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Solutions Manual For Fundamentals of Corporate Finance, 14th Edition by Ross, Westerfield, and Jordan, Verified Chapters 1 - 27, Complete A+ Guide

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solutions manual for fundamentals of corporate
fundamentals of corporate finance 14th edition
fundamentals of corporate finance
14th edition by ross westerfield and jordan

Institution Fundamentals Of Corporate Finance, 14e
Course Fundamentals Of Corporate Finance, 14e

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Solutions Manual For Fundamentals of Corporate Finance, 14th Edition
by Ross, Westerfield, and Jordan, Verified Chapters 1 - 27, Complete
Newest Version

,CHAPTER 1 f

INTRODUCTION TO CORPORATE f f

FINANCE
f

Answers fto fConcepts fReview fand fCritical fThinking fQuestions

1. Capital fbudgeting f(deciding fwhether fto fexpand fa fmanufacturing fplant), fcapital fstructure f(deciding
fwhether fto fissue fnew fequity fand fuse fthe fproceeds fto fretire foutstanding fdebt), fand fworking fcapital

fmanagement f(modifying fthe ffirm’s fcredit fcollection fpolicy fwith fits fcustomers).

2. Disadvantages: funlimited fliability, flimited flife, fdifficulty fin ftransferring fownership, fhard fto fraise
fcapital ffunds. fSome fadvantages: fsimpler, fless fregulation, fthe fowners fare falso fthe fmanagers,

fsometimes fpersonal ftax frates fare fbetter fthan fcorporate ftax frates.

3. The fprimary fdisadvantage fof fthe fcorporate fform fis fthe fdouble ftaxation fto fshareholders fof
fdistributed fearnings fand fdividends. fSome fadvantages finclude: flimited fliability, fease fof

ftransferability, fability fto fraise fcapital, funlimited flife, fand fso fforth.

4. In fresponse fto fSarbanes-Oxley, fsmall ffirms fhave felected fto fgo fdark fbecause fof fthe fcosts fof
fcompliance. fThe fcosts fto fcomply fwith fSarbox fcan fbe fseveral fmillion fdollars, fwhich fcan fbe fa flarge

fpercentage f of f a f small f firms f profits. f A f major f cost f of f going f dark f is f less f access f to f capital.

f Since f the ffirm fis fno flonger fpublicly ftraded, fit fcan fno flonger fraise fmoney fin fthe fpublic fmarket.

fAlthough fthe fcompany fwill fstill fhave faccess fto fbank floans fand fthe fprivate fequity fmarket, fthe fcosts

fassociated fwith fraising ffunds fin fthese fmarkets fare fusually fhigher fthan fthe fcosts fof fraising ffunds fin

fthe fpublic fmarket.

5. The f treasurer’s f office f and f the f controller’s f office f are f the f two f primary f organizational
f groups f that freport fdirectly fto fthe fchief ffinancial fofficer. fThe fcontroller’s foffice fhandles fcost fand

ffinancial faccounting, ftax fmanagement, fand fmanagement finformation fsystems, fwhile fthe ftreasurer’s

foffice fis fresponsible f for f cash f and f credit f management, f capital f budgeting, f and f financial

f planning. f Therefore, fthe fstudy fof fcorporate ffinance fis fconcentrated fwithin fthe ftreasury fgroup’s

ffunctions.

6. To fmaximize fthe fcurrent fmarket fvalue f(share fprice) fof fthe fequity fof fthe ffirm f(whether fit’s
fpublicly- ftraded for fnot).

7. In fthe fcorporate fform fof fownership, fthe fshareholders fare fthe fowners fof fthe ffirm. fThe fshareholders
felect fthe fdirectors fof fthe fcorporation, fwho fin fturn fappoint fthe ffirm’s fmanagement. fThis fseparation

fof fownership ffrom fcontrol fin fthe fcorporate fform fof forganization fis fwhat fcauses fagency fproblems

fto fexist. fManagement fmay fact fin fits fown for fsomeone felse’s fbest finterests, frather fthan fthose fof fthe

fshareholders. fIf fsuch fevents foccur, fthey fmay fcontradict fthe fgoal fof fmaximizing fthe fshare fprice fof

fthe fequity fof fthe ffirm.

8. A fprimary fmarket ftransaction.

,B-2 f SOLUTIONS

9. In fauction fmarkets flike fthe fNYSE, fbrokers fand fagents fmeet fat fa fphysical flocation f(the fexchange)
fto fmatch fbuyers fand fsellers fof fassets. fDealer fmarkets flike fNASDAQ fconsist fof fdealers foperating

fat fdispersed flocales fwho fbuy fand fsell fassets fthemselves, fcommunicating fwith fother fdealers feither

felectronically for fliterally fover-the-counter.

10. Such forganizations ffrequently fpursue fsocial for fpolitical fmissions, fso fmany fdifferent fgoals fare
fconceivable. fOne fgoal fthat fis foften fcited fis frevenue fminimization; fi.e., fprovide fwhatever fgoods

fand fservices fare foffered fat fthe flowest fpossible fcost fto fsociety. fA fbetter fapproach fmight fbe fto

fobserve fthat feven fa fnot-for-profit fbusiness fhas fequity. fThus, fone fanswer fis fthat fthe fappropriate

fgoal fis f to fmaximize fthe fvalue fof fthe fequity.

11. Presumably, fthe fcurrent fstock fvalue freflects fthe frisk, ftiming, fand fmagnitude fof fall ffuture fcash
fflows, fboth fshort-term fand flong-term. fIf fthis fis fcorrect, fthen fthe fstatement fis ffalse.

12. An fargument fcan fbe fmade feither fway. fAt fthe fone fextreme, fwe fcould fargue fthat fin fa fmarket
feconomy, fall fof fthese fthings fare fpriced. fThere fis fthus fan foptimal flevel fof, ffor fexample, fethical

fand/or fillegal fbehavior, fand fthe fframework fof fstock fvaluation fexplicitly fincludes fthese. fAt fthe

fother fextreme, fwe fcould fargue fthat fthese fare fnon-economic fphenomena fand fare fbest fhandled

fthrough fthe fpolitical fprocess. fA fclassic f(and fhighly frelevant) fthought fquestion fthat fillustrates fthis

fdebate fgoes fsomething flike fthis: f“A ffirm fhas festimated fthat fthe fcost fof fimproving fthe fsafety fof

fone fof fits fproducts fis f$30 fmillion. fHowever, fthe ffirm fbelieves fthat fimproving fthe fsafety fof fthe

fproduct fwill fonly fsave f$20 fmillion fin fproduct fliability fclaims. fWhat fshould fthe ffirm fdo?”

13. The fgoal fwill fbe fthe fsame, fbut fthe fbest fcourse fof faction ftoward fthat fgoal fmay fbe fdifferent fbecause
fof fdiffering fsocial, fpolitical, fand feconomic finstitutions.

14. The fgoal fof fmanagement fshould fbe fto fmaximize fthe fshare fprice ffor fthe fcurrent fshareholders. fIf
fmanagement fbelieves fthat fit fcan fimprove fthe fprofitability fof fthe ffirm fso fthat fthe fshare fprice fwill

fexceed f$35, fthen fthey fshould ffight fthe foffer ffrom fthe foutside fcompany. fIf fmanagement fbelieves

fthat fthis fbidder for fother funidentified fbidders fwill factually fpay fmore fthan f$35 fper fshare fto facquire

fthe fcompany, fthen fthey fshould fstill ffight fthe foffer. fHowever, fif fthe fcurrent fmanagement fcannot

fincrease fthe fvalue fof fthe ffirm fbeyond fthe fbid fprice, fand fno fother fhigher fbids fcome fin, fthen

fmanagement fis fnot facting fin fthe finterests fof fthe fshareholders fby ffighting fthe foffer. fSince fcurrent

fmanagers foften flose ftheir fjobs fwhen fthe fcorporation fis facquired, fpoorly fmonitored fmanagers fhave

fan fincentive fto ffight fcorporate ftakeovers fin fsituations fsuch fas fthis.

15. We fwould fexpect fagency fproblems fto fbe fless fsevere fin fother fcountries, fprimarily fdue fto fthe
frelatively fsmall fpercentage fof findividual fownership. fFewer findividual fowners fshould freduce fthe

fnumber fof fdiverse fopinions fconcerning fcorporate fgoals. fThe fhigh fpercentage fof finstitutional

fownership fmight flead fto fa fhigher fdegree fof fagreement fbetween fowners fand fmanagers fon fdecisions

fconcerning frisky fprojects. fIn faddition, finstitutions fmay fbe fbetter fable fto fimplement feffective

fmonitoring fmechanisms fon fmanagers fthan fcan findividual fowners, fbased fon fthe finstitutions’ fdeeper

fresources fand fexperiences fwith ftheir fown fmanagement. fThe fincrease fin finstitutional fownership fof

fstock fin fthe fUnited fStates fand fthe fgrowing factivism fof fthese flarge fshareholder fgroups fmay flead fto

fa freduction fin fagency fproblems ffor fU.S. fcorporations fand fa fmore fefficient fmarket ffor fcorporate

fcontrol.

, CHAPTER f1 f fB-3

16. How fmuch fis ftoo fmuch? fWho fis fworth fmore, fLarry fEllison for fTiger fWoods? fThe fsimplest fanswer
fis fthat fthere fis fa fmarket ffor fexecutives fjust fas fthere fis ffor fall ftypes fof flabor. fExecutive

fcompensation fis fthe fprice fthat fclears fthe fmarket. fThe fsame fis ftrue ffor fathletes fand fperformers.

fHaving fsaid fthat, fone faspect fof fexecutive fcompensation fdeserves fcomment. fA fprimary freason

fexecutive fcompensation fhas fgrown fso fdramatically fis fthat fcompanies fhave fincreasingly fmoved fto

fstock-based f compensation. fSuch fmovement fis fobviously fconsistent fwith fthe fattempt fto fbetter

falign fstockholder fand fmanagement finterests. fIn frecent fyears, fstock fprices fhave fsoared, fso

fmanagement fhas fcleaned fup. fIt fis fsometimes fargued fthat fmuch fof fthis freward fis fsimply fdue fto

frising fstock fprices fin fgeneral, fnot fmanagerial fperformance. fPerhaps fin fthe ffuture, fexecutive

fcompensation fwill fbe fdesigned fto freward fonly fdifferential fperformance, fi.e., fstock fprice fincreases

fin fexcess fof fgeneral fmarket fincreases.

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