Corporate Finance: Principles and
Applications 7th Edition
ST
SOLUTIONS
UV
MANUAL
IA
_A
Ross
PP
Westerfield
Jaffe
RO
Jordan
VE
Comprehensive Solutions Manual for
Instructors and Students
D?
© Ross, Westerfield, Jaffe & Jordan. All rights reserved. Reproduction or distribution
without permission is prohibited.
©MedConnoisseur
, D?
VE
RO
PP
©MedConnoisseur
_A
IA
UV
ST
, TABLE OF CONTENTS
Solutions Manual – Corporate Finance: Principles and Applications, 7th Edition (ISBN
9781264413119)
Stephen A. Ross, Randolph W. Westerfield, Jeffrey F. Jaffe, Bradford D. Jordan
ST
PART ONE: Overview
Chapter 1. Introduction to Corporate Finance
Chapter 2. Financial Statements and Cash Flow
Chapter 3. Financial Statements Analysis and Financial Models
UV
PART TWO: Valuation and Capital Budgeting
Chapter 4. Discounted Cash Flow Valuation
Chapter 5. Interest Rates and Bond Valuation
Chapter 6. Stock Valuation
Chapter 7. Net Present Value and Other Investment Rules
IA
Chapter 8. Making Capital Investment Decisions
Chapter 9. Risk Analysis, Real Options, and Capital Budgeting
PART THREE: Risk and Return
_A
Chapter 10. Risk and Return: Lessons from Market History
Chapter 11. Return and Risk: The Capital Asset Pricing Model (CAPM)
Chapter 12. Risk, Cost of Capital, and Valuation
PART FOUR: Capital Structure and Dividend Policy
PP
Chapter 13. Efficient Capital Markets and Behavioral Challenges
Chapter 14. Capital Structure: Basic Concepts
Chapter 15. Capital Structure: Limits to the Use of Debt
Chapter 16. Dividends and Other Payouts
RO
PART FIVE: Special Topics
Chapter 17. Options and Corporate Finance
Chapter 18. Short-Term Finance and Planning
Chapter 19. Raising Capital
Chapter 20. International Corporate Finance
VE
Chapter 21. Mergers and Acquisitions (web only)
D?
©MedConnoisseur
, CHAPTER 1
INTRODUCTION TO CORPORATE FINANCE
ST
Answers to Concept Questions
1. The three basic forms are sole proprietorships, partnerships, and corporations. Some
UV
disadvantages of sole proprietorships and partnerships are unlimited liability, limited life,
difficulty in transferring ownership, and hard to raise capital funds. Some advantages are
simplicity, less regulation, the owners are also the managers, and sometimes personal tax
rates are better than corporate tax rates. The primary disadvantage of the corporate form is
the double taxation to shareholders on distributed earnings and dividends. Some advantages
include the following: limited liability, ease of transferability, ability to raise capital, and
IA
unlimited life. When a business is started, most take the form of a sole proprietorship or
partnership because of the relative simplicity of starting these forms of businesses.
2. To maximize the current market value (share price) of the equity of the firm (whether it’s
_A
publicly traded or not).
3. In the corporate form of ownership, the shareholders are the owners of the firm. The
shareholders elect the directors of the corporation, who in turn appoint the firm’s
management. This separation of ownership from control in the corporate form of organization
is what causes agency problems to exist. Management may act in its own or someone else’s
PP
best interests, rather than those of the shareholders. If such events occur, they may contradict
the goal of maximizing the share price of the equity of the firm.
4. Such organizations frequently pursue social or political missions, so many different goals are
conceivable. One goal that is often cited is revenue minimization; that is, provide whatever
RO
goods and services are offered at the lowest possible cost to society. A better approach might
be to observe that even a not-for-profit business has equity. Thus, one answer is that the
appropriate goal is to maximize the value of the equity.
5. Presumably, the current stock value reflects the risk, timing, and magnitude of all future cash
VE
flows, both short term and long term. If this is correct, then the statement is false.
6. An argument can be made either way. At the one extreme, we could argue that in a market
economy, all these things are priced. Thus, there is an optimal level of, for example, unethical
and/or illegal behavior, and the framework of stock valuation explicitly includes these. At the
D?
other extreme, we could argue that these are noneconomic phenomena and are best handled
through the political process. A classic (and highly relevant) thought question that illustrates
this debate goes something like this: “A firm has estimated that the cost of improving the
safety of one of its products is $30 million. However, the firm believes that improving the
safety of the product will only save $20 million in product liability claims. What should the
firm do?”
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw Hill LLC.
Applications 7th Edition
ST
SOLUTIONS
UV
MANUAL
IA
_A
Ross
PP
Westerfield
Jaffe
RO
Jordan
VE
Comprehensive Solutions Manual for
Instructors and Students
D?
© Ross, Westerfield, Jaffe & Jordan. All rights reserved. Reproduction or distribution
without permission is prohibited.
©MedConnoisseur
, D?
VE
RO
PP
©MedConnoisseur
_A
IA
UV
ST
, TABLE OF CONTENTS
Solutions Manual – Corporate Finance: Principles and Applications, 7th Edition (ISBN
9781264413119)
Stephen A. Ross, Randolph W. Westerfield, Jeffrey F. Jaffe, Bradford D. Jordan
ST
PART ONE: Overview
Chapter 1. Introduction to Corporate Finance
Chapter 2. Financial Statements and Cash Flow
Chapter 3. Financial Statements Analysis and Financial Models
UV
PART TWO: Valuation and Capital Budgeting
Chapter 4. Discounted Cash Flow Valuation
Chapter 5. Interest Rates and Bond Valuation
Chapter 6. Stock Valuation
Chapter 7. Net Present Value and Other Investment Rules
IA
Chapter 8. Making Capital Investment Decisions
Chapter 9. Risk Analysis, Real Options, and Capital Budgeting
PART THREE: Risk and Return
_A
Chapter 10. Risk and Return: Lessons from Market History
Chapter 11. Return and Risk: The Capital Asset Pricing Model (CAPM)
Chapter 12. Risk, Cost of Capital, and Valuation
PART FOUR: Capital Structure and Dividend Policy
PP
Chapter 13. Efficient Capital Markets and Behavioral Challenges
Chapter 14. Capital Structure: Basic Concepts
Chapter 15. Capital Structure: Limits to the Use of Debt
Chapter 16. Dividends and Other Payouts
RO
PART FIVE: Special Topics
Chapter 17. Options and Corporate Finance
Chapter 18. Short-Term Finance and Planning
Chapter 19. Raising Capital
Chapter 20. International Corporate Finance
VE
Chapter 21. Mergers and Acquisitions (web only)
D?
©MedConnoisseur
, CHAPTER 1
INTRODUCTION TO CORPORATE FINANCE
ST
Answers to Concept Questions
1. The three basic forms are sole proprietorships, partnerships, and corporations. Some
UV
disadvantages of sole proprietorships and partnerships are unlimited liability, limited life,
difficulty in transferring ownership, and hard to raise capital funds. Some advantages are
simplicity, less regulation, the owners are also the managers, and sometimes personal tax
rates are better than corporate tax rates. The primary disadvantage of the corporate form is
the double taxation to shareholders on distributed earnings and dividends. Some advantages
include the following: limited liability, ease of transferability, ability to raise capital, and
IA
unlimited life. When a business is started, most take the form of a sole proprietorship or
partnership because of the relative simplicity of starting these forms of businesses.
2. To maximize the current market value (share price) of the equity of the firm (whether it’s
_A
publicly traded or not).
3. In the corporate form of ownership, the shareholders are the owners of the firm. The
shareholders elect the directors of the corporation, who in turn appoint the firm’s
management. This separation of ownership from control in the corporate form of organization
is what causes agency problems to exist. Management may act in its own or someone else’s
PP
best interests, rather than those of the shareholders. If such events occur, they may contradict
the goal of maximizing the share price of the equity of the firm.
4. Such organizations frequently pursue social or political missions, so many different goals are
conceivable. One goal that is often cited is revenue minimization; that is, provide whatever
RO
goods and services are offered at the lowest possible cost to society. A better approach might
be to observe that even a not-for-profit business has equity. Thus, one answer is that the
appropriate goal is to maximize the value of the equity.
5. Presumably, the current stock value reflects the risk, timing, and magnitude of all future cash
VE
flows, both short term and long term. If this is correct, then the statement is false.
6. An argument can be made either way. At the one extreme, we could argue that in a market
economy, all these things are priced. Thus, there is an optimal level of, for example, unethical
and/or illegal behavior, and the framework of stock valuation explicitly includes these. At the
D?
other extreme, we could argue that these are noneconomic phenomena and are best handled
through the political process. A classic (and highly relevant) thought question that illustrates
this debate goes something like this: “A firm has estimated that the cost of improving the
safety of one of its products is $30 million. However, the firm believes that improving the
safety of the product will only save $20 million in product liability claims. What should the
firm do?”
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw Hill LLC.
