SOLUTIONS MANUAL
** All Chapters included
** Solutions to Questions & Cases
** ABA Solutions Manual
** Answers to Time Out
,Table of Contents are given below
1. Introduction to Financial Management
2. Reviewing Financial Statements
3. Analyzing Financial Statements
4. Time Value of Money 1: Analyzing Single Cash Flows
5. Time Value of Money 2: Analyzing Annuity Cash Flows
6. Understanding Financial Markets and Institutions
7. Valuing Bonds
8. Valuing Stocks
9. Characterizing Risk and Return
10. Estimating Risk and Return
11. Calculating the Cost of Capital
12. Estimating Cash Flows on Capital Budgeting Projects
13. Weighing Net Present Value and Other Capital Budgeting Criteria
14. Working Capital Management and Policies
,Chapter 01—Introduction to Financial Management
CHAPTER 1—INTRODUCTION TO FINANCIAL
MANAGEMENT
Questions
LG1
1. Describe the type of people who use the financial markets.
The financial markets are used by people who have extra money now and want it to grow
for their future. They offer this capital through the financial markets to others who have
good ideas and opportunities but need the capital to implement them. These types of
people are denoted as Type 2 and 3 people in Figure 1.1.
LG1
2. What is the purpose of financial management? Describe the kinds of activities that
financial management involves.
Financial management is the process of making decisions for the acquisition, use, and
repayment of capital. Decisions for the acquisition of capital can include how the
business is organized, what type of capital should be obtained, and how much capital
should be obtained. Decisions for the uses of capital include what new business projects
to invest in, what capital to retain to fund ongoing projects, and to reduce taxation.
Decisions for the repayment of capital involve paying capital back to its providers.
LG2
3. What is the difference in perspective between finance and accounting?
Accounting focuses on recording and presenting the past business activities. This
information is good for evaluating past performance. The finance function uses this past
data along with current information to make decisions on what business activities to do
now and in the future. Decisions about the future involve much uncertainty, so risk
evaluation is part of the finance job.
LG3
4. What personal decisions can you think of that will benefit from learning finance?
Learning finance will help the student build wealth and reduce costs in their personal life.
After taking this class, the student should be able to make good decisions about funding
their future retirement and investment allocations. People with finance knowledge can
1-1
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw Hill LLC.
, Chapter 01—Introduction to Financial Management
also reduce costs by making good decisions in borrowing while buying cars, homes, and
using credit cards.
LG4
5. What are the three basic forms of business ownership? What are the advantages and
disadvantages to each?
The three basic business forms are the sole proprietorship (SP), the partnership (Part),
and the corporation (Corp). Advantages and disadvantages can be determined along
several dimensions: control, risks, access to capital, and taxation. The SP owner has total
control of business decisions. Control decreases for owners of Part and then Corp. The
owner has a high risk to their personal wealth in a SP and Part, but low risk in a Corp.
Access to capital is addressed in question 6. Lastly, SP and Part owners are taxed as if the
business was personal income. The Corp owner is taxed twice, once at the corporation
level and then again at the personal level.
LG4
6. Among the three basic forms of business ownership, describe the ability of each form to
access capital.
The corporation has the highest access to capital. It can acquire new equity capital from
the public market. Also, banks are more willing to lend to corporations. Debt investors
are also more likely to buy the bonds of a corporation. Partnerships have the next best
access to capital. With larger numbers of partners involved with the business, the more
likely banks will lend and debt investors will buy its bonds. Partnerships do not have
access to the public equity market. Lastly, sole proprietorships have poor access to
capital. Generally speaking, the sole proprietor cannot borrow as much money from
banks or debt investors.
LG4
7. Explain how the founder of a business can eventually lose control of the firm. How can
the founder ensure this will not happen?
When the founder wants the business to grow quickly, more capital is required. In the
early stages of a small fast-growing company, it is equity capital that is available. In other
words, the founder must give up a portion of his or her ownership to other investors. As
this process continues over time, the founder may find that he or she no longer owns a
majority of the firm. There may come a time when enough of these other owners that
own a combined 50+ percent of the firm come together and change the leadership of the
firm.
1-2
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw Hill LLC.
** All Chapters included
** Solutions to Questions & Cases
** ABA Solutions Manual
** Answers to Time Out
,Table of Contents are given below
1. Introduction to Financial Management
2. Reviewing Financial Statements
3. Analyzing Financial Statements
4. Time Value of Money 1: Analyzing Single Cash Flows
5. Time Value of Money 2: Analyzing Annuity Cash Flows
6. Understanding Financial Markets and Institutions
7. Valuing Bonds
8. Valuing Stocks
9. Characterizing Risk and Return
10. Estimating Risk and Return
11. Calculating the Cost of Capital
12. Estimating Cash Flows on Capital Budgeting Projects
13. Weighing Net Present Value and Other Capital Budgeting Criteria
14. Working Capital Management and Policies
,Chapter 01—Introduction to Financial Management
CHAPTER 1—INTRODUCTION TO FINANCIAL
MANAGEMENT
Questions
LG1
1. Describe the type of people who use the financial markets.
The financial markets are used by people who have extra money now and want it to grow
for their future. They offer this capital through the financial markets to others who have
good ideas and opportunities but need the capital to implement them. These types of
people are denoted as Type 2 and 3 people in Figure 1.1.
LG1
2. What is the purpose of financial management? Describe the kinds of activities that
financial management involves.
Financial management is the process of making decisions for the acquisition, use, and
repayment of capital. Decisions for the acquisition of capital can include how the
business is organized, what type of capital should be obtained, and how much capital
should be obtained. Decisions for the uses of capital include what new business projects
to invest in, what capital to retain to fund ongoing projects, and to reduce taxation.
Decisions for the repayment of capital involve paying capital back to its providers.
LG2
3. What is the difference in perspective between finance and accounting?
Accounting focuses on recording and presenting the past business activities. This
information is good for evaluating past performance. The finance function uses this past
data along with current information to make decisions on what business activities to do
now and in the future. Decisions about the future involve much uncertainty, so risk
evaluation is part of the finance job.
LG3
4. What personal decisions can you think of that will benefit from learning finance?
Learning finance will help the student build wealth and reduce costs in their personal life.
After taking this class, the student should be able to make good decisions about funding
their future retirement and investment allocations. People with finance knowledge can
1-1
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw Hill LLC.
, Chapter 01—Introduction to Financial Management
also reduce costs by making good decisions in borrowing while buying cars, homes, and
using credit cards.
LG4
5. What are the three basic forms of business ownership? What are the advantages and
disadvantages to each?
The three basic business forms are the sole proprietorship (SP), the partnership (Part),
and the corporation (Corp). Advantages and disadvantages can be determined along
several dimensions: control, risks, access to capital, and taxation. The SP owner has total
control of business decisions. Control decreases for owners of Part and then Corp. The
owner has a high risk to their personal wealth in a SP and Part, but low risk in a Corp.
Access to capital is addressed in question 6. Lastly, SP and Part owners are taxed as if the
business was personal income. The Corp owner is taxed twice, once at the corporation
level and then again at the personal level.
LG4
6. Among the three basic forms of business ownership, describe the ability of each form to
access capital.
The corporation has the highest access to capital. It can acquire new equity capital from
the public market. Also, banks are more willing to lend to corporations. Debt investors
are also more likely to buy the bonds of a corporation. Partnerships have the next best
access to capital. With larger numbers of partners involved with the business, the more
likely banks will lend and debt investors will buy its bonds. Partnerships do not have
access to the public equity market. Lastly, sole proprietorships have poor access to
capital. Generally speaking, the sole proprietor cannot borrow as much money from
banks or debt investors.
LG4
7. Explain how the founder of a business can eventually lose control of the firm. How can
the founder ensure this will not happen?
When the founder wants the business to grow quickly, more capital is required. In the
early stages of a small fast-growing company, it is equity capital that is available. In other
words, the founder must give up a portion of his or her ownership to other investors. As
this process continues over time, the founder may find that he or she no longer owns a
majority of the firm. There may come a time when enough of these other owners that
own a combined 50+ percent of the firm come together and change the leadership of the
firm.
1-2
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw Hill LLC.
