100% satisfaction guarantee Immediately available after payment Both online and in PDF No strings attached
logo-home
Previously searched by you
Previously searched by you
logo
Solution Manual For Corporate Finance 13th Edition Stephen Ross Randolph Westerfield Jeffrey Jaffe Bradford Jordan 3 $18.49
Add to cart
Quickly navigate to
Preview
  2.  
  3. Solution Manual For Corporate Finance 13th Edition
  4.  
  5. Solution Manual For Corporate Finance 13th Edition

Exam (elaborations)

Solution Manual For Corporate Finance 13th Edition Stephen Ross Randolph Westerfield Jeffrey Jaffe Bradford Jordan 3
 1 purchase
  • Course
  • Solution Manual For Corporate Finance 13th Edition
  • Institution
  • Solution Manual For Corporate Finance 13th Edition

Solution Manual For Corporate Finance 13th Edition Stephen Ross Randolph Westerfield Jeffrey Jaffe Bradford Jordan 3

Preview 4 out of 585  pages

Document information

  • October 29, 2024
  • 585
  • 2024/2025
  • Exam (elaborations)
  • Questions & answers

Subjects

  • solution manual for corporate finance 13th edition

Connected book

book image

Book Title:

Author(s):

  • Edition:
  • ISBN:
  • Edition:

More summaries for

All for this textbook (2)

Written for

  • Solution Manual For Corporate Finance 13th Edition
  • Solution Manual For Corporate Finance 13th Edition

Seller

avatar-seller
WhiteHouseTutor

Reviews received

Content preview

Solutions Manual l




For
Corporate Finance l




Ross, Westerfield, Jaffe and Jordan
l l l l




13th edition l l




Prepared by: l




Brad Jordan l




Joe Smolira
l l




All Chapters Solutions Manual Supplement files download
l l l l l l




link at the end of this file.
l l l l l l l

, CHAPTER 2 - 2




CHAPTER 1 l




INTRODUCTION TO CORPORATE l l




FINANCE
l




Answers to Concept Questions l l l




1. In the corporate form of ownership, the shareholders are the owners of the firm. The shareholders electthe
l l l l l l l l l l l l l l l l l



directors of the corporation, who in turn appoint the firm’s management. This separation of ownership
l l l l l l l l l l l l l l l



from control in the corporate form of organization is what causes agency problems to exist.Management
l l l l l l l l l l l l l l l l



may act in its own or someone else’s best interests, rather than those of the shareholders. If such events
l l l l l l l l l l l l l l l l l l l



occur, they may contradict the goal of maximizing the share price of the equity of the firm.
l l l l l l l l l l l l l l l l l




2. Such organizations frequently pursue social or political missions, so many different goals are
l l l l l l l l l l l l



conceivable. One goal that is often cited is revenue minimization; i.e., provide whatever goods and
l l l l l l l l l l l l l l l



services are offered at the lowest possible cost to society. A better approach might be to observe that even
l l l l l l l l l l l l l l l l l l l



a not-for-profit business has equity. Thus, one answer is that the appropriate goal is to maximizethe value
l l l l l l l l l l l l l l l l l l



of the equity.
l l l




3. Presumably, the current stock value reflects the risk, timing, and magnitude of all future cash flows, both l l l l l l l l l l l l l l l l



short-term and long-term. If this is correct, then the statement is false.
l l l l l l l l l l l l




4. An argument can be made either way. At the one extreme, we could argue that in a market economy,all of
l l l l l l l l l l l l l l l l l l l l



these things are priced. There is thus an optimal level of, for example, ethical and/or illegal behavior, and
l l l l l l l l l l l l l l l l l l



the framework of stock valuation explicitly includes these. At the other extreme, we could argue that these
l l l l l l l l l l l l l l l l l



are non-economic phenomena and are best handled through the political process. A classic (and highly
l l l l l l l l l l l l l l l



relevant) thought question that illustrates this debate goes something like this: “A firm has estimated that
l l l l l l l l l l l l l l l l



the cost of improving the safety of one of its products is $30 million. However, the firm believes that
l l l l l l l l l l l l l l l l l l l



improving the safety of the product will only save $20 million in product liability claims. What should
l l l l l l l l l l l l l l l l l



the firm do?”
l l l




5. The goal will be the same, but the best course of action toward that goal may be different because of
l l l l l l l l l l l l l l l l l l l



differing social, political, and economic institutions.
l l l l l l




6. The goal of management should be to maximize the share price for the current shareholders. If
l l l l l l l l l l l l l l l



management believes that itcan improve the profitability of thefirmso that the share price will exceed
l l l l l l l l l l l l l l l l l l



$35, then they should fight the offer from the outside company. If management believes that this bidder,
l l l l l l l l l l l l l l l l



or other unidentified bidders, will actually pay more than $35 per share to acquire the company, then they
l l l l l l l l l l l l l l l l l l



should still fight the offer. However, if the current management cannot increase the value of the firm
l l l l l l l l l l l l l l l l l



beyond the bid price, and no other higher bids come in, then management is not acting in theinterests of
l l l l l l l l l l l l l l l l l l l l



the shareholders by fighting the offer. Since current managers often lose their jobs when the corporation
l l l l l l l l l l l l l l l l



is acquired, poorly monitored managers have an incentive to fight corporate takeoversin situations such as
l l l l l l l l l l l l l l l l



this.
l

, CHAPTER 2 - 3


7. We would expect agency problems to be less severe in other countries, primarily due to the relatively
l l l l l l l l l l l l l l l l



small percentage of individual ownership. Fewer individual owners should reduce the number of diverse
l l l l l l l l l l l l l l



opinions concerning corporate goals. The high percentage of institutional ownership might lead to a
l l l l l l l l l l l l l l



higher degree of agreement between owners and managers on decisions concerning risky projects. In
l l l l l l l l l l l l l l



addition, institutions may be better able to implement effective monitoring mechanisms on managers
l l l l l l l l l l l l l



than can individual owners, based on the institutions’ deeper resources and experiences with their own
l l l l l l l l l l l l l l l



management.
l




8. The increase in institutional ownership of stock in the United States and the growing activism of theselarge
l l l l l l l l l l l l l l l l l



shareholder groups may lead to a reduction in agency problems for U.S. corporations and a moreefficient
l l l l l l l l l l l l l l l l l



market for corporate control. However, this may not always be the case. If the managers of the mutual
l l l l l l l l l l l l l l l l l l



fund or pension plan are not concerned with the interests of the investors, the agency problem could
l l l l l l l l l l l l l l l l l



potentially remain the same, or even increase, since there is the possibility of agency problems between
l l l l l l l l l l l l l l l l



the fund and its investors.
l l l l l




9. How much is too much? Who is worth more, Larry Ellison or Tiger Woods? The simplest answer is that
l l l l l l l l l l l l l l l l l l



there is a market for executives just as there is for all types of labor. Executive compensation is the price
l l l l l l l l l l l l l l l l l l l l



that clears the market. The same is true for athletes and performers. Having said that, one aspect of
l l l l l l l l l l l l l l l l l l



executive compensation deserves comment. A primary reason executive compensation has grown so
l l l l l l l l l l l l



dramatically is that companies have increasingly moved to stock-based compensation. Suchmovement is
l l l l l l l l l l l l l



obviously consistent with the attempt to better align stockholder and management interests. In recent
l l l l l l l l l l l l l l



years, stock prices have soared, so management has cleaned up. It is sometimes argued that much of this
l l l l l l l l l l l l l l l l l l



reward is due to rising stock prices in general, not managerial performance. Perhaps in the future,
l l l l l l l l l l l l l l l l



executive compensation will be designed to reward only differential performance, i.e., stock price
l l l l l l l l l l l l l



increases in excess of general market increases.
l l l l l l l




10. Maximizing the current share price is the same as maximizing the future share price at any future period. l l l l l l l l l l l l l l l l l



The value of a share of stock depends on all of the future cash flows of company. Another wayto look at this
l l l l l l l l l l l l l l l l l l l l l l l



is that, barring large cash payments to shareholders, the expected price of the stock must be higher in the
l l l l l l l l l l l l l l l l l l l



future than it is today. Who would buy a stock for $100 today when the share price inone year is expected
l l l l l l l l l l l l l l l l l l l l l l



to be $80?
l l l

, CHAPTER 2 l




FINANCIAL STATEMENTS AND CASH l l l




FLOW
l




Answers to Concepts Review and Critical Thinking Questions
l l l l l l l




1. True. Every asset can be converted to cash at some price. However, when we are referring to a liquid
l l l l l l l l l l l l l l l l l l



asset, the added assumption that the asset can be quickly converted to cash at or near market value is
l l l l l l l l l l l l l l l l l l l



important.
l




2. The recognition and matching principles in financial accounting call for revenues, and the costs
l l l l l l l l l l l l l



associated with producing those revenues, to be “booked” when the revenue process is essentially
l l l l l l l l l l l l l l



complete, not necessarily when the cash is collected or bills are paid. Note that this way is not necessarily
l l l l l l l l l l l l l l l l l l l



correct; it’s the way accountants have chosen to do it.
l l l l l l l l l l




3. The bottom line number shows the change in the cash balance on the balance sheet. As such, it is not a
l l l l l l l l l l l l l l l l l l l l



useful number for analyzing a company.
l l l l l l




4. The major difference is the treatment of interest expense. The accounting statement of cash flows treats
l l l l l l l l l l l l l l l



interest as an operating cash flow, while the financial cash flows treat interest as a financing cash flow.
l l l l l l l l l l l l l l l l l l



The logic of the accounting statement of cash flows is that since interest appears on the income
l l l l l l l l l l l l l l l l l



statement, which shows the operations for the period, it is an operating cash flow. In reality, interest is a
l l l l l l l l l l l l l l l l l l l



financing expense, which results from the company’s choice of debt and equity. We will have more to
l l l l l l l l l l l l l l l l l



say about this in a later chapter. When comparing the two cash flow statements, the financial statement of
l l l l l l l l l l l l l l l l l l



cashflowsisa moreappropriatemeasureofthecompany’sperformancebecauseof its treatment of interest.
l l l l l l l l l l l l l l l l l




5. Market values can never be negative. Imagine a share of stock selling for –$20. This would mean that if
l l l l l l l l l l l l l l l l l l



you placed an order for 100 shares, you would get the stock along with a check for $2,000. How many
l l l l l l l l l l l l l l l l l l l l



shares do you want to buy? More generally, because of corporate and individual bankruptcy laws, net
l l l l l l l l l l l l l l l l



worth for a person or a corporation cannot be negative, implying that liabilities cannot exceed assets in
l l l l l l l l l l l l l l l l l



market value.
l l




6. For a successful company that is rapidly expanding, for example, capital outlays will be large, possibly
l l l l l l l l l l l l l l l



leading to negative cash flow from assets. In general, what matters is whether the money is spent wisely,
l l l l l l l l l l l l l l l l l l



not whether cash flow from assets is positive or negative.
l l l l l l l l l l




7. It’s probably not a good sign for an established company to have negative cash flow from operations,but it
l l l l l l l l l l l l l l l l l l



would be fairly ordinary for a start-up, so it depends.
l l l l l l l l l l

The benefits of buying summaries with Stuvia:

Guaranteed quality through customer reviews

Guaranteed quality through customer reviews

Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.

Quick and easy check-out

Quick and easy check-out

You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.

Focus on what matters

Focus on what matters

Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!

Frequently asked questions

What do I get when I buy this document?

You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.

Satisfaction guarantee: how does it work?

Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.

Who am I buying these notes from?

Stuvia is a marketplace, so you are not buying this document from us, but from seller WhiteHouseTutor. Stuvia facilitates payment to the seller.

Will I be stuck with a subscription?

No, you only buy these notes for $18.49. You're not tied to anything after your purchase.

Can Stuvia be trusted?

4.6 stars on Google & Trustpilot (+1000 reviews)

66184 documents were sold in the last 30 days

Founded in 2010, the go-to place to buy study notes for 15 years now

Start selling
$18.49  1x  sold
  • (0)
Add to cart
Added