SOLUTIONS MANUAL
** All Chapters Solutions
** Integrative Problem Solutions
,Table of Contents are given below
1. An Overview of Managerial Finance
2. Analysis of Financial Statements
3. The Financial Environment: Markets, Institutions, and Investment
Banking
4. Time Value of Money
5. The Cost of Money (Interest Rates)
6. Bonds (Debt)—Characteristics and Valuation
7. Stocks (Equity)—Characteristics and Valuation
8. Risk and Rates of Return
9. Capital Budgeting Techniques
10. Project Cash Flows and Risk
11. The Cost of Capital
12. Capital Structure
13. Distribution of Retained Earnings: Dividends and Stock Repurchases
14. Managing Short-Term Financing (Liabilities)
15. Managing Short-Term Assets
,Solution and Answer Guide
BESLEY AND BRIGHAM, CFIN, 8E, 2027, 9798214056692;
CHAPTER 1: AN OVERVIEW OF MANAGERIAL FINANCE
TABLE OF CONTENTS
Ethical Dilemma .................................................................................................................................1
Chances Are What They Don’t Know Won’t Hurt Them! ......................................................................... 1
Chapter 1 Solutions ............................................................................................................................3
Integrative Problem Solutions .......................................................................................................... 10
ETHICAL DILEMMA
CHANCES ARE WHAT THEY DON’T KNOW WON’T HURT THEM!
Ethical dilemma:
It appears that the ethical dilemma is whether Futuristic Electronic Technologies (FET) should continue to
distribute its new micro system even though laboratory tests have shown the system might be flawed. To make
matters worse, as an executive with FET, your salary is based on the performance of the company’s common stock,
and it is expected the stock will not do well unless the new micro system is successful. You need the new micro
system to be successful to ensure the overall compensation you earn from FET is sufficient to make the mortgage
payments on the expensive house you just purchased. What should you do?
Discussion questions:
• Is there an ethical problem (dilemma)? If so, what is it?
You will get some interesting answers to these questions. In reality, the new micro system might not be
flawed. The information provided in the text indicates that the lab tests on the new micro system are not
conclusive—it is implied that additional tests are needed to reach more concrete conclusions. If an ethical
dilemma exists, it might be that FET is willing to introduce a new product without full knowledge of its flaws;
but this is not unusual in very competitive markets.
• Should FET discontinue the distribution of its new micro system until further laboratory tests can be
completed?
Certainly, additional testing will give the company a better idea of whether a flaw actually exists, and, if there
is a flaw, to what degree it is harmful to customers. But, if distribution of the new micro system is temporarily
discontinued, FET’s competitors might be able to introduce their new systems and significantly cut into FET’s
share of the market. At the same time, if FET is not fully aware of any flaws in its system, continuing to
distribute a product of inferior quality might be extremely harmful to the company’s reputation.
There is no clear answer to this question because the extent of the problem is unknown—the flaw could be
nonexistent, it could exist and be very insignificant, or it could exist and cause very significant difficulties for
1
, those customers purchasing the new micro system.
• What action do you think FET should take?
There are a variety of responses to this question. Some students will suggest that FET ignore the flaw, because it
doesn’t seem to occur very often. Remind these students that the new micro system will be used by such financial
institutions as banks and savings and loan associations, by large corporations, and by governments to store large
amounts of financial data. If such data are lost, even once in 10 million retrievals, the consequences could be
devastating. Some students will suggest that FET should do “the right thing,” and discontinue distribution until
further testing is complete so it can be determined to what extent a flaw does exist, and the necessary corrections
can be made. A few students will suggest a third alternative—continue to distribute the new micro system but
inform those who buy it there is a possibility that a flaw exists. In addition, inform the customers that the new micro
system currently is undergoing further tests, and the results will be publicly announced as soon as they are
available. And, if it is determined a flaw actually exists, corrections will be made at no cost to the customer, and with
as little interruption as possible.
References:
It is well documented in the business press that Intel Corporation was embroiled in controversy over a flaw in the
Pentium computer chip it introduced in 1994. The cost of replacing the flawed chips that were installed in computers
resulted in a fourth-quarter profit in 1994 that was
37 percent lower than the previous year. In addition, a number of lawsuits were filed accusing Intel of fraud, false
advertising, and various violations of state laws protecting consumers.
On the other hand, in part because of the controversy created by the Intel situation, in 1995, Advanced Micro
Devices, Inc. delayed the distribution of its new computer chip, which was intended to compete directly with
Intel’s Pentium chip, because it was felt technical corrections and additional testing were needed.
You can find additional information concerning these two situations in articles that appear in The Wall Street
Journal at the end of 1994 and throughout 1995. The following articles might be assigned for background material:
“Chip Shot: Computer Giants’ War over Flaw in Pentium Jolts the PC Industry,” The Wall Street Journal, December
3, 1994, p. A1+.
“AMD Will Delay Delivery of New Chips Aimed at Competing with Intel Pentium,” The Wall Street Journal, April 11,
1995, p. B5.
AnnickJesdanun, “Experts Spot Security Flaw in Windows Vista Software,” The Tampa Tribune, December 27, 2006,
Business 1+.
Other more recent examples can be found in the following articles:
Cade Metz and Nicole Perloth, “Researchers Discover Two Major Flaws in the World’s Computers,” The New York
Times, January 3, 2018. (http://www.nytimes.com) Available online at
https://www.nytimes.com/2018/01/03/business/computer-flaws.html.
Selena Larson, “Major Chip Flaws Affect Billions of Devices,” January 4, 2018, CNN Business.
(http://cnn.com/business) Available online at https://money.cnn.com/2018/01/03/
technology/computer-chip-flaw-security/index.html.
Roger Atiken, “Solving Blockchain’s Current Flaws & Enabling Future Mainstream Adoption.” Forbes, February 28,
2019. (http://www.forbes.com) Available online at
https://www.forbes.com/sites/rogeraitken/2019/02/28/solving-blockchains-current-flaws-enabling-future-
mainstream-adoption/#59bbeafa274b.
2
** All Chapters Solutions
** Integrative Problem Solutions
,Table of Contents are given below
1. An Overview of Managerial Finance
2. Analysis of Financial Statements
3. The Financial Environment: Markets, Institutions, and Investment
Banking
4. Time Value of Money
5. The Cost of Money (Interest Rates)
6. Bonds (Debt)—Characteristics and Valuation
7. Stocks (Equity)—Characteristics and Valuation
8. Risk and Rates of Return
9. Capital Budgeting Techniques
10. Project Cash Flows and Risk
11. The Cost of Capital
12. Capital Structure
13. Distribution of Retained Earnings: Dividends and Stock Repurchases
14. Managing Short-Term Financing (Liabilities)
15. Managing Short-Term Assets
,Solution and Answer Guide
BESLEY AND BRIGHAM, CFIN, 8E, 2027, 9798214056692;
CHAPTER 1: AN OVERVIEW OF MANAGERIAL FINANCE
TABLE OF CONTENTS
Ethical Dilemma .................................................................................................................................1
Chances Are What They Don’t Know Won’t Hurt Them! ......................................................................... 1
Chapter 1 Solutions ............................................................................................................................3
Integrative Problem Solutions .......................................................................................................... 10
ETHICAL DILEMMA
CHANCES ARE WHAT THEY DON’T KNOW WON’T HURT THEM!
Ethical dilemma:
It appears that the ethical dilemma is whether Futuristic Electronic Technologies (FET) should continue to
distribute its new micro system even though laboratory tests have shown the system might be flawed. To make
matters worse, as an executive with FET, your salary is based on the performance of the company’s common stock,
and it is expected the stock will not do well unless the new micro system is successful. You need the new micro
system to be successful to ensure the overall compensation you earn from FET is sufficient to make the mortgage
payments on the expensive house you just purchased. What should you do?
Discussion questions:
• Is there an ethical problem (dilemma)? If so, what is it?
You will get some interesting answers to these questions. In reality, the new micro system might not be
flawed. The information provided in the text indicates that the lab tests on the new micro system are not
conclusive—it is implied that additional tests are needed to reach more concrete conclusions. If an ethical
dilemma exists, it might be that FET is willing to introduce a new product without full knowledge of its flaws;
but this is not unusual in very competitive markets.
• Should FET discontinue the distribution of its new micro system until further laboratory tests can be
completed?
Certainly, additional testing will give the company a better idea of whether a flaw actually exists, and, if there
is a flaw, to what degree it is harmful to customers. But, if distribution of the new micro system is temporarily
discontinued, FET’s competitors might be able to introduce their new systems and significantly cut into FET’s
share of the market. At the same time, if FET is not fully aware of any flaws in its system, continuing to
distribute a product of inferior quality might be extremely harmful to the company’s reputation.
There is no clear answer to this question because the extent of the problem is unknown—the flaw could be
nonexistent, it could exist and be very insignificant, or it could exist and cause very significant difficulties for
1
, those customers purchasing the new micro system.
• What action do you think FET should take?
There are a variety of responses to this question. Some students will suggest that FET ignore the flaw, because it
doesn’t seem to occur very often. Remind these students that the new micro system will be used by such financial
institutions as banks and savings and loan associations, by large corporations, and by governments to store large
amounts of financial data. If such data are lost, even once in 10 million retrievals, the consequences could be
devastating. Some students will suggest that FET should do “the right thing,” and discontinue distribution until
further testing is complete so it can be determined to what extent a flaw does exist, and the necessary corrections
can be made. A few students will suggest a third alternative—continue to distribute the new micro system but
inform those who buy it there is a possibility that a flaw exists. In addition, inform the customers that the new micro
system currently is undergoing further tests, and the results will be publicly announced as soon as they are
available. And, if it is determined a flaw actually exists, corrections will be made at no cost to the customer, and with
as little interruption as possible.
References:
It is well documented in the business press that Intel Corporation was embroiled in controversy over a flaw in the
Pentium computer chip it introduced in 1994. The cost of replacing the flawed chips that were installed in computers
resulted in a fourth-quarter profit in 1994 that was
37 percent lower than the previous year. In addition, a number of lawsuits were filed accusing Intel of fraud, false
advertising, and various violations of state laws protecting consumers.
On the other hand, in part because of the controversy created by the Intel situation, in 1995, Advanced Micro
Devices, Inc. delayed the distribution of its new computer chip, which was intended to compete directly with
Intel’s Pentium chip, because it was felt technical corrections and additional testing were needed.
You can find additional information concerning these two situations in articles that appear in The Wall Street
Journal at the end of 1994 and throughout 1995. The following articles might be assigned for background material:
“Chip Shot: Computer Giants’ War over Flaw in Pentium Jolts the PC Industry,” The Wall Street Journal, December
3, 1994, p. A1+.
“AMD Will Delay Delivery of New Chips Aimed at Competing with Intel Pentium,” The Wall Street Journal, April 11,
1995, p. B5.
AnnickJesdanun, “Experts Spot Security Flaw in Windows Vista Software,” The Tampa Tribune, December 27, 2006,
Business 1+.
Other more recent examples can be found in the following articles:
Cade Metz and Nicole Perloth, “Researchers Discover Two Major Flaws in the World’s Computers,” The New York
Times, January 3, 2018. (http://www.nytimes.com) Available online at
https://www.nytimes.com/2018/01/03/business/computer-flaws.html.
Selena Larson, “Major Chip Flaws Affect Billions of Devices,” January 4, 2018, CNN Business.
(http://cnn.com/business) Available online at https://money.cnn.com/2018/01/03/
technology/computer-chip-flaw-security/index.html.
Roger Atiken, “Solving Blockchain’s Current Flaws & Enabling Future Mainstream Adoption.” Forbes, February 28,
2019. (http://www.forbes.com) Available online at
https://www.forbes.com/sites/rogeraitken/2019/02/28/solving-blockchains-current-flaws-enabling-future-
mainstream-adoption/#59bbeafa274b.
2
