Solutions Manual For Fundamentals of Corporate Finance, 13th Edition by Ross, Westerfield, and Jordan, Verified Chapters 1 - 27, Complete Newest Version

Solutions Manual Fundamentals of Corporate Finance
13th Edition Ross, Westerfield, and Jordan
Chapters 1 - 27

,CHAPTERz1:zIntroductionztozCorporatezFinance

CHAPTERz2:zFinancialzStatements,zTaxes,zAndzCashzFlow

CHAPTERz3:zWorkingzwithzFinancialzStatements

CHAPTERz4:zLong-TermzFinancialzPlanningzandzGrowth

CHAPTERz5:zIntroductionztozValuation:zThezTimezValuezofzMoney

CHAPTERz6:zDiscountedzCashzFlowzValuation

CHAPTERz7:zInterestzRateszandzBondzValuation

CHAPTERz8:zStockzValuation

CHAPTERz9:zNetzPresentzValuezandzOtherzInvestmentzCriteria

CHAPTERz10:zMakingzCapitalzInvestmentzDecisions

CHAPTERz11:zProjectzAnalysiszandzEvaluation

CHAPTERz12:zSomezLessonszfromzCapitalzMarketzHistory

CHAPTERz13:zReturn,zRisk,zAndzthezSecurityzMarketzLine

CHAPTERz14:zCostzofzCapital

CHAPTERz15:zRaisingzCapital

CHAPTERz16:zFinancialzLeveragezandzCapitalzStructurezPolicy

CHAPTERz17:zDividendszandzPayoutzPolicy

CHAPTERz18:zShort-TermzFinancezandzPlanning

CHAPTERz19:zCashzandzLiquidityzManagement

CHAPTERz20:zCreditzandzInventoryzManagement

CHAPTERz21:zInternationalzCorporatezFinance

CHAPTERz22:zBehavioralzFinance:zImplicationszforzFinancialzManage

CHAPTERz23:zEnterprisezRiskzManagement

CHAPTERz24:OptionszandzCorporatezFinance

CHAPTERz25:zOptionzValuation

CHAPTERz26:zMergerszandzAcquisitions

CHAPTERz27:zLeasing

,CHAPTER 1 z



INTRODUCTION TO CORPORATE z z z



FINANCE
AnswersztozConceptszReviewzandzCriticalzThinkingzQuestions

1. Capitalzbudgetingz(decidingzwhetherztozexpandzazmanufacturingzplant),zcapitalzstructurez(decidingzwh
etherztozissueznewzequityzandzusezthezproceedsztozretirezoutstandingzdebt),zandzworkingzcapitalzmanag
ementz(modifyingzthezfirm’szcreditzcollectionzpolicyzwithzitszcustomers).

2. Disadvantages:zunlimitedzliability,zlimitedzlife,zdifficultyzinztransferringzownership,zhardztozraisezcapi
talzfunds.zSomezadvantages:zsimpler,zlesszregulation,zthezownerszarezalsozthezmanagers,zsometimeszpe
rsonalztaxzrateszarezbetterzthanzcorporateztaxzrates.

3. Thezprimaryzdisadvantagezofzthezcorporatezformziszthezdoubleztaxationztozshareholderszofzdistributedze
arningszandzdividends.zSomezadvantageszinclude:zlimitedzliability,zeasezofztransferability,zabilityztozra
isezcapital,zunlimitedzlife,zandzsozforth.

4. InzresponseztozSarbanes-
Oxley,zsmallzfirmszhavezelectedztozgozdarkzbecausezofzthezcostszofzcompliance.zThezcostsztozcomplyz
withzSarboxzcanzbezseveralzmillionzdollars,zwhichzcanzbezazlargezpercentagez ofz az smallz firmsz profits.
z Az majorz costz ofz goingz darkz isz lessz accessz toz capital.z Sincez thezfirmzisznozlongerzpubliclyztraded,zitzc

anznozlongerzraisezmoneyzinzthezpubliczmarket.zAlthoughzthezcompanyzwillzstillzhavezaccessztozbankzl
oanszandzthezprivatezequityzmarket,zthezcostszassociatedzwithzraisingzfundszinzthesezmarketszarezusuall
yzhigherzthanzthezcostszofzraisingzfundszinzthezpubliczmarket.

5. Thez treasurer’sz officez andz thez controller’sz officez arez thez twoz primaryz organizationalz groupsz thatz
reportzdirectlyztozthezchiefzfinancialzofficer.zThezcontroller’szofficezhandleszcostzandzfinancialzaccounti
ng,ztaxzmanagement,zandzmanagementzinformationzsystems,zwhileztheztreasurer’szofficeziszresponsibl
ez forz cashz andz creditz management,z capitalz budgeting,z andz financialz planning.z Therefore,zthezstudyz
ofzcorporatezfinanceziszconcentratedzwithinztheztreasuryzgroup’szfunctions.

6. Tozmaximizezthezcurrentzmarketzvaluez(sharezprice)zofzthezequityzofzthezfirmz(whetherzit’szpublicly-
ztradedzorznot).



7. Inzthezcorporatezformzofzownership,zthezshareholderszarezthezownerszofzthezfirm.zThezshareholderszele
ctzthezdirectorszofzthezcorporation,zwhozinzturnzappointzthezfirm’szmanagement.zThiszseparationzofzow
nershipzfromzcontrolzinzthezcorporatezformzofzorganizationziszwhatzcauseszagencyzproblemsztozexist.z
Managementzmayzactzinzitszownzorzsomeonezelse’szbestzinterests,zratherzthanzthosezofzthezshareholders
.zIfzsuchzeventszoccur,ztheyzmayzcontradictzthezgoalzofzmaximizingzthezsharezpricezofzthezequityzofzthez
firm.

8. Azprimaryzmarketztransaction.

, B-2z SOLUTIONS


9. InzauctionzmarketszlikezthezNYSE,zbrokerszandzagentszmeetzatzazphysicalzlocationz(thezexchange)ztozm
atchzbuyerszandzsellerszofzassets.zDealerzmarketszlikezNASDAQzconsistzofzdealerszoperatingzatzdisper
sedzlocaleszwhozbuyzandzsellzassetszthemselves,zcommunicatingzwithzotherzdealerszeitherzelectronicall
yzorzliterallyzover-the-counter.

10. Suchzorganizationszfrequentlyzpursuezsocialzorzpoliticalzmissions,zsozmanyzdifferentzgoalszarezconceiv
able.zOnezgoalzthatziszoftenzcitedziszrevenuezminimization;zi.e.,zprovidezwhateverzgoodszandzservicesza
rezofferedzatzthezlowestzpossiblezcostztozsociety.zAzbetterzapproachzmightzbeztozobservezthatzevenzaznot
-for-
profitzbusinesszhaszequity.zThus,zonezanswerziszthatzthezappropriatezgoalzisz tozmaximizezthezvaluezofzt
hezequity.

11. Presumably,zthezcurrentzstockzvaluezreflectszthezrisk,ztiming,zandzmagnitudezofzallzfuturezcashzflows,z
bothzshort-termzandzlong-term.zIfzthisziszcorrect,zthenzthezstatementziszfalse.

12. Anzargumentzcanzbezmadezeitherzway.zAtzthezonezextreme,zwezcouldzarguezthatzinzazmarketzeconomy,z
allzofzthesezthingszarezpriced.zThereziszthuszanzoptimalzlevelzof,zforzexample,zethicalzand/orzillegalzbeh
avior,zandzthezframeworkzofzstockzvaluationzexplicitlyzincludeszthese.zAtzthezotherzextreme,zwezcouldz
arguezthatzthesezareznon-
economiczphenomenazandzarezbestzhandledzthroughzthezpoliticalzprocess.zAzclassicz(andzhighlyzreleva
nt)zthoughtzquestionzthatzillustrateszthiszdebatezgoeszsomethingzlikezthis:z“Azfirmzhaszestimatedzthatzth
ezcostzofzimprovingzthezsafetyzofzonezofzitszproductszisz$30zmillion.zHowever,zthezfirmzbelieveszthatzi
mprovingzthezsafetyzofzthezproductzwillzonlyzsavez$20zmillionzinzproductzliabilityzclaims.zWhatzshoul
dzthezfirmzdo?”

13. Thezgoalzwillzbezthezsame,zbutzthezbestzcoursezofzactionztowardzthatzgoalzmayzbezdifferentzbecausezofz
differingzsocial,zpolitical,zandzeconomiczinstitutions.

14. Thezgoalzofzmanagementzshouldzbeztozmaximizezthezsharezpricezforzthezcurrentzshareholders.zIfzmana
gementzbelieveszthatzitzcanzimprovezthezprofitabilityzofzthezfirmzsozthatzthezsharezpricezwillzexceedz$3
5,zthenztheyzshouldzfightzthezofferzfromzthezoutsidezcompany.zIfzmanagementzbelieveszthatzthiszbidderz
orzotherzunidentifiedzbidderszwillzactuallyzpayzmorezthanz$35zperzshareztozacquirezthezcompany,zthenzt
heyzshouldzstillzfightzthezoffer.zHowever,zifzthezcurrentzmanagementzcannotzincreasezthezvaluezofzthezf
irmzbeyondzthezbidzprice,zandznozotherzhigherzbidszcomezin,zthenzmanagementzisznotzactingzinzthezinte
restszofzthezshareholderszbyzfightingzthezoffer.zSincezcurrentzmanagerszoftenzloseztheirzjobszwhenzthezc
orporationziszacquired,zpoorlyzmonitoredzmanagerszhavezanzincentiveztozfightzcorporateztakeoverszinzs
ituationszsuchzaszthis.

15. Wezwouldzexpectzagencyzproblemsztozbezlesszseverezinzotherzcountries,zprimarilyzdueztozthezrelativelyz
smallzpercentagezofzindividualzownership.zFewerzindividualzownerszshouldzreduceztheznumberzofzdive
rsezopinionszconcerningzcorporatezgoals.zThezhighzpercentagezofzinstitutionalzownershipzmightzleadzto
zazhigherzdegreezofzagreementzbetweenzownerszandzmanagerszonzdecisionszconcerningzriskyzprojects.z

Inzaddition,zinstitutionszmayzbezbetterzableztozimplementzeffectivezmonitoringzmechanismszonzmanag
erszthanzcanzindividualzowners,zbasedzonzthezinstitutions’zdeeperzresourceszandzexperienceszwithztheir
zownzmanagement.zThezincreasezinzinstitutionalzownershipzofzstockzinzthezUnitedzStateszandzthezgrowi

ngzactivismzofzthesezlargezshareholderzgroupszmayzleadztozazreductionzinzagencyzproblemszforzU.S.zco
rporationszandzazmorezefficientzmarketzforzcorporatezcontrol.