Solution Manual for Principles of Managerial Finance 16th Edition by Zutter & Smart | Instructor’s Resource Manual | Verified Solutions | Latest 2025/2026 Update

Instructor’s Resource Manual
for
Principles of Managerial
Finance
Sixteenth Edition




ISBN-13: 978-0-13-694561-1
ISBN-10: 0-13-694561-9

, Chapter 1 The Role and Environment of Managerial Finance iii




Table of Contents

PART 1 Introduction to Managerial Finance 1
1 The Role of Managerial Finance 3
2 The Financial Market Environment 19

PART 2 Financial Tools 29
3 Financial Statements and Ratio Analysis 31
4 Long- and Short-Term Financial Planning 55
5 Time Value of Money 79

PART 3 Valuation of Securities 119
6 Interest Rates and Bond Valuation 121
7 Stock Valuation 149

PART 4 Risk and the Required Rate of Return 167
8 Risk and Return 169
9 The Cost of Capital 205

PART 5 Long-Term Investment Decisions 231
10 Capital Budgeting Techniques 233
11 Capital Budgeting Cash Flows 261
12 Risk Refinements in Capital Budgeting 293

PART 6 Long-Term Financial Decisions 327
13 Leverage and Capital Structure 329
14 Payout Policy 349

PART 7 Short-Term Financial Decisions 367
15 Working Capital and Current Assets Management 369
16 Current Liabilities Management 383

PART 8 Special Topics in Managerial Finance 399
17 Hybrid and Derivative Securities 401
18 Mergers, LBOs, Divestitures, and Business Failure 421
19 International Managerial Finance 437

,iv Gitman • Principles of Managerial Finance, Twelfth Edition



Part One
Introduction to Managerial Finance

Chapters in This Part

Chapter 1 The Role of Managerial Finance

Chapter 2 The Financial Market Environment

Integrative Case 1: Merit Enterprise Corp.

, Chapter 1 RY




The Role of Managerial Finance
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◼ Instructor’s Resources RY




Chapter Overview RY



This chapter introduces the field of finance through building-block terms and concepts. The chapter
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starts by explaining what a firm is and discussing the goals that managers of a firm might pursue.
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The chapter provides a justification for focusing on shareholders rather than stakeholders broadly, but
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it also discusses other goals that firms might pursue. The opening section concludes with material
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on the importance of ethical behavior in business.
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The next section discusses the managerial finance function, the key decisions that financial managers
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make, and the principles that guide their decisions. The discussion draws out distinctions among the
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overlapping disciplines of finance, economics, and accounting.
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The third section describes pros and cons of different legal forms for a business. This section
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places particular emphasis on differences in taxation of proprietorships, partnerships, and
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corporations, and it highlights the importance of the marginal tax rate rather than the average
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tax rate. Next, this section describes the classical principal-agent problem and describes both
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internal and external corporate governance mechanisms that help manage that problem.
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This chapter and the ones to follow stress the important role finance vocabulary, concepts, and tools
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will play in the professional and personal lives of students—even those choosing other majors, such
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as accounting, economics information systems, management, marketing, or operations. Whenever
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possible, personal-finance applications are provided to motivate and illustrate topics. This pedagogical
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approach should inspire students to master chapter content quickly and easily.
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◼ Suggested Answer to Opener-in-Review RY RY RY




Students learned the stock price of Brookdale Senior Living lost 80% of its value from 2015 to 2019,
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prompting Land and Buildings (a prominent stockholder) to urge the firm sell its real-estate
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holdings, distribute the anticipated net sales proceeds ($21 cash) to shareholders, and then focus on
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managing its senior living facilities. Students were asked whether the proposal would make
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Brookdale’s shareholders better off if the expected cash proceeds were realized, but stock price
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dipped to $5 per share.
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Before restructuring, an investor with one Brookdale share had $21.35 in total wealth. Afterward, that
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same investor might have a share worth $5 and $21 in cash—total wealth of $26. The hypothetical
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shareholder reaped a gain of $4.65 per share or 21.8%. Before the asset sale, with 185.45 million
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shares outstanding and a share price of
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$21.35, total shareholder wealth was $3.96 billion. After the sale, with same shares outstanding and
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wealth per share now $26, shareholder wealth rose to $4.82 billion—a net gain of $0.86 billion.
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