SOLUTION MANUAL- for Fundamentals OF
CORPORATE FINANCE updated 13TH
EDITION 2024/2025
Secondary Markets - CORRECT ANSWER Secondary market transaction involves one
owner or creditor selling to another. Therefore, the secondary markets provide the
means for transferring ownership of corporate securities. Although a corporation is
directly involved only in a primary market transaction (when it sells securities to raise
cash), the secondary markets are still critical to large corporations. The reason is that
investors are much more willing to purchase securities in a primary market transaction
when they know that those securities can later be resold if desired.
What positions report to the CFO? - CORRECT ANSWER Treasurer and Controller
In addition to the importance of finance for marketing, accounting, and management
careers, finance is also now considered a ______ discipline, especially at the graduate
level. - CORRECT ANSWERSTEM
In large firms, financial activity is usually associated with which top officer? - CORRECT
ANSWER Chief Financial Officer (CFO)
Since ownership in a corporation can be dispersed over a huge number of stockholders,
it can be argued that ______ effectively controls the firm. - CORRECT ANSWER
management
The relationship between stockholders and management is called an ______
relationship - CORRECT ANSWER agency (stockholders hire someone else, i.e. an
agent, to represent their interests)
T/F It is sometimes argued that, left to themselves, managers tend to minimize the
amount of resources over which they have control. - CORRECT ANSWER False -
maximize
Which of the following companies were involved in corporate scandals that led to
Sarbanes-Oxley? - CORRECT ANSWER Enron
Tyco
WorldCom
Balance Sheet - CORRECT ANSWER Snapshot of the firm. Financial statements
showing a firm's accounting value on a particular date.
, Assets= - CORRECT ANSWER liabilities + stockholders equity
Net Working Capital - CORRECT ANSWER current assets - current liabilities
Assets - CORRECT ANSWER Cash, accounts receivable, inventory, fixed assets
Liabilities: - CORRECT ANSWER Accounts payable, notes payable,
Liquidity - CORRECT ANSWER The speed and ease with which an asset can be
converted to cash.
Assets are listed on a balance sheet in order of - CORRECT ANSWER decreasing
liquidity. This means that the most liquid assets are listed first.
Shareholders' Equity - CORRECT ANSWER Assets - Liabilities
financial leverage - CORRECT ANSWER the use of debt in a firm's capital structure
Book Value - CORRECT ANSWER the difference between the cost of a depreciable
asset and its related accumulated depreciation
Income Statement - CORRECT ANSWER Measures performance over some period of
time like a quarter or a year. The income statement equation is: Revenues-
Expenses=Income.
noncash items - CORRECT ANSWER Expenses charged against revenues that do not
directly affect cash flow such as depreciation
Product Costs - CORRECT ANSWER All costs that include things such as raw
materials, direct labor expense, and manufacturing overhead.
Period Costs - CORRECT ANSWER Costs that are incurred during a particular time
period and might be reported as selling, general, and administrative expenses.
Taxes - CORRECT ANSWER Same rate for every corporation
average tax rate - CORRECT ANSWER Tax bill divided by taxable income-percentage
of income that goes to pay taxes
marginal tax rate - CORRECT ANSWER the rate of the extra tax you would pay if you
earned one more dollar
Which tax rate is relevant for financial decision making? - CORRECT ANSWER
Marginal tax rate
CORPORATE FINANCE updated 13TH
EDITION 2024/2025
Secondary Markets - CORRECT ANSWER Secondary market transaction involves one
owner or creditor selling to another. Therefore, the secondary markets provide the
means for transferring ownership of corporate securities. Although a corporation is
directly involved only in a primary market transaction (when it sells securities to raise
cash), the secondary markets are still critical to large corporations. The reason is that
investors are much more willing to purchase securities in a primary market transaction
when they know that those securities can later be resold if desired.
What positions report to the CFO? - CORRECT ANSWER Treasurer and Controller
In addition to the importance of finance for marketing, accounting, and management
careers, finance is also now considered a ______ discipline, especially at the graduate
level. - CORRECT ANSWERSTEM
In large firms, financial activity is usually associated with which top officer? - CORRECT
ANSWER Chief Financial Officer (CFO)
Since ownership in a corporation can be dispersed over a huge number of stockholders,
it can be argued that ______ effectively controls the firm. - CORRECT ANSWER
management
The relationship between stockholders and management is called an ______
relationship - CORRECT ANSWER agency (stockholders hire someone else, i.e. an
agent, to represent their interests)
T/F It is sometimes argued that, left to themselves, managers tend to minimize the
amount of resources over which they have control. - CORRECT ANSWER False -
maximize
Which of the following companies were involved in corporate scandals that led to
Sarbanes-Oxley? - CORRECT ANSWER Enron
Tyco
WorldCom
Balance Sheet - CORRECT ANSWER Snapshot of the firm. Financial statements
showing a firm's accounting value on a particular date.
, Assets= - CORRECT ANSWER liabilities + stockholders equity
Net Working Capital - CORRECT ANSWER current assets - current liabilities
Assets - CORRECT ANSWER Cash, accounts receivable, inventory, fixed assets
Liabilities: - CORRECT ANSWER Accounts payable, notes payable,
Liquidity - CORRECT ANSWER The speed and ease with which an asset can be
converted to cash.
Assets are listed on a balance sheet in order of - CORRECT ANSWER decreasing
liquidity. This means that the most liquid assets are listed first.
Shareholders' Equity - CORRECT ANSWER Assets - Liabilities
financial leverage - CORRECT ANSWER the use of debt in a firm's capital structure
Book Value - CORRECT ANSWER the difference between the cost of a depreciable
asset and its related accumulated depreciation
Income Statement - CORRECT ANSWER Measures performance over some period of
time like a quarter or a year. The income statement equation is: Revenues-
Expenses=Income.
noncash items - CORRECT ANSWER Expenses charged against revenues that do not
directly affect cash flow such as depreciation
Product Costs - CORRECT ANSWER All costs that include things such as raw
materials, direct labor expense, and manufacturing overhead.
Period Costs - CORRECT ANSWER Costs that are incurred during a particular time
period and might be reported as selling, general, and administrative expenses.
Taxes - CORRECT ANSWER Same rate for every corporation
average tax rate - CORRECT ANSWER Tax bill divided by taxable income-percentage
of income that goes to pay taxes
marginal tax rate - CORRECT ANSWER the rate of the extra tax you would pay if you
earned one more dollar
Which tax rate is relevant for financial decision making? - CORRECT ANSWER
Marginal tax rate
