ESSENTIALS OF CORPORATE FINANCE ROSS
PRACTICE QUESTIONS AND DETAILED
SOLUTIONS
◉ Corporate finance is the area of finance dealing with sources of
funding and the capital structure of corporations, the actions that
managers take to increase a firm's value to shareholders, plus tools
and analysis used to allocate financial resources.
Answer: The term "corporate finance" seems to imply that the topics
studied are only related to corporations, but in reality, those topics
are much broader. That is why "business finance" would be a little
more descriptive term, as a lot of subjects discussed later in the
course are basic financial ideas and principles that apply across
various areas of finance and beyond
◉ Investments area of finance deals with financial assets, such as
stocks and bonds.
Answer: Three fields of specialization in the area of investments are:
Financial advising and asset trading that is performed by
stockbrokers and financial advisors, who help their clients make
financial decisions, e.g. what types of investments to consider or
what stocks to buy or sell;
Portfolio management that is performed by portfolio managers, who
invest and manage money for not only individual investors but also
,for pension funds, insurance companies and other types of
institutions;
Security analysis that is performed by financial securities analysts,
who research individual investments (e.g. stock in particular
company) and make a determination if the price is right;
◉ Financial advising and asset trading.
Answer: that is performed by stockbrokers and financial advisors,
who help their clients make financial decisions, e.g. what types of
investments to consider or what stocks to buy or sell;
◉ Portfolio management.
Answer: that is performed by portfolio managers, who invest and
manage money for not only individual investors but also for pension
funds, insurance companies and other types of institutions;
◉ Security analysis.
Answer: that is performed by financial securities analysts, who
research individual investments (e.g. stock in particular company)
and make a determination if the price is right;
◉ Financial institutions are basically businesses that primarily deal
in financial matters, such as banks, insurance companies, pension
funds, etc..
, Answer: Such institutions perform wide variety of finance-related
tasks, such as evaluating whether a certain business has a strong
enough financial position to extend a loan or deciding whether a
particular risk is suitable for insuring the business and what the
premium should be.
◉ International finance isn't so much an area of finance as it is a
specialization within one of the areas described above, i.e. it
generally involves international aspects of either the corporate
finance or investments or financial institutions..
Answer: For example, some portfolio managers and security
analysts specialize in non-US companies. Many financial institutions
in US have extensive overseas operations and have to evaluate their
exposure to currency exchange rates fluctuations and the political
risk.
◉ Who needs to know finance?.
Answer: Everyone! Even if one doesn't plan to have a financial
career, there are several reasons for acquiring a working knowledge
of finance
◉ several reasons for acquiring a working knowledge of
finance:Marketing and Finance.
Answer: tools learned in finance (e.g. analysis of costs and benefits
of a project) are vital in marketing research, the design of marketing
and distribution channels and product pricing, plus financial
PRACTICE QUESTIONS AND DETAILED
SOLUTIONS
◉ Corporate finance is the area of finance dealing with sources of
funding and the capital structure of corporations, the actions that
managers take to increase a firm's value to shareholders, plus tools
and analysis used to allocate financial resources.
Answer: The term "corporate finance" seems to imply that the topics
studied are only related to corporations, but in reality, those topics
are much broader. That is why "business finance" would be a little
more descriptive term, as a lot of subjects discussed later in the
course are basic financial ideas and principles that apply across
various areas of finance and beyond
◉ Investments area of finance deals with financial assets, such as
stocks and bonds.
Answer: Three fields of specialization in the area of investments are:
Financial advising and asset trading that is performed by
stockbrokers and financial advisors, who help their clients make
financial decisions, e.g. what types of investments to consider or
what stocks to buy or sell;
Portfolio management that is performed by portfolio managers, who
invest and manage money for not only individual investors but also
,for pension funds, insurance companies and other types of
institutions;
Security analysis that is performed by financial securities analysts,
who research individual investments (e.g. stock in particular
company) and make a determination if the price is right;
◉ Financial advising and asset trading.
Answer: that is performed by stockbrokers and financial advisors,
who help their clients make financial decisions, e.g. what types of
investments to consider or what stocks to buy or sell;
◉ Portfolio management.
Answer: that is performed by portfolio managers, who invest and
manage money for not only individual investors but also for pension
funds, insurance companies and other types of institutions;
◉ Security analysis.
Answer: that is performed by financial securities analysts, who
research individual investments (e.g. stock in particular company)
and make a determination if the price is right;
◉ Financial institutions are basically businesses that primarily deal
in financial matters, such as banks, insurance companies, pension
funds, etc..
, Answer: Such institutions perform wide variety of finance-related
tasks, such as evaluating whether a certain business has a strong
enough financial position to extend a loan or deciding whether a
particular risk is suitable for insuring the business and what the
premium should be.
◉ International finance isn't so much an area of finance as it is a
specialization within one of the areas described above, i.e. it
generally involves international aspects of either the corporate
finance or investments or financial institutions..
Answer: For example, some portfolio managers and security
analysts specialize in non-US companies. Many financial institutions
in US have extensive overseas operations and have to evaluate their
exposure to currency exchange rates fluctuations and the political
risk.
◉ Who needs to know finance?.
Answer: Everyone! Even if one doesn't plan to have a financial
career, there are several reasons for acquiring a working knowledge
of finance
◉ several reasons for acquiring a working knowledge of
finance:Marketing and Finance.
Answer: tools learned in finance (e.g. analysis of costs and benefits
of a project) are vital in marketing research, the design of marketing
and distribution channels and product pricing, plus financial
