Solution manual 2025
SOLUTION MANUAL FOR
FUNDAMENTALS OF
CORPORATE FINANCE
11CE STEPHEN A. ROSS,
RANDOLPH W.
WESTERFIELD,
BRADFORD D. JORDAN,
J. ARI PANDES, THOMAS
HOLLOWAY latest
update 100% a+
1
, Solution manual 2025
SOLUTION MANUAL FOR
Fundamentals Of Corporate Finance 11ce Stephen A. Ross, Randolph W.
Westerfield, Bradford D. Jordan, J. Ari Pandes, Thomas Holloway
Chapter 1-26
1
CHAPTER
INTRODUCTION TO CORPORATE FINANCE
Learning Objectives
LO1 The Basic Types Of Financial Management Decisions And The Role Of The Financial Manager.
LO2 The Financial Implications Of The Different Forms Of Business Organization.
LO3 The Goal Of Financial Management.
LO4 The Conflicts Of Interests That Can Arise Between Managers And Owners.
LO5 The Roles Of Financial Institutions And Markets.
LO6 Types Of Financial Institutions.
LO7 Trends In Financial Markets.
Answers To Concepts Review And Critical Thinking Questions
1. (LO1) Capital Budgeting (Deciding On Whether To Expand A Manufacturing Plant), Capital
Structure (Deciding Whether To Issue New Equity And Use The Proceeds To Retire
Outstanding Debt), And Working Capital Management (Modifying The Firm‘S Credit
Collection Policy With Its Customers). (LO1)
2. (LO2) Disadvantages: Unlimited Liability, Limited Life, Difficulty In Transferring Ownership,
Hard To Raise Capital Funds. Some Advantages: Simpler, Less Regulation, The Owners Are
Also The Managers.
3. (LO2) The Primary Disadvantage Of The Corporate Form Is The Double Taxation To
Shareholders Of Distributed Earnings And Dividends. Some Advantages Include: Limited
Liability, Ease Of Transferability, Ability To Raise Capital, Unlimited Life, And So Forth.
4. (LO4) The Treasurer‘S Office And The Controller‘S Office Are The Two Primary
Organizational Groups That Report Directly To The Chief Financial Officer. The Controller‘S
Office Handles Cost And Financial Accounting, Tax Management, And Management
Information Systems, While The Treasurer‘S Office Is Responsible For Cash And Credit
Management, Capital Budgeting, And Financial Planning. Therefore, The Study Of
Corporate Finance Is Concentrated Within The Treasury Group‘S Functions.
5. (LO3) To Maximize The Current Market Value (Share Price) Of The Equity Of The Firm
(Whether It‘S Publicly-Traded Or Not).
6. (LO4) 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
2
, Solution manual 2025
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.
7. (LO5) A Primary Market Transaction. A Secondary Market Transaction Would Entail The
Sale Between Two 3rd Parties (I.E. Not The Corporation).
3
, Solution manual 2025
8. (LO5) In Auction Markets Like The Toronto Stock Exchange (TSX), Brokers And Agents Meet
At A Central Location (The Exchange) To Match Buyers And Sellers Of Assets. Physical
Locations For Stock Markets Are Disappearing As Trading Becomes More Electronic. Dealer
Markets Like Nasdaq Consist Of Dealers Operating At Dispersed Locales Who Buy And Sell
Assets Themselves, Communicating With Other Dealers Either Electronically Or Literally
Over-The-Counter. Dealer Markets Are Less Transparent Than Auction Markets Where
Trades Are Reported Publicly Almost Immediately. The Auction Market Run By The TSX Is
Where The Stocks Of Larger Canadian Companies Are Traded; The TSX Also Operates A
Dealer Market Called The Venture Exchange For Companies Too Small To Qualify For The
TSX Auction Exchange.
9. (LO3) Such Organizations Frequently Pursue Social Or Political Missions, So Many Different
Goals Are Conceivable. One Goal That Is Often Cited Is Revenue Minimization; I.E., Provide
Whatever Goods And Services Are Offered At The Lowest Possible Cost To Society. Another
Would Be To Best Serve The Maximum Possible Number Of Stakeholders At The Lowest
Cost. 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.
10. (LO3) 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.
11. (LO3) An Argument Can Be Made Either Way. At The One Extreme, We Could Argue That In
A Market Economy, All Of These Things Are Priced. There Is Thus An Optimal Level Of, For
Example, Ethical And/Or Illegal Behavior, And The Framework Of Stock Valuation Explicitly
Includes These. At The Other Extreme, We Could Argue That These Are Non-Economic
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 And Lost Customer Goodwill. What Should The
Firm Do?‖
12. (LO3) 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.
13. (LO4) The Goal Of Management Should Be To Maximize The Share Price For The Current
Shareholders. If Management Believes That It Can Improve The Profitability Of The Firm So
That The Share Price Will Exceed $35, Then They Should Fight The Offer From The Outside
Company. If Management Believes That This Bidder Or Other Unidentified Bidders Will
Actually Pay More Than $35 Per Share To Acquire The Company, Then They Should Still
Fight The Offer. However, If The Current Management Cannot Increase The Value Of The
Firm Beyond The Bid Price, And No Other Higher Bids Come In, Then Management Is Not
Acting In The Interests Of The Shareholders By Fighting The Offer. Since Current Managers
4
SOLUTION MANUAL FOR
FUNDAMENTALS OF
CORPORATE FINANCE
11CE STEPHEN A. ROSS,
RANDOLPH W.
WESTERFIELD,
BRADFORD D. JORDAN,
J. ARI PANDES, THOMAS
HOLLOWAY latest
update 100% a+
1
, Solution manual 2025
SOLUTION MANUAL FOR
Fundamentals Of Corporate Finance 11ce Stephen A. Ross, Randolph W.
Westerfield, Bradford D. Jordan, J. Ari Pandes, Thomas Holloway
Chapter 1-26
1
CHAPTER
INTRODUCTION TO CORPORATE FINANCE
Learning Objectives
LO1 The Basic Types Of Financial Management Decisions And The Role Of The Financial Manager.
LO2 The Financial Implications Of The Different Forms Of Business Organization.
LO3 The Goal Of Financial Management.
LO4 The Conflicts Of Interests That Can Arise Between Managers And Owners.
LO5 The Roles Of Financial Institutions And Markets.
LO6 Types Of Financial Institutions.
LO7 Trends In Financial Markets.
Answers To Concepts Review And Critical Thinking Questions
1. (LO1) Capital Budgeting (Deciding On Whether To Expand A Manufacturing Plant), Capital
Structure (Deciding Whether To Issue New Equity And Use The Proceeds To Retire
Outstanding Debt), And Working Capital Management (Modifying The Firm‘S Credit
Collection Policy With Its Customers). (LO1)
2. (LO2) Disadvantages: Unlimited Liability, Limited Life, Difficulty In Transferring Ownership,
Hard To Raise Capital Funds. Some Advantages: Simpler, Less Regulation, The Owners Are
Also The Managers.
3. (LO2) The Primary Disadvantage Of The Corporate Form Is The Double Taxation To
Shareholders Of Distributed Earnings And Dividends. Some Advantages Include: Limited
Liability, Ease Of Transferability, Ability To Raise Capital, Unlimited Life, And So Forth.
4. (LO4) The Treasurer‘S Office And The Controller‘S Office Are The Two Primary
Organizational Groups That Report Directly To The Chief Financial Officer. The Controller‘S
Office Handles Cost And Financial Accounting, Tax Management, And Management
Information Systems, While The Treasurer‘S Office Is Responsible For Cash And Credit
Management, Capital Budgeting, And Financial Planning. Therefore, The Study Of
Corporate Finance Is Concentrated Within The Treasury Group‘S Functions.
5. (LO3) To Maximize The Current Market Value (Share Price) Of The Equity Of The Firm
(Whether It‘S Publicly-Traded Or Not).
6. (LO4) 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
2
, Solution manual 2025
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.
7. (LO5) A Primary Market Transaction. A Secondary Market Transaction Would Entail The
Sale Between Two 3rd Parties (I.E. Not The Corporation).
3
, Solution manual 2025
8. (LO5) In Auction Markets Like The Toronto Stock Exchange (TSX), Brokers And Agents Meet
At A Central Location (The Exchange) To Match Buyers And Sellers Of Assets. Physical
Locations For Stock Markets Are Disappearing As Trading Becomes More Electronic. Dealer
Markets Like Nasdaq Consist Of Dealers Operating At Dispersed Locales Who Buy And Sell
Assets Themselves, Communicating With Other Dealers Either Electronically Or Literally
Over-The-Counter. Dealer Markets Are Less Transparent Than Auction Markets Where
Trades Are Reported Publicly Almost Immediately. The Auction Market Run By The TSX Is
Where The Stocks Of Larger Canadian Companies Are Traded; The TSX Also Operates A
Dealer Market Called The Venture Exchange For Companies Too Small To Qualify For The
TSX Auction Exchange.
9. (LO3) Such Organizations Frequently Pursue Social Or Political Missions, So Many Different
Goals Are Conceivable. One Goal That Is Often Cited Is Revenue Minimization; I.E., Provide
Whatever Goods And Services Are Offered At The Lowest Possible Cost To Society. Another
Would Be To Best Serve The Maximum Possible Number Of Stakeholders At The Lowest
Cost. 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.
10. (LO3) 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.
11. (LO3) An Argument Can Be Made Either Way. At The One Extreme, We Could Argue That In
A Market Economy, All Of These Things Are Priced. There Is Thus An Optimal Level Of, For
Example, Ethical And/Or Illegal Behavior, And The Framework Of Stock Valuation Explicitly
Includes These. At The Other Extreme, We Could Argue That These Are Non-Economic
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 And Lost Customer Goodwill. What Should The
Firm Do?‖
12. (LO3) 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.
13. (LO4) The Goal Of Management Should Be To Maximize The Share Price For The Current
Shareholders. If Management Believes That It Can Improve The Profitability Of The Firm So
That The Share Price Will Exceed $35, Then They Should Fight The Offer From The Outside
Company. If Management Believes That This Bidder Or Other Unidentified Bidders Will
Actually Pay More Than $35 Per Share To Acquire The Company, Then They Should Still
Fight The Offer. However, If The Current Management Cannot Increase The Value Of The
Firm Beyond The Bid Price, And No Other Higher Bids Come In, Then Management Is Not
Acting In The Interests Of The Shareholders By Fighting The Offer. Since Current Managers
4
