Solutions Manual Fundamentals of Corporate
Finance 13th Edition Ross and Jordan
Chapter 1-27
,CHAP ER 1: In roduc ion o Corpora e Finance
CHAP ER 2: Financial S a emen s, axes, And Cash Flow
CHAP ER 3: Working wi h Financial S a emen s
CHAP ER 4: Long- erm Financial Planning and Grow h
CHAP ER 5: In roduc ion o Valua ion: he ime Value of Money
CHAP ER 6: Discoun ed Cash Flow Valua ion
CHAP ER 7: In eres Ra es and Bond Valua ion
CHAP ER 8: S ock Valua ion
CHAP ER 9: Ne Presen Value and O her Inves men Cri eria
CHAP ER 10: Making Capi al Inves men Decisions
CHAP ER 11: Projec Analysis and Evalua ion
CHAP ER 12: Some Lessons from Capi al Marke His ory
CHAP ER 13: Re urn, Risk, And he Securi y Marke Line
CHAP ER 14: Cos of Capi al
CHAP ER 15: Raising Capi al
CHAP ER 16: Financial Leverage and Capi al S ruc ure Policy
CHAP ER 17: Dividends and Payou Policy
CHAP ER 18: Shor - erm Finance and Planning
CHAP ER 19: Cash and Liquidi y Managemen
,CHAP ER 20: Credi and Inven ory Managemen
CHAP ER 21: In erna ional Corpora e Finance
CHAP ER 22: Behavioral Finance: Implica ions for Financial Manage
CHAP ER 23: En erprise Risk Managemen
CHAP ER 24:Op ions and Corpora e Finance
CHAP ER 25: Op ion Valua ion
CHAP ER 26: Mergers and Acquisi ions
CHAP ER 27: Leasing
CHAP ER 1
IN RODUC ION O CORPORA EFINANCE
Answers o Concep s Review and Cri ical hinking Ques ions
1. Capi al budge ing (deciding whe her o expand a manufac uring plan ), capi al s ruc ure (deciding whe
her o issue new equi y and use he proceeds o re ire ou s anding deb ), and working capi al
managemen (modifying he firm’s credi collec ion policy wi h i s cus omers).
2. Disadvan ages: unlimi ed liabili y, limi ed life, difficul y in ransferring ownership, hard o raise capi al
funds. Some advan ages: simpler, less regula ion, he owners are also he managers, some imes
personal ax ra es are be er han corpora e ax ra es.
3. he primary disadvan age of he corpora e form is he double axa ion o shareholders of dis ribu ed
earnings and dividends. Some advan ages include: limi ed liabili y, ease of ransferabili y, abili y o
raise capi al, unlimi ed life, and so for h.
4. In response o Sarbanes-Oxley, small firms have elec ed o go dark because of he cos s of compliance.
he cos s o comply wi h Sarbox can be several million dollars, which can be a large percen age of a
small firms profi s. A major cos of going dark is less access o capi al. Since he firm is no longer
publicly raded, i can no longer raise money in he public marke . Al hough he company will s ill have
access o bank loans and he priva e equi y marke , he cos s associa ed wi h raising funds in hese marke
s are usually higher han he cos s of raising funds in he public marke .
5. he reasurer’s office and he con roller’s office are he wo primary organiza ional groups ha
repor direc ly o he chief financial officer. he con roller’s office handles cos and financial accoun ing,
ax managemen , and managemen informa ion sys ems, while he reasurer’s office is responsible for
cash and credi managemen , capi al budge ing, and financial planning. herefore, he s udy of
corpora e finance is concen ra ed wi hin he reasury group’s func ions.
, 6. o maximize he curren marke value (share price) of he equi y of he firm (whe her i ’s publicly- raded
or no ).
7. In he corpora e form of ownership, he shareholders are he owners of he firm. he shareholders elec
he direc ors of he corpora ion, who in urn appoin he firm’s managemen . his separa ion of ownership
from con rol in he corpora e form of organiza ion is wha causes agency problems o exis . Managemen
may ac in i s own or someone else’s bes in eres s, ra her han hose of he shareholders. If such even s
occur, hey may con radic he goal of maximizing he share price of he equi y of he firm.
8. A primary marke ransac ion.
Finance 13th Edition Ross and Jordan
Chapter 1-27
,CHAP ER 1: In roduc ion o Corpora e Finance
CHAP ER 2: Financial S a emen s, axes, And Cash Flow
CHAP ER 3: Working wi h Financial S a emen s
CHAP ER 4: Long- erm Financial Planning and Grow h
CHAP ER 5: In roduc ion o Valua ion: he ime Value of Money
CHAP ER 6: Discoun ed Cash Flow Valua ion
CHAP ER 7: In eres Ra es and Bond Valua ion
CHAP ER 8: S ock Valua ion
CHAP ER 9: Ne Presen Value and O her Inves men Cri eria
CHAP ER 10: Making Capi al Inves men Decisions
CHAP ER 11: Projec Analysis and Evalua ion
CHAP ER 12: Some Lessons from Capi al Marke His ory
CHAP ER 13: Re urn, Risk, And he Securi y Marke Line
CHAP ER 14: Cos of Capi al
CHAP ER 15: Raising Capi al
CHAP ER 16: Financial Leverage and Capi al S ruc ure Policy
CHAP ER 17: Dividends and Payou Policy
CHAP ER 18: Shor - erm Finance and Planning
CHAP ER 19: Cash and Liquidi y Managemen
,CHAP ER 20: Credi and Inven ory Managemen
CHAP ER 21: In erna ional Corpora e Finance
CHAP ER 22: Behavioral Finance: Implica ions for Financial Manage
CHAP ER 23: En erprise Risk Managemen
CHAP ER 24:Op ions and Corpora e Finance
CHAP ER 25: Op ion Valua ion
CHAP ER 26: Mergers and Acquisi ions
CHAP ER 27: Leasing
CHAP ER 1
IN RODUC ION O CORPORA EFINANCE
Answers o Concep s Review and Cri ical hinking Ques ions
1. Capi al budge ing (deciding whe her o expand a manufac uring plan ), capi al s ruc ure (deciding whe
her o issue new equi y and use he proceeds o re ire ou s anding deb ), and working capi al
managemen (modifying he firm’s credi collec ion policy wi h i s cus omers).
2. Disadvan ages: unlimi ed liabili y, limi ed life, difficul y in ransferring ownership, hard o raise capi al
funds. Some advan ages: simpler, less regula ion, he owners are also he managers, some imes
personal ax ra es are be er han corpora e ax ra es.
3. he primary disadvan age of he corpora e form is he double axa ion o shareholders of dis ribu ed
earnings and dividends. Some advan ages include: limi ed liabili y, ease of ransferabili y, abili y o
raise capi al, unlimi ed life, and so for h.
4. In response o Sarbanes-Oxley, small firms have elec ed o go dark because of he cos s of compliance.
he cos s o comply wi h Sarbox can be several million dollars, which can be a large percen age of a
small firms profi s. A major cos of going dark is less access o capi al. Since he firm is no longer
publicly raded, i can no longer raise money in he public marke . Al hough he company will s ill have
access o bank loans and he priva e equi y marke , he cos s associa ed wi h raising funds in hese marke
s are usually higher han he cos s of raising funds in he public marke .
5. he reasurer’s office and he con roller’s office are he wo primary organiza ional groups ha
repor direc ly o he chief financial officer. he con roller’s office handles cos and financial accoun ing,
ax managemen , and managemen informa ion sys ems, while he reasurer’s office is responsible for
cash and credi managemen , capi al budge ing, and financial planning. herefore, he s udy of
corpora e finance is concen ra ed wi hin he reasury group’s func ions.
, 6. o maximize he curren marke value (share price) of he equi y of he firm (whe her i ’s publicly- raded
or no ).
7. In he corpora e form of ownership, he shareholders are he owners of he firm. he shareholders elec
he direc ors of he corpora ion, who in urn appoin he firm’s managemen . his separa ion of ownership
from con rol in he corpora e form of organiza ion is wha causes agency problems o exis . Managemen
may ac in i s own or someone else’s bes in eres s, ra her han hose of he shareholders. If such even s
occur, hey may con radic he goal of maximizing he share price of he equi y of he firm.
8. A primary marke ransac ion.
