SOLUTIONS MANUAL
** All Chapters included
** Answers to Beginning-of-Chapter Questions
** End-of-Chapter Solutions
** Solution to Problems & Cases
,Table of Contents are given below
Chapter 1. An Overview of Financial Management and the Financial Environment
Chapter 2. Risk and Return: Part I
Chapter 3. Risk and Return: Part II
Chapter 4. Bond Valuation
Chapter 5. Financial Options
Chapter 6. Accounting for Financial Management
Chapter 7. Analysis of Financial Statements
Chapter 8. Corporate Valuation and Stock Valuation
Chapter 9. Corporate Valuation and Financial Planning
Chapter 10. Corporate Governance
Chapter 11. The Cost of Capital
Chapter 12. Capital Budgeting: Decision Rules
Chapter 13. Capital Budgeting: Estimating Cash Flows and Analyzing Risk
Chapter 14. Real Options
Chapter 15. Distributions to Shareholders: Dividends and Repurchases
Chapter 16. Capital Structure Decisions
Chapter 17. Dynamic Capital Structures and Corporate Valuation
Chapter 18. Initial Public Offerings, Investment Banking, and Financial Restructuring
Chapter 19. Lease Financing
Chapter 20. Hybrid Financing: Preferred Stock, Warrants, and Convertibles
Chapter 21. Supply Chains and Working Capital Management
Chapter 22. Providing and Obtaining Credit
Chapter 23. Other Topics in Working Capital Management
Chapter 24. Enterprise Risk Management
Chapter 25. Bankruptcy, Reorganization, and Liquidation
Chapter 26. Mergers and Corporate Control
Chapter 27. Multinational Financial Management
Chapter 28. Fintech in Financial Markets
Chapter 29. Basic Financial Tools: A Review
Chapter 30. Time Value of Money
Chapter 31. Pension Plan Management
Chapter 32. Financial Management in Not-for-Profit Businesses*
,Solution and Answer Guide: Brigham and Daves, Intermediate Financial Management, 15e, 2027, 9798214056814; Chapter 1: An Overview of
Financial Management and the Financial Environment
Solution and Answer Guide
BRIGHAM AND DAVES, INTERMEDIATE FINANCIAL MANAGEMENT, 15E, 2027, 9798214056814;
CHAPTER 1: AN OVERVIEW OF FINANCIAL MANAGEMENT AND THE FINANCIAL ENVIRONMENT
TABLE OF CONTENTS
Answers to Beginning-of-Chapter Questions....................................................................1
Answers to End-of-Chapter Questions...............................................................................4
Mini Case...............................................................................................................................9
ANSWERS TO BEGINNING-OF-CHAPTER QUESTIONS
1-1 What is presumed to be the primary objective of financial management? How is this goal
related to other societal goals and considerations? Is this goal consistent with the basic
assumptions of microeconomics? Are managers’ actions always consistent with this
goal?
Answer:
The primary goal is assumed to be shareholder wealth maximization, which translates to
stock price maximization. That, in turn, means maximizing the present value (PV) of
future free cash flows.
Maximizing shareholder wealth requires that the firm produce things that customers
want and at the lowest cost consistent with high quality. It also means holding risk
down, which will result in a relatively low cost of capital, which is necessary to
maximize the PV of a given cash flow stream.
This also gets into the issue of capital structure—how much debt should we use? The
more debt the firm uses, the lower its taxes, and the fewer shares outstanding, hence
less dilution of earnings. However, more debt means more risk. So, it’s necessary to
consider capital structure when attempting to maximize share prices.
Dividend policy is also an issue—how much of its earnings should the firm pay out as
dividends? The answer to that question depends on a number of factors, including the
firm’s investment opportunities, its access to capital markets, its stockholders’ desires (and
their tax rates), and the kind of signals stockholders get from dividend actions.
Shareholder wealth maximization is partially consistent and partially inconsistent with
generally accepted societal goals. It is consistent because well-run firms produce good
© 2027 Cengage Learning, Inc. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly 1
accessible website, in whole or in part.
, Solution and Answer Guide: Brigham and Daves, Intermediate Financial Management, 15e, 2027, 9798214056814; Chapter 1: An Overview of
Financial Management and the Financial Environment
products at low costs, sell them at competitive prices, employ people, pay taxes, and
generally improve society. However, without constraints, firms would tend to form
monopolies and end up charging prices that are too high and not producing enough output.
They might also pollute the air and water, engage in unfair labor practices, and so on. So,
constraints (antitrust, labor, environmental, etc. laws) should be and are imposed on
businesses. That said, stock price maximization is consistent with a strong economy,
economic progress, and “the good life” for most citizens.
In standard introductory microeconomics courses, we assume that firms attempt to
maximize profits. In more advanced econ courses, the goal is broadened to value
maximizing, so finance and economics are indeed consistent.
As WorldCom, Enron, and other corporate scandals demonstrated very clearly,
managers do not always have stockholders’ interests as a primary goal—some managers
have their own interests. This point is further discussed below.
1-2 Finance is all about valuation—how to estimate asset values and what to do to increase
them. We develop and use Excel models throughout the book. We start that process in
this chapter with simple models used to value bonds, stocks, and capital budgeting
projects. Working through the model will give you a refresher in valuation plus a
refresher on (or preview of) Excel.
a. Explain how to find the value of a bond given the rate of interest it pays
(its coupon rate), its par value (assume $1,000), and the going rate of interest
on bonds with the same risk and maturity.
b. Explain how to find the value of a stock given its last dividend, its expected growth
rate, and its required rate of return.
c. Explain how to find the value of a capital budgeting project given its cost, its
expected annual net cash flows, its life, and its cost of capital.
d. In each of these cases, discuss how changes in the inputs would affect the output.
Would it matter if the outputs were highly sensitive to changes in the inputs?
Answer for a. – d.
Refer to the model for quantitative answers to this question. All of these valuations
involve applications of the basic valuation model:
Values for CFt, r, and N are specified. For bonds, the CFs are interest payments and the
maturity value, and N is the bond’s life. Other things held constant, the higher the going
interest rate, r, the lower the value of the bond. Also, if the coupon rate is high, then CFs
are also high, and that increases the value of the bond. For a stock, the CFs are dividends,
and for a capital budgeting project, they are operating cash flows.
© 2027 Cengage Learning, Inc. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly 2
accessible website, in whole or in part.
** All Chapters included
** Answers to Beginning-of-Chapter Questions
** End-of-Chapter Solutions
** Solution to Problems & Cases
,Table of Contents are given below
Chapter 1. An Overview of Financial Management and the Financial Environment
Chapter 2. Risk and Return: Part I
Chapter 3. Risk and Return: Part II
Chapter 4. Bond Valuation
Chapter 5. Financial Options
Chapter 6. Accounting for Financial Management
Chapter 7. Analysis of Financial Statements
Chapter 8. Corporate Valuation and Stock Valuation
Chapter 9. Corporate Valuation and Financial Planning
Chapter 10. Corporate Governance
Chapter 11. The Cost of Capital
Chapter 12. Capital Budgeting: Decision Rules
Chapter 13. Capital Budgeting: Estimating Cash Flows and Analyzing Risk
Chapter 14. Real Options
Chapter 15. Distributions to Shareholders: Dividends and Repurchases
Chapter 16. Capital Structure Decisions
Chapter 17. Dynamic Capital Structures and Corporate Valuation
Chapter 18. Initial Public Offerings, Investment Banking, and Financial Restructuring
Chapter 19. Lease Financing
Chapter 20. Hybrid Financing: Preferred Stock, Warrants, and Convertibles
Chapter 21. Supply Chains and Working Capital Management
Chapter 22. Providing and Obtaining Credit
Chapter 23. Other Topics in Working Capital Management
Chapter 24. Enterprise Risk Management
Chapter 25. Bankruptcy, Reorganization, and Liquidation
Chapter 26. Mergers and Corporate Control
Chapter 27. Multinational Financial Management
Chapter 28. Fintech in Financial Markets
Chapter 29. Basic Financial Tools: A Review
Chapter 30. Time Value of Money
Chapter 31. Pension Plan Management
Chapter 32. Financial Management in Not-for-Profit Businesses*
,Solution and Answer Guide: Brigham and Daves, Intermediate Financial Management, 15e, 2027, 9798214056814; Chapter 1: An Overview of
Financial Management and the Financial Environment
Solution and Answer Guide
BRIGHAM AND DAVES, INTERMEDIATE FINANCIAL MANAGEMENT, 15E, 2027, 9798214056814;
CHAPTER 1: AN OVERVIEW OF FINANCIAL MANAGEMENT AND THE FINANCIAL ENVIRONMENT
TABLE OF CONTENTS
Answers to Beginning-of-Chapter Questions....................................................................1
Answers to End-of-Chapter Questions...............................................................................4
Mini Case...............................................................................................................................9
ANSWERS TO BEGINNING-OF-CHAPTER QUESTIONS
1-1 What is presumed to be the primary objective of financial management? How is this goal
related to other societal goals and considerations? Is this goal consistent with the basic
assumptions of microeconomics? Are managers’ actions always consistent with this
goal?
Answer:
The primary goal is assumed to be shareholder wealth maximization, which translates to
stock price maximization. That, in turn, means maximizing the present value (PV) of
future free cash flows.
Maximizing shareholder wealth requires that the firm produce things that customers
want and at the lowest cost consistent with high quality. It also means holding risk
down, which will result in a relatively low cost of capital, which is necessary to
maximize the PV of a given cash flow stream.
This also gets into the issue of capital structure—how much debt should we use? The
more debt the firm uses, the lower its taxes, and the fewer shares outstanding, hence
less dilution of earnings. However, more debt means more risk. So, it’s necessary to
consider capital structure when attempting to maximize share prices.
Dividend policy is also an issue—how much of its earnings should the firm pay out as
dividends? The answer to that question depends on a number of factors, including the
firm’s investment opportunities, its access to capital markets, its stockholders’ desires (and
their tax rates), and the kind of signals stockholders get from dividend actions.
Shareholder wealth maximization is partially consistent and partially inconsistent with
generally accepted societal goals. It is consistent because well-run firms produce good
© 2027 Cengage Learning, Inc. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly 1
accessible website, in whole or in part.
, Solution and Answer Guide: Brigham and Daves, Intermediate Financial Management, 15e, 2027, 9798214056814; Chapter 1: An Overview of
Financial Management and the Financial Environment
products at low costs, sell them at competitive prices, employ people, pay taxes, and
generally improve society. However, without constraints, firms would tend to form
monopolies and end up charging prices that are too high and not producing enough output.
They might also pollute the air and water, engage in unfair labor practices, and so on. So,
constraints (antitrust, labor, environmental, etc. laws) should be and are imposed on
businesses. That said, stock price maximization is consistent with a strong economy,
economic progress, and “the good life” for most citizens.
In standard introductory microeconomics courses, we assume that firms attempt to
maximize profits. In more advanced econ courses, the goal is broadened to value
maximizing, so finance and economics are indeed consistent.
As WorldCom, Enron, and other corporate scandals demonstrated very clearly,
managers do not always have stockholders’ interests as a primary goal—some managers
have their own interests. This point is further discussed below.
1-2 Finance is all about valuation—how to estimate asset values and what to do to increase
them. We develop and use Excel models throughout the book. We start that process in
this chapter with simple models used to value bonds, stocks, and capital budgeting
projects. Working through the model will give you a refresher in valuation plus a
refresher on (or preview of) Excel.
a. Explain how to find the value of a bond given the rate of interest it pays
(its coupon rate), its par value (assume $1,000), and the going rate of interest
on bonds with the same risk and maturity.
b. Explain how to find the value of a stock given its last dividend, its expected growth
rate, and its required rate of return.
c. Explain how to find the value of a capital budgeting project given its cost, its
expected annual net cash flows, its life, and its cost of capital.
d. In each of these cases, discuss how changes in the inputs would affect the output.
Would it matter if the outputs were highly sensitive to changes in the inputs?
Answer for a. – d.
Refer to the model for quantitative answers to this question. All of these valuations
involve applications of the basic valuation model:
Values for CFt, r, and N are specified. For bonds, the CFs are interest payments and the
maturity value, and N is the bond’s life. Other things held constant, the higher the going
interest rate, r, the lower the value of the bond. Also, if the coupon rate is high, then CFs
are also high, and that increases the value of the bond. For a stock, the CFs are dividends,
and for a capital budgeting project, they are operating cash flows.
© 2027 Cengage Learning, Inc. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly 2
accessible website, in whole or in part.
