Solution Manual
For Corporate Finance,
13th Edition By Stephen Ross, Randolph Westerfield,
,Table Of Contents
Part I Overview
1 Introduction To Corporate Finance
2 Financial Statements And Cash Flow
3 Financial Statements Analysis And Financial Models
Part Ii Valuation And Capital Budgeting
4 Discounted Cash Flow Valuation
5 Net Present Value And Other Investment Rules
6 Making Capital Investment Decisions
7 Risk Analysis, Real Options, And Capital Budgeting
8 Interest Rates And Bond Valuation
9 Stock Valuation
Part Iii Risk
10 Lessons From Market History
11 Return, Risk, And The Capital Asset Pricing Model (Capm)
12 An Alternative View Of Risk And Return: The Arbitrage Pricing Theory
13 Risk, Cost Of Capital, And Valuation
Part Iv Capital Structure And Dividend Policy
14 Efficient Capital Markets And Behavioral Challenges
15 Long-Term Financing
16 Capital Structure: Basic Concepts
17 Capital Structure: Limits To The Use Of Debt
18 Valuation And Capital Budgeting For The Levered Firm
19 Dividends And Other Payouts
Part V Long-Term Financing
20 Raising Capital
21 Leasing
Part Vi Options, Futures, And Corporate Finance
22 Options And Corporate Finance
23 Options And Corporate Finance: Extensions And Applications
24 Warrants And Convertibles
25 Derivatives And Hedging Risk
,Part Vii Short-Term Finance
26 Short-Term Finance And Planning
27 Cash Management
28 Credit And Inventory Management
Part Viii Special Topics
29 Mergers, Acquisitions, And Divestitures
30 Financial Distress
31 International Corporate Finance
, CHAPTER 1
INTRODUCTION TO CORPORATE
FINANCE
Answers To Concepts Review And Critical Thinking Questions
1. Capital Budgeting (Deciding Whether To Expand A Manufacturing Plant), Capital Structure
(Deciding Whether To Issue New Equity And Use The Proceeds To Retire Outstanding Debt), And
Working Capital Management (Modifying The Firm‘S Credit Collection Policy With Its Customers).
2. Disadvantages: Unlimited Liability, Limited Life, Difficulty In Transferring Ownership, Difficulty
In Raising Capital Funds. Some Advantages: Simpler, Less Regulation, The Owners Are Also The
Managers, Sometimes Personal Tax Rates Are Better Than Corporate Tax Rates.
3. The Primary Disadvantage Of The Corporate Form Is The Double Taxation To Shareholders Of
Distributed Earnings And Dividends. Some Advantages Include: Limited Liability, Ease Of
Transferability, Ability To Raise Capital, And Unlimited Life.
4. In Response To Sarbanes-Oxley, Small Firms Have Elected To Go Dark Because Of The Costs Of
Compliance. The Costs To Comply With Sarbox Can Be Several Million Dollars, Which Can Be A
Large Percentage Of A Small Firm‘S Profits. A Major Cost Of Going Dark Is Less Access To
Capital. Since The Firm Is No Longer Publicly Traded, It Can No Longer Raise Money In The
Public Market. Although The Company Will Still Have Access To Bank Loans And The Private
Equity Market, The Costs Associated With Raising Funds In These Markets Are Usually Higher
Than The Costs Of Raising Funds In The Public Market.
5. The Treasurer‘S Office And The Controller‘S Office Are The Two Primary Organizational Groups
That Report Directly To The Chief Financial Officer. The Controller‘S Office Handles Cost And
Financial Accounting, Tax Management, And Management Information Systems, While The
Treasurer‘S Office Is Responsible For Cash And Credit Management, Capital Budgeting, And
Financial Planning. Therefore, The Study Of Corporate Finance Is Concentrated Within The
Treasury Group‘S Functions.
6. To Maximize The Current Market Value (Share Price) Of The Equity Of The Firm (Whether It‘S
Publicly Traded Or Not).
7. In The Corporate Form Of Ownership, The Shareholders Are The Owners Of The Firm. The
Shareholders Elect The Directors Of The Corporation, Who In Turn Appoint The Firm‘S
Management. This Separation Of Ownership From Control In The Corporate Form Of Organization
Is What Causes Agency Problems To Exist. Management May Act In Its Own Or Someone Else‘S
Best Interests, Rather Than Those Of The Shareholders. If Such Events Occur, They May Contradict
The Goal Of Maximizing The Share Price Of The Equity Of The Firm.
8. A Primary Market Transaction.
