Solution manual
fundamentals of corporate finance 13th edition
by Stephen Ross and Randolph Westerfield
All Chapters 1-27 Covered
,TABLE OF CONTENT
Y Y
PARTY1:YOVERVIEWYOFYCORPORATEYFINANCEY
1.YIntroductionYtoYCorporateYFinance
2.YFinancialYStatements,YTaxes,YandYCashYFlow
PARTY2:YFINANCIALYSTATEMENTSYANDYLONG-TERMYFINANCIALYPLANNING
3.YWorkingYwithYFinancialYStatements
4.YLong-TermYFinancialYPlanningYandYGrowth
PARTY3:YVALUATIONYOFYFUTUREYCASHYFLOWS
5.YIntroductionYtoYValuation:YTheYTimeYValueYofYMoney
6.YDiscountedYCashYFlowYValuation
7.YInterestYRatesYandYBondYValuation
8.YStockYValuation
PARTY4:YCAPITALYBUDGETING
9.YNetYPresentYValueYandYOtherYInvestmentYCriteria
10.YMakingYCapitalYInvestmentYDecisions
11.YProjectYAnalysisYandYEvaluation
PARTY5:YRISKYANDYRETURN
12.YSomeYLessonsYfromYCapitalYMarketYHistory
13.YReturn,YRisk,YandYtheYSecurityYMarketYLine
PARTY6:YCOSTYOFYCAPITALYANDYLONG-TERMYFINANCIALYPOLICY
,14.YCostYofYCapital
15.YRaisingYCapital
16.YFinancialYLeverageYandYCapitalYStructureYPolicy
17.YDividendsYandYPayoutYPolicy
PARTY7:YSHORT-TERMYFINANCIALYPLANNINGYANDYMANAGEMENT
18.YShort-TermYFinanceYandYPlanning
19.YCashYandYLiquidityYManagement
20.YCreditYandYInventoryYManagement
PARTY8:YTOPICSYINYCORPORATEYFINANCE
21.YInternationalYCorporateYFinance
22.YBehavioralYFinanceYImplicationsYforYFinancialYManagement
23.YEnterpriseYRiskYManagement
24.YOptionsYandYCorporateYFinance
25.YOptionYValuation
26.YMergersYandYAcquisitions
27.YLeasing
, CHAPTER 1 Y
INTRODUCTION TO CORPORATE FINANCE Y Y Y
AnswersYtoYConceptsYReviewYandYCriticalYThinkingYQuestions
1. CapitalYbudgetingY(decidingYwhetherYtoYexpandYaYmanufacturingYplant),YcapitalYstructureY(decidingYw
hetherYtoYissueYnewYequityYandYuseYtheYproceedsYtoYretireYoutstandingYdebt),YandYworkingYcapitalYma
nagementY(modifyingYtheYfirm‘sYcreditYcollectionYpolicyYwithYitsYcustomers).
2. Disadvantages:YunlimitedYliability,YlimitedYlife,YdifficultyYinYtransferringYownership,YdifficultyYinYraisingY
capitalYfunds.YSomeYadvantages:Ysimpler,YlessYregulation,YtheYownersYareYalsoYtheYmanagers,Ysometi
mesYpersonalYtaxYratesYareYbetterYthanYcorporateYtaxYrates.
3. TheYprimaryYdisadvantageYofYtheYcorporateYformYisYtheYdoubleYtaxationYtoYshareholdersYofYdistributed
YearningsYandYdividends.YSomeYadvantagesYinclude:YlimitedYliability,YeaseYofYtransferability,YabilityYtoY
raiseYcapital,YandYunlimitedYlife.
4. InYresponseYtoYSarbanes-
Oxley,YsmallYfirmsYhaveYelectedYtoYgoYdarkYbecauseYofYtheYcostsYofYcompliance.YTheYcostsYtoYcomply
YwithYSarboxYcanYbeYseveralYmillionYdollars,YwhichYcanYbeYaYlargeYpercentageYofYaYsmallYfirm‘sYprofits
.YAYmajorYcostYofYgoingYdarkYisYlessYaccessYtoYcapital.YSinceYtheYfirmYisYnoYlongerYpubliclyYtraded,YitYc
anYnoYlongerYraiseYmoneyYinYtheYpublicYmarket.YAlthoughYtheYcompanyYwillYstillYhaveYaccessYtoYbankYl
oansYandYtheYprivateYequityYmarket,YtheYcostsYassociatedYwithYraisingYfundsYinYtheseYmarketsYareYus
uallyYhigherYthanYtheYcostsYofYraisingYfundsYinYtheYpublicYmarket.
5. TheYtreasurer‘sYofficeYandYtheYcontroller‘sYofficeYareYtheYtwoYprimaryYorganizationalYgroupsYthatY repo
rtYdirectlyYtoYtheYchiefYfinancialYofficer.YTheYcontroller‘sYofficeYhandlesYcostYandYfinancialYaccounting,
YtaxYmanagement,YandYmanagementYinformationYsystems,YwhileYtheYtreasurer‘sYofficeYisYresponsible
YforYcashYandYcreditYmanagement,YcapitalYbudgeting,YandYfinancialYplanning.YTherefore,Y theYstudyYofY
corporateYfinanceYisYconcentratedYwithinYtheYtreasuryYgroup‘sYfunctions.
6. ToYmaximizeYtheYcurrentYmarketYvalueY(shareYprice)YofYtheYequityYofYtheYfirmY(whetherYit‘sYpubliclyYtra
dedYorYnot).
7. InYtheYcorporateYformYofYownership,YtheYshareholdersYareYtheYownersYofYtheYfirm.YTheYshareholdersYe
lectYtheYdirectorsYofYtheYcorporation,YwhoYinYturnYappointYtheYfirm‘sYmanagement.YThisYseparationYofY
ownershipYfromYcontrolYinYtheYcorporateYformYofYorganizationYisYwhatYcausesYagencyYproblemsYtoYexi
st.YManagementYmayYactYinYitsYownYorYsomeoneYelse‘sYbestYinterests,YratherYthanYthoseYofYtheYshare
holders.YIfYsuchYeventsYoccur,YtheyYmayYcontradictYtheYgoalYofYmaximizingYtheYshareYpriceYofYtheYequi
tyYofYtheYfirm.
8. AYprimaryYmarketYtransaction.
fundamentals of corporate finance 13th edition
by Stephen Ross and Randolph Westerfield
All Chapters 1-27 Covered
,TABLE OF CONTENT
Y Y
PARTY1:YOVERVIEWYOFYCORPORATEYFINANCEY
1.YIntroductionYtoYCorporateYFinance
2.YFinancialYStatements,YTaxes,YandYCashYFlow
PARTY2:YFINANCIALYSTATEMENTSYANDYLONG-TERMYFINANCIALYPLANNING
3.YWorkingYwithYFinancialYStatements
4.YLong-TermYFinancialYPlanningYandYGrowth
PARTY3:YVALUATIONYOFYFUTUREYCASHYFLOWS
5.YIntroductionYtoYValuation:YTheYTimeYValueYofYMoney
6.YDiscountedYCashYFlowYValuation
7.YInterestYRatesYandYBondYValuation
8.YStockYValuation
PARTY4:YCAPITALYBUDGETING
9.YNetYPresentYValueYandYOtherYInvestmentYCriteria
10.YMakingYCapitalYInvestmentYDecisions
11.YProjectYAnalysisYandYEvaluation
PARTY5:YRISKYANDYRETURN
12.YSomeYLessonsYfromYCapitalYMarketYHistory
13.YReturn,YRisk,YandYtheYSecurityYMarketYLine
PARTY6:YCOSTYOFYCAPITALYANDYLONG-TERMYFINANCIALYPOLICY
,14.YCostYofYCapital
15.YRaisingYCapital
16.YFinancialYLeverageYandYCapitalYStructureYPolicy
17.YDividendsYandYPayoutYPolicy
PARTY7:YSHORT-TERMYFINANCIALYPLANNINGYANDYMANAGEMENT
18.YShort-TermYFinanceYandYPlanning
19.YCashYandYLiquidityYManagement
20.YCreditYandYInventoryYManagement
PARTY8:YTOPICSYINYCORPORATEYFINANCE
21.YInternationalYCorporateYFinance
22.YBehavioralYFinanceYImplicationsYforYFinancialYManagement
23.YEnterpriseYRiskYManagement
24.YOptionsYandYCorporateYFinance
25.YOptionYValuation
26.YMergersYandYAcquisitions
27.YLeasing
, CHAPTER 1 Y
INTRODUCTION TO CORPORATE FINANCE Y Y Y
AnswersYtoYConceptsYReviewYandYCriticalYThinkingYQuestions
1. CapitalYbudgetingY(decidingYwhetherYtoYexpandYaYmanufacturingYplant),YcapitalYstructureY(decidingYw
hetherYtoYissueYnewYequityYandYuseYtheYproceedsYtoYretireYoutstandingYdebt),YandYworkingYcapitalYma
nagementY(modifyingYtheYfirm‘sYcreditYcollectionYpolicyYwithYitsYcustomers).
2. Disadvantages:YunlimitedYliability,YlimitedYlife,YdifficultyYinYtransferringYownership,YdifficultyYinYraisingY
capitalYfunds.YSomeYadvantages:Ysimpler,YlessYregulation,YtheYownersYareYalsoYtheYmanagers,Ysometi
mesYpersonalYtaxYratesYareYbetterYthanYcorporateYtaxYrates.
3. TheYprimaryYdisadvantageYofYtheYcorporateYformYisYtheYdoubleYtaxationYtoYshareholdersYofYdistributed
YearningsYandYdividends.YSomeYadvantagesYinclude:YlimitedYliability,YeaseYofYtransferability,YabilityYtoY
raiseYcapital,YandYunlimitedYlife.
4. InYresponseYtoYSarbanes-
Oxley,YsmallYfirmsYhaveYelectedYtoYgoYdarkYbecauseYofYtheYcostsYofYcompliance.YTheYcostsYtoYcomply
YwithYSarboxYcanYbeYseveralYmillionYdollars,YwhichYcanYbeYaYlargeYpercentageYofYaYsmallYfirm‘sYprofits
.YAYmajorYcostYofYgoingYdarkYisYlessYaccessYtoYcapital.YSinceYtheYfirmYisYnoYlongerYpubliclyYtraded,YitYc
anYnoYlongerYraiseYmoneyYinYtheYpublicYmarket.YAlthoughYtheYcompanyYwillYstillYhaveYaccessYtoYbankYl
oansYandYtheYprivateYequityYmarket,YtheYcostsYassociatedYwithYraisingYfundsYinYtheseYmarketsYareYus
uallyYhigherYthanYtheYcostsYofYraisingYfundsYinYtheYpublicYmarket.
5. TheYtreasurer‘sYofficeYandYtheYcontroller‘sYofficeYareYtheYtwoYprimaryYorganizationalYgroupsYthatY repo
rtYdirectlyYtoYtheYchiefYfinancialYofficer.YTheYcontroller‘sYofficeYhandlesYcostYandYfinancialYaccounting,
YtaxYmanagement,YandYmanagementYinformationYsystems,YwhileYtheYtreasurer‘sYofficeYisYresponsible
YforYcashYandYcreditYmanagement,YcapitalYbudgeting,YandYfinancialYplanning.YTherefore,Y theYstudyYofY
corporateYfinanceYisYconcentratedYwithinYtheYtreasuryYgroup‘sYfunctions.
6. ToYmaximizeYtheYcurrentYmarketYvalueY(shareYprice)YofYtheYequityYofYtheYfirmY(whetherYit‘sYpubliclyYtra
dedYorYnot).
7. InYtheYcorporateYformYofYownership,YtheYshareholdersYareYtheYownersYofYtheYfirm.YTheYshareholdersYe
lectYtheYdirectorsYofYtheYcorporation,YwhoYinYturnYappointYtheYfirm‘sYmanagement.YThisYseparationYofY
ownershipYfromYcontrolYinYtheYcorporateYformYofYorganizationYisYwhatYcausesYagencyYproblemsYtoYexi
st.YManagementYmayYactYinYitsYownYorYsomeoneYelse‘sYbestYinterests,YratherYthanYthoseYofYtheYshare
holders.YIfYsuchYeventsYoccur,YtheyYmayYcontradictYtheYgoalYofYmaximizingYtheYshareYpriceYofYtheYequi
tyYofYtheYfirm.
8. AYprimaryYmarketYtransaction.
