SOLUTIONS MANUAL
Essentials of Corporate Finance
Stephen A. Ross, Randolph W. Westerfield, and Bradford D. Jordan
ST
──────────────────────────────────────────────────
2025 Release
UV
IA
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AP
PR
OV
ED
? ?
, TABLE OF CONTENTS
Essentials of Corporate Finance (2025 Release) - Solutions Manual
Stephen Ross, Randolph Westerfield, Bradford Jordan
ST
PART ONE: OVERVIEW OF FINANCIAL MANAGEMENT
Chapter 1 Introduction to Financial Management
UV
PART TWO: UNDERSTANDING FINANCIAL STATEMENTS AND CASH FLOW
R
Chapter 2 Financial Statements, Taxes, and Cash Flow
U
Chapter 3 Working with Financial Statements
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SE
PART THREE: VALUATION OF FUTURE CASH FLOWS
Chapter 4 Introduction to Valuation: The Time Value of Money
Chapter 5 Discounted Cash Flow Valuation
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IS
PART FOUR: VALUING STOCKS AND BONDS
Chapter 6 O Interest Rates and Bond Valuation
AP
Chapter 7 Equity Markets and Stock Valuation
N
PART FIVE: CAPITAL BUDGETING
N
Chapter 8 Net Present Value and Other Investment Criteria
PR
Chapter 9 Making Capital Investment Decisions
O
PART SIX: RISK AND RETURN
C
Chapter 10 Some Lessons from Capital Market History
OV
Chapter 11 Risk and Return
ED
PART SEVEN: LONG-TERM FINANCING
Chapter 12 Cost of Capital
M
Chapter 13 Leverage and Capital Structure
ED
Chapter 14 Dividends and Dividend Policy
Chapter 15 Raising Capital
PART EIGHT: SHORT-TERM FINANCIAL MANAGEMENT
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Chapter 16 Short-Term Financial Planning
Chapter 17 Working Capital Management
PART NINE: TOPICS IN BUSINESS FINANCE
, Chapter 18 International Aspects of Financial Management
ST
UV
R
U
IA
SE
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IS
O
AP
N
NPR
O
C
OV
ED
M
ED
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, CHAPTER 1
INTRODUCTION TO CORPORATE FINANCE
ST
Answers to Concepts Review and Critical Thinking Questions
1. Capital budgeting (deciding on whether to expand a manufacturing plant), capital structure (deciding
UV
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.
IA
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. 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. The treasurer’s office is responsible for cash and
AP
credit management, capital budgeting, and financial planning. Therefore, the study of corporate
finance is concentrated within the functions of the treasurer’s office.
5. To maximize the current market value (share price) of the equity of the firm (whether it’s publicly
traded or not).
PR
6. 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.
OV
If such events occur, they may contradict the goal of maximizing the share price of the equity of the
firm.
7. A primary market transaction.
8. In auction markets like the NYSE, brokers and agents meet at a physical location (the exchange) to
ED
buy and sell their assets. Dealer markets like NASDAQ represent dealers operating in dispersed locales
who buy and sell assets themselves, usually communicating with other dealers electronically or
literally over the counter.
??
Essentials of Corporate Finance
Stephen A. Ross, Randolph W. Westerfield, and Bradford D. Jordan
ST
──────────────────────────────────────────────────
2025 Release
UV
IA
?_
AP
PR
OV
ED
? ?
, TABLE OF CONTENTS
Essentials of Corporate Finance (2025 Release) - Solutions Manual
Stephen Ross, Randolph Westerfield, Bradford Jordan
ST
PART ONE: OVERVIEW OF FINANCIAL MANAGEMENT
Chapter 1 Introduction to Financial Management
UV
PART TWO: UNDERSTANDING FINANCIAL STATEMENTS AND CASH FLOW
R
Chapter 2 Financial Statements, Taxes, and Cash Flow
U
Chapter 3 Working with Financial Statements
IA
SE
PART THREE: VALUATION OF FUTURE CASH FLOWS
Chapter 4 Introduction to Valuation: The Time Value of Money
Chapter 5 Discounted Cash Flow Valuation
?_
IS
PART FOUR: VALUING STOCKS AND BONDS
Chapter 6 O Interest Rates and Bond Valuation
AP
Chapter 7 Equity Markets and Stock Valuation
N
PART FIVE: CAPITAL BUDGETING
N
Chapter 8 Net Present Value and Other Investment Criteria
PR
Chapter 9 Making Capital Investment Decisions
O
PART SIX: RISK AND RETURN
C
Chapter 10 Some Lessons from Capital Market History
OV
Chapter 11 Risk and Return
ED
PART SEVEN: LONG-TERM FINANCING
Chapter 12 Cost of Capital
M
Chapter 13 Leverage and Capital Structure
ED
Chapter 14 Dividends and Dividend Policy
Chapter 15 Raising Capital
PART EIGHT: SHORT-TERM FINANCIAL MANAGEMENT
??
Chapter 16 Short-Term Financial Planning
Chapter 17 Working Capital Management
PART NINE: TOPICS IN BUSINESS FINANCE
, Chapter 18 International Aspects of Financial Management
ST
UV
R
U
IA
SE
?_
IS
O
AP
N
NPR
O
C
OV
ED
M
ED
??
, CHAPTER 1
INTRODUCTION TO CORPORATE FINANCE
ST
Answers to Concepts Review and Critical Thinking Questions
1. Capital budgeting (deciding on whether to expand a manufacturing plant), capital structure (deciding
UV
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.
IA
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. 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. The treasurer’s office is responsible for cash and
AP
credit management, capital budgeting, and financial planning. Therefore, the study of corporate
finance is concentrated within the functions of the treasurer’s office.
5. To maximize the current market value (share price) of the equity of the firm (whether it’s publicly
traded or not).
PR
6. 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.
OV
If such events occur, they may contradict the goal of maximizing the share price of the equity of the
firm.
7. A primary market transaction.
8. In auction markets like the NYSE, brokers and agents meet at a physical location (the exchange) to
ED
buy and sell their assets. Dealer markets like NASDAQ represent dealers operating in dispersed locales
who buy and sell assets themselves, usually communicating with other dealers electronically or
literally over the counter.
??
