Corporate Finance: Principles and
Applications 7th Edition
ST
SOLUTIONS
UV
IA
MANUAL
_A
PP
Ross
Westerfield
RO
Jaffe
Jordan
VE
Comprehensive Solutions Manual for
D?
Instructors and Students
© Ross, Westerfield, Jaffe & Jordan. All rights reserved. Reproduction or distribution
?
without permission is prohibited.
©MEDGEEK
, TABLE OF CONTENTS
Solutions Manual – Corporate Finance: Principles and Applications, 7th Edition
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, Taxes, and Cash Flow,
UV
Chapter 3. Financial Statement Analysis and Financial Models,
PART TWO: Valuation and Capital Budgeting
Chapter 4. Introduction to Valuation: The Time Value of Money,
Chapter 5. Discounted Cash Flow Valuation,
IA
Chapter 6. Interest Rates and Bond Valuation,
Chapter 7. Stock Valuation,
Chapter 8. Net Present Value and Other Investment Criteria,
_A
Chapter 9. Making Capital Investment Decisions,
Chapter 10. Project Analysis and Evaluation,
PART THREE: Risk and Return
Chapter 11. Some Lessons from Capital Market History,
PP
Chapter 12. Return, Risk, and the Security Market Line (CAPM),
Chapter 13. Risk and the Cost of Capital,
PART FOUR: Capital Structure and Dividend Policy
RO
Chapter 14. Leverage and Capital Structure,
Chapter 15. Dividends and Dividend Policy,
PART FIVE: Long-Term and Short-Term Financial Planning
Chapter 16. Short-Term Financial Planning,
VE
Chapter 17. Cash and Liquidity Management,
Chapter 18. Credit and Inventory Management
D?
?
©MEDGEEK
, CHAPTER 1
INTRODUCTION TO CORPORATE FINANCE
ST
Answers to Concept Questions
UV
1. The three basic forms are sole proprietorships, partnerships, and corporations. Some
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
IA
include the following: limited liability, ease of transferability, ability to raise capital, and
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.
_A
2. To maximize the current market value (share price) of the equity of the firm (whether it’s
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
PP
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
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.
RO
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
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.
VE
5. Presumably, the current stock value reflects the risk, timing, and magnitude of all future cash
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
D?
and/or illegal behavior, and the framework of stock valuation explicitly includes these. At the
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.
, CHAPTER 1 B-2
7. The goal will be the same, but the best course of action toward that goal may be different
because of differing social, political, and economic institutions.
ST
UV
IA
_A
PP
RO
VE
D?
?
© 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
IA
MANUAL
_A
PP
Ross
Westerfield
RO
Jaffe
Jordan
VE
Comprehensive Solutions Manual for
D?
Instructors and Students
© Ross, Westerfield, Jaffe & Jordan. All rights reserved. Reproduction or distribution
?
without permission is prohibited.
©MEDGEEK
, TABLE OF CONTENTS
Solutions Manual – Corporate Finance: Principles and Applications, 7th Edition
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, Taxes, and Cash Flow,
UV
Chapter 3. Financial Statement Analysis and Financial Models,
PART TWO: Valuation and Capital Budgeting
Chapter 4. Introduction to Valuation: The Time Value of Money,
Chapter 5. Discounted Cash Flow Valuation,
IA
Chapter 6. Interest Rates and Bond Valuation,
Chapter 7. Stock Valuation,
Chapter 8. Net Present Value and Other Investment Criteria,
_A
Chapter 9. Making Capital Investment Decisions,
Chapter 10. Project Analysis and Evaluation,
PART THREE: Risk and Return
Chapter 11. Some Lessons from Capital Market History,
PP
Chapter 12. Return, Risk, and the Security Market Line (CAPM),
Chapter 13. Risk and the Cost of Capital,
PART FOUR: Capital Structure and Dividend Policy
RO
Chapter 14. Leverage and Capital Structure,
Chapter 15. Dividends and Dividend Policy,
PART FIVE: Long-Term and Short-Term Financial Planning
Chapter 16. Short-Term Financial Planning,
VE
Chapter 17. Cash and Liquidity Management,
Chapter 18. Credit and Inventory Management
D?
?
©MEDGEEK
, CHAPTER 1
INTRODUCTION TO CORPORATE FINANCE
ST
Answers to Concept Questions
UV
1. The three basic forms are sole proprietorships, partnerships, and corporations. Some
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
IA
include the following: limited liability, ease of transferability, ability to raise capital, and
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.
_A
2. To maximize the current market value (share price) of the equity of the firm (whether it’s
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
PP
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
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.
RO
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
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.
VE
5. Presumably, the current stock value reflects the risk, timing, and magnitude of all future cash
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
D?
and/or illegal behavior, and the framework of stock valuation explicitly includes these. At the
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.
, CHAPTER 1 B-2
7. The goal will be the same, but the best course of action toward that goal may be different
because of differing social, political, and economic institutions.
ST
UV
IA
_A
PP
RO
VE
D?
?
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw Hill LLC.
