21: International Financial Management
,
, Chapter 1
The Financial Manager and the Firm
Before You Go On Questions and Answers
Section 1.1
1. What are the three basic types of financial decisions managers must make?
The three basic decisions each business must make are the capital budgeting decision, the
financing decision, and the working capital management decision. These decisions determine
which productive assets to buy, how to pay for or finance these purchases, and how to
manage the day-to-day financial matters so the company can pay its bills.
2. Explain why you would make an investment if the value of the expected cash flows
exceeds the cost of the project.
You would accept an investment project whose cash flows exceed the cost of the project
because such projects will increase the value of the firm, making the owners wealthier. Most
people start a business to increase their wealth. Remember that the cost of capital (time value
of money) will affect the decision about whether to invest.
3. Why are capital budgeting decisions among the most important decisions in the life of a
firm?
The capital budgeting decisions are considered the most important in the life of the firm
because these decisions determine which productive assets the firm purchases, and which
assets generate most of the firm’s cash flows. Furthermore, capital budgeting decisions are
Fundamentals of Corporate Finance, 5th Edition
By PARRIN, David All Chapters (1– 21) Covered.
,TABLE OF CONTENTS
CHAPTER 1: The Financial Manager and the Firm
CHAPTER 2: The Financial System and the Level of Interest Rates
CHAPTER 3: Financial Statements, Cash Flows, and Taxes
CHAPTER 4: Analyzing Financial Statements
CHAPTER 5: The Time Value of Money
CHAPTER 6: Discounted Cash Flows and Valuation
CHAPTER 7: Risk and Return
CHAPTER 8: Bond Valuation and the Structure of Interest Rates
CHAPTER 9: Stock Valuation
CHAPTER 10: The Fundamentals of Capital Budgeting
CHAPTER 11: Cash Flows and Capital Budgeting
CHAPTER 12: Evaluating Project Economics
CHAPTER 13: The Cost of Capital
CHAPTER 14: Working Capital Management
CHAPTER 15: How Firms Raise Capital
CHAPTER 16: Capital Structure Policy
CHAPTER 17: Dividends, Stock Repurchases, and Payout Policy
CHAPTER 18: Business Formation, Growth, and Valuation
CHAPTER 19: Financial Planning and Managing Growth
CHAPTER 20: Options and Corporate Finance
CHAPTER 21: International Financial Management
,
, Chapter 1
The Financial Manager and the Firm
Before You Go On Questions and Answers
Section 1.1
1. What are the three basic types of financial decisions managers must make?
The three basic decisions each business must make are the capital budgeting decision, the
financing decision, and the working capital management decision. These decisions determine
which productive assets to buy, how to pay for or finance these purchases, and how to
manage the day-to-day financial matters so the company can pay its bills.
2. Explain why you would make an investment if the value of the expected cash flows
exceeds the cost of the project.
You would accept an investment project whose cash flows exceed the cost of the project
because such projects will increase the value of the firm, making the owners wealthier. Most
people start a business to increase their wealth. Remember that the cost of capital (time value
of money) will affect the decision about whether to invest.
3. Why are capital budgeting decisions among the most important decisions in the life of a
firm?
The capital budgeting decisions are considered the most important in the life of the firm
because these decisions determine which productive assets the firm purchases, and which
assets generate most of the firm’s cash flows. Furthermore, capital budgeting decisions are
