Instructor’s Manual Fundamentals of Corporate Finance
2024 Release 14th Edition by. ROSS (Ch 1-27)
, TABLES OF CONTENTS
Chapter 1: Introduction to Corporate Finance
Chapter 2: Financial Statements, Taxes, and Cash Flow
Chapter 3: Working with Financial Statements
Chapter 4: Long-Term Financial Planning and Growth
Chapter 5: Introduction to Valuation: The Time Value of Money.
Chapter 6: Discounted Cash Flow Valuation
Chapter 7: Interest Rates and Bond Valuation
Chapter 8: Stock Valuation
Chapter 9: Net Present Value and Other Investment Criteria
Chapter 10: Making Capital Investment Decisions
Chapter 11: Project Analy.sis and Evaluation
Chapter 12: Some Lessons from Capital Market history.
Chapter 13: Return, Risk, and the Security. Market Line
Chapter 14: Cost of Capital
Chapter 15: Raising Capital
Chapter 16: Financial Leverage and Capital Structure Policy.
Chapter 17: Dividends and Pay.out Policy.
Chapter 18: Short-Term Finance and Planning
Chapter 19: Cash and Liquidity. Management
,Chapter 20: Credit and Inventory. Management
Chapter 21: International Corporate Finance
Chapter 22: Behavioral Finance: Implications for Financial Management
Chapter 23: Enterprise Risk Management
Chapter 24: Options and Corporate Finance
Chapter 25: Option Valuation
Chapter 26: Mergers and Acquisitions
Chapter 27: Leasing
, ChAPTER 1
INTRODUCTION TO CORPORATE
FINANCE
Answers to Concepts Review and Critical Thinking Questions
1. Capital budgeting (deciding 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 (modify.ing the firm‗s credit
collection policy. with its customers).
2. Disadvantages: unlimited liability., limited life, difficulty. in transferring ownership,
difficulty. in raising capital funds. Some advantages: simpler, less regulation, the
owners are also the managers, sometimes personal tax rates are better than corporate
tax rates.
3. 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, and unlimited life.
4. In response to Sarbanes-Oxley., small firms have elected to go dark because of the
costs of compliance. The costs to comply. with Sarbox can be several million dollars,
which can be a large percentage of a small firm‗s profits. A major cost of going dark
is less access to capital. Since the firm is no longer publicly. traded, it can no longer
raise money. in the public market. Although the company. will still have access to
bank loans and the private equity. market, the costs associated with raising funds in
these markets are usually. higher than the costs of raising funds in the public market.
5. 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
sy.stems, 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.
6. To maximize the current market value (share price) of the equity. of the firm (whether
it‗s publicly.
traded or not).
7. 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 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.
8. A primary. market transaction.
2024 Release 14th Edition by. ROSS (Ch 1-27)
, TABLES OF CONTENTS
Chapter 1: Introduction to Corporate Finance
Chapter 2: Financial Statements, Taxes, and Cash Flow
Chapter 3: Working with Financial Statements
Chapter 4: Long-Term Financial Planning and Growth
Chapter 5: Introduction to Valuation: The Time Value of Money.
Chapter 6: Discounted Cash Flow Valuation
Chapter 7: Interest Rates and Bond Valuation
Chapter 8: Stock Valuation
Chapter 9: Net Present Value and Other Investment Criteria
Chapter 10: Making Capital Investment Decisions
Chapter 11: Project Analy.sis and Evaluation
Chapter 12: Some Lessons from Capital Market history.
Chapter 13: Return, Risk, and the Security. Market Line
Chapter 14: Cost of Capital
Chapter 15: Raising Capital
Chapter 16: Financial Leverage and Capital Structure Policy.
Chapter 17: Dividends and Pay.out Policy.
Chapter 18: Short-Term Finance and Planning
Chapter 19: Cash and Liquidity. Management
,Chapter 20: Credit and Inventory. Management
Chapter 21: International Corporate Finance
Chapter 22: Behavioral Finance: Implications for Financial Management
Chapter 23: Enterprise Risk Management
Chapter 24: Options and Corporate Finance
Chapter 25: Option Valuation
Chapter 26: Mergers and Acquisitions
Chapter 27: Leasing
, ChAPTER 1
INTRODUCTION TO CORPORATE
FINANCE
Answers to Concepts Review and Critical Thinking Questions
1. Capital budgeting (deciding 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 (modify.ing the firm‗s credit
collection policy. with its customers).
2. Disadvantages: unlimited liability., limited life, difficulty. in transferring ownership,
difficulty. in raising capital funds. Some advantages: simpler, less regulation, the
owners are also the managers, sometimes personal tax rates are better than corporate
tax rates.
3. 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, and unlimited life.
4. In response to Sarbanes-Oxley., small firms have elected to go dark because of the
costs of compliance. The costs to comply. with Sarbox can be several million dollars,
which can be a large percentage of a small firm‗s profits. A major cost of going dark
is less access to capital. Since the firm is no longer publicly. traded, it can no longer
raise money. in the public market. Although the company. will still have access to
bank loans and the private equity. market, the costs associated with raising funds in
these markets are usually. higher than the costs of raising funds in the public market.
5. 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
sy.stems, 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.
6. To maximize the current market value (share price) of the equity. of the firm (whether
it‗s publicly.
traded or not).
7. 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 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.
8. A primary. market transaction.
