Solution Manual for
Fundamentals of Corporate Finance 13th Edition by Ross,
Westerfield and Jordan || ISBN: 9781265553609 || All
Chapters 1-27 Complete Covered || VERIFIED &
RECENTLY UPDATED VERSION
Grade37 Stuvia
,Table of Contents
CHAPTERc1:cIntroductionctocCorporatecFinance
CHAPTERc2:cFinancialcStatements,cTaxes,cAndcCashcFlow
CHAPTERc3:cWorkingcwithcFinancialcStatements
CHAPTERc4:cLong-TermcFinancialcPlanningcandcGrowth
CHAPTERc5:cIntroductionctocValuation:cThecTimecValuecofcMoney
CHAPTERc6:cDiscountedcCashcFlowcValuation
CHAPTERc7:cInterestcRatescandcBondcValuation
CHAPTERc8:cStockcValuation
CHAPTERc9:cNetcPresentcValuecandcOthercInvestmentcCriteria
CHAPTERc10:cMakingcCapitalcInvestmentcDecisions
CHAPTERc11:cProjectcAnalysiscandcEvaluation
CHAPTERc12:cSomecLessonscfromcCapitalcMarketcHistory
CHAPTERc13:cReturn,cRisk,cAndcthecSecuritycMarketcLine
CHAPTERc14:cCostcofcCapital
CHAPTERc15:cRaisingcCapital
CHAPTERc16:cFinancialcLeveragecandcCapitalcStructurecPolicy
CHAPTERc17:cDividendscandcPayoutcPolicy
CHAPTERc18:cShort-TermcFinancecandcPlanning
CHAPTERc19:cCashcandcLiquiditycManagement
CHAPTERc20:cCreditcandcInventorycManagement
CHAPTERc21:cInternationalcCorporatecFinance
CHAPTERc22:cBehavioralcFinance:cImplicationscforcFinancialcManage
CHAPTERc23:cEnterprisecRiskcManagement
CHAPTERc24:OptionscandcCorporatecFinance
CHAPTERc25:cOptioncValuation
,CHAPTERc26:cMergerscandcAcquisitions
CHAPTERc27:cLeasing
, CHAPTER 1 c
INTRODUCTION TO CORPORATE c c c
FINANCE
AnswersctocConceptscReviewcandcCriticalcThinkingcQuestions
1. Capitalcbudgetingc(decidingcwhetherctocexpandcacmanufacturingcplant),ccapitalcstructurec(decidingcw
hetherctocissuecnewcequitycandcusecthecproceedsctocretirecoutstandingcdebt),candcworkingccapitalcman
agementc(modifyingcthecfirm’sccreditccollectioncpolicycwithcitsccustomers).
2. Disadvantages:cunlimitedcliability,climitedclife,cdifficultycinctransferringcownership,chardctocraiseccap
italcfunds.cSomecadvantages:csimpler,clesscregulation,cthecownerscarecalsocthecmanagers,csometimesc
personalctaxcratescarecbettercthanccorporatectaxcrates.
3. Thecprimarycdisadvantagecofctheccorporatecformciscthecdoublectaxationctocshareholderscofcdistributed
cearningscandcdividends.cSomecadvantagescinclude:climitedcliability,ceasecofctransferability,cabilitycto
craiseccapital,cunlimitedclife,candcsocforth.
4. IncresponsectocSarbanes-
Oxley,csmallcfirmschavecelectedctocgocdarkcbecausecofctheccostscofccompliance.cTheccostsctoccomply
cwithcSarboxccancbecseveralcmillioncdollars,cwhichccancbecaclargecpercentagec ofc ac smallc firmsc profit
s.c Ac majorc costc ofc goingc darkc isc lessc accessc toc capital.c Sincec thecfirmciscnoclongercpubliclyctraded
,citccancnoclongercraisecmoneycincthecpubliccmarket.cAlthoughctheccompanycwillcstillchavecaccessctoc
bankcloanscandcthecprivatecequitycmarket,ctheccostscassociatedcwithcraisingcfundscincthesecmarketscar
ecusuallychighercthanctheccostscofcraisingcfundscincthecpubliccmarket.
5. Thec treasurer’sc officec andc thec controller’sc officec arec thec twoc primaryc organizationalc groupsc th
atcreportcdirectlyctocthecchiefcfinancialcofficer.cTheccontroller’scofficechandlesccostcandcfinancialcacc
ounting,ctaxcmanagement,candcmanagementcinformationcsystems,cwhilecthectreasurer’scofficeciscresp
onsiblec forc cashc andc creditc management,c capitalc budgeting,c andc financialc planning.c Therefore,cth
ecstudycofccorporatecfinanceciscconcentratedcwithincthectreasurycgroup’scfunctions.
6. Tocmaximizectheccurrentcmarketcvaluec(sharecprice)cofcthecequitycofcthecfirmc(whethercit’scpublicly-
ctradedcorcnot).
7. Inctheccorporatecformcofcownership,cthecshareholderscarecthecownerscofcthecfirm.cThecshareholderscel
ectcthecdirectorscofctheccorporation,cwhocincturncappointcthecfirm’scmanagement.cThiscseparationcofc
ownershipcfromccontrolcinctheccorporatecformcofcorganizationciscwhatccausescagencycproblemsctocexi
st.cManagementcmaycactcincitscowncorcsomeonecelse’scbestcinterests,crathercthancthosecofcthecshareho
lders.cIfcsuchceventscoccur,ctheycmayccontradictcthecgoalcofcmaximizingcthecsharecpricecofcthecequity
cofcthecfirm.
8. Acprimarycmarketctransaction.
Fundamentals of Corporate Finance 13th Edition by Ross,
Westerfield and Jordan || ISBN: 9781265553609 || All
Chapters 1-27 Complete Covered || VERIFIED &
RECENTLY UPDATED VERSION
Grade37 Stuvia
,Table of Contents
CHAPTERc1:cIntroductionctocCorporatecFinance
CHAPTERc2:cFinancialcStatements,cTaxes,cAndcCashcFlow
CHAPTERc3:cWorkingcwithcFinancialcStatements
CHAPTERc4:cLong-TermcFinancialcPlanningcandcGrowth
CHAPTERc5:cIntroductionctocValuation:cThecTimecValuecofcMoney
CHAPTERc6:cDiscountedcCashcFlowcValuation
CHAPTERc7:cInterestcRatescandcBondcValuation
CHAPTERc8:cStockcValuation
CHAPTERc9:cNetcPresentcValuecandcOthercInvestmentcCriteria
CHAPTERc10:cMakingcCapitalcInvestmentcDecisions
CHAPTERc11:cProjectcAnalysiscandcEvaluation
CHAPTERc12:cSomecLessonscfromcCapitalcMarketcHistory
CHAPTERc13:cReturn,cRisk,cAndcthecSecuritycMarketcLine
CHAPTERc14:cCostcofcCapital
CHAPTERc15:cRaisingcCapital
CHAPTERc16:cFinancialcLeveragecandcCapitalcStructurecPolicy
CHAPTERc17:cDividendscandcPayoutcPolicy
CHAPTERc18:cShort-TermcFinancecandcPlanning
CHAPTERc19:cCashcandcLiquiditycManagement
CHAPTERc20:cCreditcandcInventorycManagement
CHAPTERc21:cInternationalcCorporatecFinance
CHAPTERc22:cBehavioralcFinance:cImplicationscforcFinancialcManage
CHAPTERc23:cEnterprisecRiskcManagement
CHAPTERc24:OptionscandcCorporatecFinance
CHAPTERc25:cOptioncValuation
,CHAPTERc26:cMergerscandcAcquisitions
CHAPTERc27:cLeasing
, CHAPTER 1 c
INTRODUCTION TO CORPORATE c c c
FINANCE
AnswersctocConceptscReviewcandcCriticalcThinkingcQuestions
1. Capitalcbudgetingc(decidingcwhetherctocexpandcacmanufacturingcplant),ccapitalcstructurec(decidingcw
hetherctocissuecnewcequitycandcusecthecproceedsctocretirecoutstandingcdebt),candcworkingccapitalcman
agementc(modifyingcthecfirm’sccreditccollectioncpolicycwithcitsccustomers).
2. Disadvantages:cunlimitedcliability,climitedclife,cdifficultycinctransferringcownership,chardctocraiseccap
italcfunds.cSomecadvantages:csimpler,clesscregulation,cthecownerscarecalsocthecmanagers,csometimesc
personalctaxcratescarecbettercthanccorporatectaxcrates.
3. Thecprimarycdisadvantagecofctheccorporatecformciscthecdoublectaxationctocshareholderscofcdistributed
cearningscandcdividends.cSomecadvantagescinclude:climitedcliability,ceasecofctransferability,cabilitycto
craiseccapital,cunlimitedclife,candcsocforth.
4. IncresponsectocSarbanes-
Oxley,csmallcfirmschavecelectedctocgocdarkcbecausecofctheccostscofccompliance.cTheccostsctoccomply
cwithcSarboxccancbecseveralcmillioncdollars,cwhichccancbecaclargecpercentagec ofc ac smallc firmsc profit
s.c Ac majorc costc ofc goingc darkc isc lessc accessc toc capital.c Sincec thecfirmciscnoclongercpubliclyctraded
,citccancnoclongercraisecmoneycincthecpubliccmarket.cAlthoughctheccompanycwillcstillchavecaccessctoc
bankcloanscandcthecprivatecequitycmarket,ctheccostscassociatedcwithcraisingcfundscincthesecmarketscar
ecusuallychighercthanctheccostscofcraisingcfundscincthecpubliccmarket.
5. Thec treasurer’sc officec andc thec controller’sc officec arec thec twoc primaryc organizationalc groupsc th
atcreportcdirectlyctocthecchiefcfinancialcofficer.cTheccontroller’scofficechandlesccostcandcfinancialcacc
ounting,ctaxcmanagement,candcmanagementcinformationcsystems,cwhilecthectreasurer’scofficeciscresp
onsiblec forc cashc andc creditc management,c capitalc budgeting,c andc financialc planning.c Therefore,cth
ecstudycofccorporatecfinanceciscconcentratedcwithincthectreasurycgroup’scfunctions.
6. Tocmaximizectheccurrentcmarketcvaluec(sharecprice)cofcthecequitycofcthecfirmc(whethercit’scpublicly-
ctradedcorcnot).
7. Inctheccorporatecformcofcownership,cthecshareholderscarecthecownerscofcthecfirm.cThecshareholderscel
ectcthecdirectorscofctheccorporation,cwhocincturncappointcthecfirm’scmanagement.cThiscseparationcofc
ownershipcfromccontrolcinctheccorporatecformcofcorganizationciscwhatccausescagencycproblemsctocexi
st.cManagementcmaycactcincitscowncorcsomeonecelse’scbestcinterests,crathercthancthosecofcthecshareho
lders.cIfcsuchceventscoccur,ctheycmayccontradictcthecgoalcofcmaximizingcthecsharecpricecofcthecequity
cofcthecfirm.
8. Acprimarycmarketctransaction.
