Solutions Manual — Corporate Finance: Core Principles and Applications, 7th Edition — Stephen A. Ross, Randolph W. Westerfield, Jeffrey F. Jaffe & Bradford D. Jordan — ISBN 9781264413119 — Latest Update 2025/2026 — (All Chapters Covered 1–21)

Corporate Finance Core
Principles and Applications
7th Edition
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SOLUTIONS
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MANUAL
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Stephen A. Ross
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Randolph W. Westerfield
Jeffrey F. Jaffe
Bradford D. Jordan
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Comprehensive Solutions Manual for
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Instructors and Students
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© Stephen A. Ross, Randolph W. Westerfield, Jeffrey F. Jaffe & Bradford D. Jordan.

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, Solutions Manual — Corporate Finance: Core Principles and Applications
– 7th Edition
(ISBN 9781264413119)
Stephen A. Ross, Randolph W. Westerfield, Jeffrey F. Jaffe, and Bradford D.
Jordan



TABLE OF CONTENTS
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Part One: Overview
Chapter 1. Introduction to Corporate Finance
Chapter 2. Financial Statements and Cash Flow
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Chapter 3. Financial Statements Analysis and Financial Models

Part Two: Valuation and Capital Budgeting
Chapter 4. Discounted Cash Flow Valuation
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Chapter 5. Interest Rates and Bond Valuation
Chapter 6. Stock Valuation
Chapter 7. Net Present Value and Other Investment Rules
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Chapter 8. Making Capital Investment Decisions
Chapter 9. Risk Analysis, Real Options, and Capital Budgeting

Part Three: Risk and Return
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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
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Part Four: Capital Structure and Dividend Policy
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
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Part Five: Special Topics
Chapter 17. Options and Corporate Finance
Chapter 18. Short-Term Finance and Planning
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Chapter 19. Raising Capital
Chapter 20. International Corporate Finance
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Chapter 21. Mergers and Acquisitions (web only)




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,CHAPTER 1
INTRODUCTION TO CORPORATE FINANCE
Answers to Concept Questions
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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
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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
unlimited life. When a business is started, most take the form of a sole proprietorship or
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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
publicly traded or not).
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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
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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
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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.
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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
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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?”


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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.
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