*Test Bank for Fundamentals of Corporate Finance 8th Edition by Stephen Ross | Complete Chapters 1-27*

Solutions Manual Fundamentals of Corporate Finance 13th
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Edition Ross, Westerfield, and Jordan
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Chapters 1 - 27
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,CHAPTERL1:LIntroductionLtoLCorporateLFinance

CHAPTERL2:LFinancialLStatements,LTaxes,LAndLCashLFlow

CHAPTERL3:LWorkingLwithLFinancialLStatements

CHAPTERL4:LLong-TermLFinancialLPlanningLandLGrowth

CHAPTERL5:LIntroductionLtoLValuation:LTheLTimeLValueLofLMoney

CHAPTERL6:LDiscountedLCashLFlowLValuation

CHAPTERL7:LInterestLRatesLandLBondLValuation

CHAPTERL8:LStockLValuation

CHAPTERL9:LNetLPresentLValueLandLOtherLInvestmentLCriteria

CHAPTERL10:LMakingLCapitalLInvestmentLDecisions

CHAPTERL11:LProjectLAnalysisLandLEvaluation

CHAPTERL12:LSomeLLessonsLfromLCapitalLMarketLHistory

CHAPTERL13:LReturn,LRisk,LAndLtheLSecurityLMarketLLine

CHAPTERL14:LCostLofLCapital

CHAPTERL15:LRaisingLCapital

CHAPTERL16:LFinancialLLeverageLandLCapitalLStructureLPolicy

CHAPTERL17:LDividendsLandLPayoutLPolicy

CHAPTERL18:LShort-TermLFinanceLandLPlanning

CHAPTERL19:LCashLandLLiquidityLManagement

CHAPTERL20:LCreditLandLInventoryLManagement

CHAPTERL21:LInternationalLCorporateLFinance

CHAPTERL22:LBehavioralLFinance:LImplicationsLforLFinancialLManage

CHAPTERL23:LEnterpriseLRiskLManagement

CHAPTERL24:OptionsLandLCorporateLFinance

CHAPTERL25:LOptionLValuation

CHAPTERL26:LMergersLandLAcquisitions

CHAPTERL27:LLeasing

,CHAPTER 1 L




INTRODUCTION TO CORPORATE L L L




FINANCE
AnswersLtoLConceptsLReviewLandLCriticalLThinkingLQuestions

1. CapitalLbudgetingL(decidingLwhetherLtoLexpandLaLmanufacturingLplant),LcapitalLstructureL(decidingLw
hetherLtoLissueLnewLequityLandLuseLtheLproceedsLtoLretireLoutstandingLdebt),LandLworkingLcapitalLman
agementL(modifyingLtheLfirm’sLcreditLcollectionLpolicyLwithLitsLcustomers).

2. Disadvantages:LunlimitedLliability,LlimitedLlife,LdifficultyLinLtransferringLownership,LhardLtoLraiseLcap
italLfunds.LSomeLadvantages:Lsimpler,LlessLregulation,LtheLownersLareLalsoLtheLmanagers,LsometimesL
personalLtaxLratesLareLbetterLthanLcorporateLtaxLrates.

3. TheLprimaryLdisadvantageLofLtheLcorporateLformLisLtheLdoubleLtaxationLtoLshareholdersLofLdistributed
LearningsLandLdividends.LSomeLadvantagesLinclude:LlimitedLliability,LeaseLofLtransferability,LabilityLto

LraiseLcapital,LunlimitedLlife,LandLsoLforth.




4. InLresponseLtoLSarbanes-
Oxley,LsmallLfirmsLhaveLelectedLtoLgoLdarkLbecauseLofLtheLcostsLofLcompliance.LTheLcostsLtoLcomplyL
withLSarboxLcanLbeLseveralLmillionLdollars,LwhichLcanLbeLaLlargeLpercentageL ofL aL smallL firmsL profit
s.L AL majorL costL ofL goingL darkL isL lessL accessL toL capital.L SinceL theLfirmLisLnoLlongerLpubliclyLtraded,
LitLcanLnoLlongerLraiseLmoneyLinLtheLpublicLmarket.LAlthoughLtheLcompanyLwillLstillLhaveLaccessLtoLb

ankLloansLandLtheLprivateLequityLmarket,LtheLcostsLassociatedLwithLraisingLfundsLinLtheseLmarketsLareL
usuallyLhigherLthanLtheLcostsLofLraisingLfundsLinLtheLpublicLmarket.

5. TheL treasurer’sL officeL andL theL controller’sL officeL areL theL twoL primaryL organizationalL groupsL tha
tLreportLdirectlyLtoLtheLchiefLfinancialLofficer.LTheLcontroller’sLofficeLhandlesLcostLandLfinancialLaccou
nting,LtaxLmanagement,LandLmanagementLinformationLsystems,LwhileLtheLtreasurer’sLofficeLisLrespon
sibleL forL cashL andL creditL management,L capitalL budgeting,L andL financialL planning.L Therefore,LtheLst
udyLofLcorporateLfinanceLisLconcentratedLwithinLtheLtreasuryLgroup’sLfunctions.

6. ToLmaximizeLtheLcurrentLmarketLvalueL(shareLprice)LofLtheLequityLofLtheLfirmL(whetherLit’sLpublicly-
LtradedLorLnot).




7. InLtheLcorporateLformLofLownership,LtheLshareholdersLareLtheLownersLofLtheLfirm.LTheLshareholdersLel
ectLtheLdirectorsLofLtheLcorporation,LwhoLinLturnLappointLtheLfirm’sLmanagement.LThisLseparationLofL
ownershipLfromLcontrolLinLtheLcorporateLformLofLorganizationLisLwhatLcausesLagencyLproblemsLtoLexi
st.LManagementLmayLactLinLitsLownLorLsomeoneLelse’sLbestLinterests,LratherLthanLthoseLofLtheLshareho
lders.LIfLsuchLeventsLoccur,LtheyLmayLcontradictLtheLgoalLofLmaximizingLtheLshareLpriceLofLtheLequity
LofLtheLfirm.




8. ALprimaryLmarketLtransaction.

, B-2L SOLUTIONS


9. InLauctionLmarketsLlikeLtheLNYSE,LbrokersLandLagentsLmeetLatLaLphysicalLlocationL(theLexchange)LtoL
matchLbuyersLandLsellersLofLassets.LDealerLmarketsLlikeLNASDAQLconsistLofLdealersLoperatingLatLdis
persedLlocalesLwhoLbuyLandLsellLassetsLthemselves,LcommunicatingLwithLotherLdealersLeitherLelectron
icallyLorLliterallyLover-the-counter.

10. SuchLorganizationsLfrequentlyLpursueLsocialLorLpoliticalLmissions,LsoLmanyLdifferentLgoalsLareLconcei
vable.LOneLgoalLthatLisLoftenLcitedLisLrevenueLminimization;Li.e.,LprovideLwhateverLgoodsLandLservice
sLareLofferedLatLtheLlowestLpossibleLcostLtoLsociety.LALbetterLapproachLmightLbeLtoLobserveLthatLevenL
aLnot-for-
profitLbusinessLhasLequity.LThus,LoneLanswerLisLthatLtheLappropriateLgoalLisL toLmaximizeLtheLvalueLof
LtheLequity.




11. Presumably,LtheLcurrentLstockLvalueLreflectsLtheLrisk,Ltiming,LandLmagnitudeLofLallLfutureLcashLflows,
LbothLshort-termLandLlong-term.LIfLthisLisLcorrect,LthenLtheLstatementLisLfalse.




12. AnLargumentLcanLbeLmadeLeitherLway.LAtLtheLoneLextreme,LweLcouldLargueLthatLinLaLmarketLeconom
y,LallLofLtheseLthingsLareLpriced.LThereLisLthusLanLoptimalLlevelLof,LforLexample,LethicalLand/orLillegalL
behavior,LandLtheLframeworkLofLstockLvaluationLexplicitlyLincludesLthese.LAtLtheLotherLextreme,LweLc
ouldLargueLthatLtheseLareLnon-
economicLphenomenaLandLareLbestLhandledLthroughLtheLpoliticalLprocess.LALclassicL(andLhighlyLrelev
ant)LthoughtLquestionLthatLillustratesLthisLdebateLgoesLsomethingLlikeLthis:L“ALfirmLhasLestimatedLthat
LtheLcostLofLimprovingLtheLsafetyLofLoneLofLitsLproductsLisL$30Lmillion.LHowever,LtheLfirmLbelievesLth

atLimprovingLtheLsafetyLofLtheLproductLwillLonlyLsaveL$20LmillionLinLproductLliabilityLclaims.LWhatLs
houldLtheLfirmLdo?”

13. TheLgoalLwillLbeLtheLsame,LbutLtheLbestLcourseLofLactionLtowardLthatLgoalLmayLbeLdifferentLbecauseLo
fLdifferingLsocial,Lpolitical,LandLeconomicLinstitutions.

14. TheLgoalLofLmanagementLshouldLbeLtoLmaximizeLtheLshareLpriceLforLtheLcurrentLshareholders.LIfLman
agementLbelievesLthatLitLcanLimproveLtheLprofitabilityLofLtheLfirmLsoLthatLtheLshareLpriceLwillLexceedL
$35,LthenLtheyLshouldLfightLtheLofferLfromLtheLoutsideLcompany.LIfLmanagementLbelievesLthatLthisLbi
dderLorLotherLunidentifiedLbiddersLwillLactuallyLpayLmoreLthanL$35LperLshareLtoLacquireLtheLcompany
,LthenLtheyLshouldLstillLfightLtheLoffer.LHowever,LifLtheLcurrentLmanagementLcannotLincreaseLtheLvalu
eLofLtheLfirmLbeyondLtheLbidLprice,LandLnoLotherLhigherLbidsLcomeLin,LthenLmanagementLisLnotLacting
LinLtheLinterestsLofLtheLshareholdersLbyLfightingLtheLoffer.LSinceLcurrentLmanagersLoftenLloseLtheirLjob

sLwhenLtheLcorporationLisLacquired,LpoorlyLmonitoredLmanagersLhaveLanLincentiveLtoLfightLcorporateL
takeoversLinLsituationsLsuchLasLthis.

15. WeLwouldLexpectLagencyLproblemsLtoLbeLlessLsevereLinLotherLcountries,LprimarilyLdueLtoLtheLrelativel
yLsmallLpercentageLofLindividualLownership.LFewerLindividualLownersLshouldLreduceLtheLnumberLofLd
iverseLopinionsLconcerningLcorporateLgoals.LTheLhighLpercentageLofLinstitutionalLownershipLmightLle
adLtoLaLhigherLdegreeLofLagreementLbetweenLownersLandLmanagersLonLdecisionsLconcerningLriskyLpro
jects.LInLaddition,LinstitutionsLmayLbeLbetterLableLtoLimplementLeffectiveLmonitoringLmechanismsLonL
managersLthanLcanLindividualLowners,LbasedLonLtheLinstitutions’LdeeperLresourcesLandLexperiencesLw
ithLtheirLownLmanagement.LTheLincreaseLinLinstitutionalLownershipLofLstockLinLtheLUnitedLStatesLandLt
heLgrowingLactivismLofLtheseLlargeLshareholderLgroupsLmayLleadLtoLaLreductionLinLagencyLproblemsLf
orLU.S.LcorporationsLandLaLmoreLefficientLmarketLforLcorporateLcontrol.