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Corporate Finance 11th Edition Ross Solutions Manual

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Corporate Finance 11th Edition Ross Solutions Manual

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ISBN-10 ‏ : ‎ 9780077861759
ISBN-13 ‏ : ‎ 978-0077861759
Author: Bradford D. Jordan, Randolph W. Westerfield, Stephen A. Ross

Corporate Finance, by Ross, Westerfield, Jaffe, and Jordan emphasizes the modern fundamentals of the theory of finance, while providing contemporary examples to make the theory come to life. The authors aim to present corporate finance as the working of a small number of integrated and powerful intuitions, rather than a collection of unrelated topics. They develop the central concepts of modern finance: arbitrage, net present value, efficient markets, agency theory, options, and the trade-off between risk and return, and use them to explain corporate finance with a balance of theory and application. The Eleventh Edition includes many exciting new research findings as well as an enhanced Connect Finance, now with even more student learning resources.

Connect is proven to deliver better results for students and instructors. Proven content integrates seamlessly with enhanced digital tools to create a personalized learning experience that provides students with precisely what they need, when they need it. With Connect, the educational possibilities are limitless.

Table of contents:

Part One: Overview of Financial Management
1 Introduction to Financial Management
1.1 Finance: A Quick Look
The Five Basic Areas
Corporate Finance
Investments
Financial Institutions
International Finance
Fintech
Why Study Finance?
Marketing and Finance
Accounting and Finance
Management and Finance
Technology and Finance
You and Finance
1.2 Business Finance and the Financial Manager
What Is Business Finance?
The Financial Manager
Financial Management Decisions
Capital Budgeting
Capital Structure
Working Capital Management
Conclusion
1.3 Forms of Business Organization
Sole Proprietorship
Partnership
Corporation
A Corporation by Another Name . . .
Benefit Corporation
1.4 The Goal of Financial Management
Profit Maximization
The Goal of Financial Management in a Corporation
A More General Financial Management Goal
Sarbanes-Oxley Act
1.5 The Agency Problem and Control of the Corporation
Agency Relationships
Management Goals
Do Managers Act in the Stockholders’ Interests?
Managerial Compensation
Control of the Firm
Conclusion
Stakeholders
1.6 Financial Markets and the Corporation
Cash Flows to and from the Firm
Primary versus Secondary Markets
Primary Markets
Secondary Markets
Summary and Conclusions
Critical Thinking and Concepts Review
What’s on the Web?
Chapter Case: The McGee Cake Company
Part Two: Understanding Financial Statements and Cash Flow
2 Financial Statements, Taxes, and Cash Flow
2.1 The Balance Sheet
Assets: The Left-Hand Side
Liabilities and Owners’ Equity: The Right-Hand Side
Net Working Capital
Liquidity
Debt versus Equity
Market Value versus Book Value
2.2 The Income Statement
GAAP and the Income Statement
Noncash Items
Time and Costs
Earnings Management
2.3 Taxes
Corporate Tax Rates
Average versus Marginal Tax Rates
2.4 Cash Flow
Cash Flow from Assets
Operating Cash Flow
Capital Spending
Change in Net Working Capital
Conclusion
A Note on “Free” Cash Flow
Cash Flow to Creditors and Stockholders
Cash Flow to Creditors
Cash Flow to Stockholders
Conclusion
An Example: Cash Flows for Dole Cola
Operating Cash Flow
Net Capital Spending
Change in NWC and Cash Flow from Assets
Cash Flow to Creditors and Stockholders
Summary and Conclusions
Chapter Review and Self-Test Problem
Answer to Chapter Review and Self-Test Problem
Critical Thinking and Concepts Review
Questions and Problems
What’s on the Web?
Excel Master It! Problem
Chapter Case: Cash Flows and Financial Statements at Sunset Boards, Inc.
3 Working with Financial Statements
3.1 Standardized Financial Statements
Common-Size Balance Sheets
Common-Size Income Statements
3.2 Ratio Analysis
Short-Term Solvency, or Liquidity, Measures
Current Ratio
Quick (or Acid-Test) Ratio
Cash Ratio
Long-Term Solvency Measures
Total Debt Ratio
Times Interest Earned
Cash Coverage
Asset Management, or Turnover, Measures
Inventory Turnover and Days’ Sales in Inventory
Receivables Turnover and Days’ Sales in Receivables
Total Asset Turnover
Profitability Measures
Profit Margin
Return on Assets
Return on Equity
Market Value Measures
Price-Earnings Ratio
Price-Sales Ratio
Market-to-Book Ratio
Enterprise Value-EBITDA Ratio
3.3 The DuPont Identity
An Expanded DuPont Analysis
3.4 Internal and Sustainable Growth
Dividend Payout and Earnings Retention
ROA, ROE, and Growth
The Internal Growth Rate
The Sustainable Growth Rate
Determinants of Growth
A Note on Sustainable Growth Rate Calculations
3.5 Using Financial Statement Information
Why Evaluate Financial Statements?
Internal Uses
External Uses
Choosing a Benchmark
Time-Trend Analysis
Peer Group Analysis
Problems with Financial Statement Analysis
Summary and Conclusions
Chapter Review and Self-Test Problems
Answers to Chapter Review and Self-Test Problems
Critical Thinking and Concepts Review
Questions and Problems
What’s on the Web?
Excel Master It! Problem
Chapter Case: Ratios and Financial Planning at S&S Air, Inc.
Part Three: Valuation of Future Cash Flows
4 Introduction to Valuation: The Time Value of Money
4.1 Future Value and Compounding
Investing for a Single Period
Investing for More Than One Period
4.2 Present Value and Discounting
The Single-Period Case
Present Values for Multiple Periods
4.3 More on Present and Future Values
Present versus Future Value
Determining the Discount Rate
Finding the Number of Periods
Summary and Conclusions
Chapter Review and Self-Test Problems
Answers to Chapter Review and Self-Test Problems
Critical Thinking and Concepts Review
Questions and Problems
What’s on the Web?
Excel Master It! Problem
5 Discounted Cash Flow Valuation
5.1 Future and Present Values of Multiple Cash Flows
Future Value with Multiple Cash Flows
Present Value with Multiple Cash Flows
A Note on Cash Flow Timing
5.2 Valuing Level Cash Flows: Annuities and Perpetuities
Present Value for Annuity Cash Flows
Annuity Tables
Finding the Payment
Finding the Rate
Future Value for Annuities
A Note on Annuities Due
Perpetuities
5.3 Comparing Rates: The Effect of Compounding Periods
Effective Annual Rates and Compounding
Calculating and Comparing Effective Annual Rates
EARs and APRs
EARs, APRs, Financial Calculators, and Spreadsheets
5.4 Loan Types and Loan Amortization
Pure Discount Loans
Interest-Only Loans
Amortized Loans
Summary and Conclusions
Chapter Review and Self-Test Problems
Answers to Chapter Review and Self-Test Problems
Critical Thinking and Concepts Review
Questions and Problems
What’s on the Web?
Excel Master It! Problem
Chapter Case: S&S Air’s Mortgage
Part Four: Valuing Stocks and Bonds
6 Interest Rates and Bond Valuation
6.1 Bonds and Bond Valuation
Bond Features and Prices
Bond Values and Yields
Interest Rate Risk
Finding the Yield to Maturity: More Trial and Error
6.2 More on Bond Features
Is It Debt or Equity?
Long-Term Debt: The Basics
The Indenture
Terms of a Bond
Security
Seniority
Repayment
The Call Provision
Protective Covenants
6.3 Bond Ratings
6.4 Some Different Types of Bonds
Government Bonds
Zero Coupon Bonds
Floating-Rate Bonds
Other Types of Bonds
Sukuk
6.5 Bond Markets
How Bonds Are Bought and Sold
Bond Price Reporting
A Note on Bond Price Quotes
6.6 Inflation and Interest Rates
Real versus Nominal Rates
The Fisher Effect
6.7 Determinants of Bond Yields
The Term Structure of Interest Rates
Bond Yields and the Yield Curve: Putting It All Together
Conclusion
Summary and Conclusions
Chapter Review and Self-Test Problems
Answers to Chapter Review and Self-Test Problems
Critical Thinking and Concepts Review
Questions and Problems
What’s on the Web?
Excel Master It! Problem
Chapter Case: Financing S&S Air’s Expansion Plans with a Bond Issue
7 Equity Markets and Stock Valuation
7.1 Common Stock Valuation
Cash Flows
Some Special Cases
Zero Growth
Constant Growth
Nonconstant Growth
Components of the Required Return
Stock Valuation Using Comparables, or Comps
7.2 Some Features of Common and Preferred Stock
Common Stock Features
Shareholder Rights.
Proxy Voting
Classes of Stock
Other Rights
Dividends
Preferred Stock Features
Stated Value
Cumulative and Noncumulative Dividends
Is Preferred Stock Really Debt?
7.3 The Stock Markets
Dealers and Brokers
Organization of the NYSE
Members
Operations
Floor Activity
Nasdaq Operations
ECNs
Stock Market Reporting
Summary and Conclusions
Chapter Review and Self-Test Problems
Answers to Chapter Review and Self-Test Problems
Critical Thinking and Concepts Review
Questions and Problems
What’s on the Web?
Excel Master It! Problem
Chapter Case: Stock Valuation at Ragan, Inc.
Part Five: Capital Budgeting
8 Net Present Value and Other Investment Criteria
8.1 Net Present Value
The Basic Idea
Estimating Net Present Value
8.2 The Payback Rule
Defining the Rule
Analyzing the Rule
Redeeming Qualities of the Rule
Summary of the Rule
8.3 The Average Accounting Return
8.4 The Internal Rate Of Return
Problems with the IRR
Nonconventional Cash Flows
Mutually Exclusive Investments
Redeeming Qualities of the IRR
The Modified Internal Rate of Return (MIRR)
Method 1: The Discounting Approach
Method 2: The Reinvestment Approach
Method 3: The Combination Approach
MIRR or IRR: Which Is Better?
8.5 The Profitability Index
8.6 The Practice Of Capital Budgeting
Summary and Conclusions
Chapter Review and Self-Test Problems
Answers to Chapter Review and Self-Test Problems
Critical Thinking and Concepts Review
Questions and Problems
What’s on the Web?
Excel Master It! Problem
Chapter Case: Bullock Gold Mining
9 Making Capital Investment Decisions
9.1 Project Cash Flows: A First Look
Relevant Cash Flows
The Stand-Alone Principle
9.2 Incremental Cash Flows
Sunk Costs
Opportunity Costs
Side Effects
Net Working Capital
Financing Costs
Other Issues
9.3 Pro Forma Financial Statements and Project Cash Flows
Getting Started: Pro Forma Financial Statements
Project Cash Flows
Project Operating Cash Flow
Project Net Working Capital and Capital Spending
Projected Total Cash Flow and Value
The Tax Shield Approach
9.4 More on Project Cash Flow
A Closer Look at Net Working Capital
Depreciation
Modified ACRS (MACRS) Depreciation
Bonus Depreciation
Book Value versus Market Value
An Example: The Majestic Mulch and Compost Company (MMCC)
Operating Cash Flows
Changes in NWC
Capital Spending
Total Cash Flow and Value
Conclusion
9.5 Evaluating NPV Estimates
The Basic Problem
Forecasting Risk
Sources of Value
9.6 Scenario and Other What-If Analyses
Getting Started
Scenario Analysis
Sensitivity Analysis
9.7 ADDITIONAL CONSIDERATIONS IN CAPITAL BUDGETING
Managerial Options and Capital Budgeting
Contingency Planning
Strategic Options
Conclusion
Capital Rationing
Soft Rationing
Hard Rationing
Summary and Conclusions
Chapter Review and Self-Test Problems
Answers to Chapter Review and Self-Test Problems
Critical Thinking and Concepts Review
Questions and Problems
Excel Master It! Problem
Chapter Case: Conch Republic Electronics
Part Six: Risk and Return
10 Some Lessons from Capital Market History
10.1 Returns
Dollar Returns
Percentage Returns
10.2 The Historical Record
A First Look
A Closer Look
10.3 Average Returns: The First Lesson
Calculating Average Returns
Average Returns: The Historical Record
Risk Premiums
The First Lesson
10.4 The Variability of Returns: The Second Lesson
Frequency Distributions and Variability
The Historical Variance and Standard Deviation
The Historical Record
Normal Distribution
The Second Lesson
2008: The Bear Growled and Investors Howled
Using Capital Market History
More on the Stock Market Risk Premium
10.5 More on Average Returns
Arithmetic versus Geometric Averages
Calculating Geometric Average Returns
Arithmetic Average Return or Geometric Average Return?
10.6 Capital Market Efficiency
Price Behavior in an Efficient Market
The Efficient Markets Hypothesis
Some Common Misconceptions about the EMH
The Forms of Market Efficiency
Summary and Conclusions
Chapter Review and Self-Test Problems
Answers to Chapter Review and Self-Test Problems
Critical Thinking and Concepts Review
Questions and Problems
What’s on the Web?
Excel Master It! Problem
Chapter Case: A Job at S&S Air
11 Risk and Return
11.1 Expected Returns and Variances
Expected Return
Calculating the Variance
11.2 Portfolios
Portfolio Weights
Portfolio Expected Returns
Portfolio Variance
11.3 Announcements, Surprises, and Expected Returns
Expected and Unexpected Returns
Announcements and News
11.4 Risk: Systematic and Unsystematic
Systematic and Unsystematic Risk
Systematic and Unsystematic Components of Return
11.5 Diversification and Portfolio Risk
The Effect of Diversification: Another Lesson from Market History
The Principle of Diversification
Diversification and Unsystematic Risk
Diversification and Systematic Risk
11.6 Systematic Risk and Beta
The Systematic Risk Principle
Measuring Systematic Risk
Portfolio Betas
11.7 The Security Market Line
Beta and the Risk Premium
The Reward-to-Risk Ratio
The Basic Argument
The Fundamental Result
The Security Market Line
Market Portfolios
The Capital Asset Pricing Model
11.8 The SML and the Cost of Capital: a Preview
The Basic Idea
The Cost of Capital
Summary and Conclusions
Chapter Review and Self-Test Problems
Answers to Chapter Review and Self-Test Problems
Critical Thinking and Concepts Review
Questions and Problems
What’s on the Web?
Excel Master It! Problem
Chapter Case: The Beta for FLIR Systems
Part Seven: Long-Term Financing
12 Cost of Capital
12.1 The Cost of Capital: Some Preliminaries
Required Return versus Cost of Capital
Financial Policy and Cost of Capital
12.2 The Cost of Equity
The Dividend Growth Model Approach
Implementing the Approach
Estimating g
Advantages and Disadvantages of the Approach
The SML Approach
Implementing the Approach
Advantages and Disadvantages of the Approach
12.3 The Costs of Debt and Preferred Stock
The Cost of Debt
The Cost of Preferred Stock
12.4 The Weighted Average Cost of Capital
The Capital Structure Weights
Taxes and the Weighted Average Cost of Capital
Solving the Warehouse Problem and Similar Capital Budgeting Problems
Calculating the WACC for Eastman Chemical
Eastman’s Cost of Equity
Eastman’s Cost of Debt
Eastman’s WACC
12.5 Divisional and Project Costs of Capital
The SML and the WACC
Divisional Cost of Capital
The Pure Play Approach
The Subjective Approach
12.6 Company Valuation With The WACC
Summary and Conclusions
Chapter Review and Self-Test Problems
Answers to Chapter Review and Self-Test Problems
Critical Thinking and Concepts Review
Questions and Problems
What’s on the Web?
Excel Master It! Problem
Chapter Case: Cost of Capital for Master Tools
13 Leverage and Capital Structure
13.1 The Capital Structure Question
13.2 The Effect of Financial Leverage
The Impact of Financial Leverage
Financial Leverage, EPS, and ROE: An Example
EPS versus EBIT
Corporate Borrowing and Homemade Leverage
13.3 Capital Structure and The Cost of Equity Capital
M&M Proposition I: The Pie Model
The Cost of Equity and Financial Leverage: M&M Proposition II
Business and Financial Risk
13.4 Corporate Taxes and Capital Structure
The Interest Tax Shield
Taxes and M&M Proposition I
Conclusion
13.5 Bankruptcy Costs
Direct Bankruptcy Costs
Indirect Bankruptcy Costs
13.6 Optimal Capital Structure
The Static Theory of Capital Structure
Optimal Capital Structure and the Cost of Capital
Capital Structure: Some Managerial Recommendations
Taxes
Financial Distress
13.7 Observed Capital Structures
13.8 A Quick Look at The Bankruptcy Process
Liquidation and Reorganization
Bankruptcy Liquidation
Bankruptcy Reorganization
Financial Management and the Bankruptcy Process
Agreements to Avoid Bankruptcy
Summary and Conclusions
Chapter Review and Self-Test Problems
Answers to Chapter Review and Self-Test Problems
Critical Thinking and Concepts Review
Questions and Problems
What’s on the Web?
Excel Master It! Problem
Chapter Case: Stephenson Real Estate Recapitalization
14 Dividends and Dividend Policy
14.1 Cash Dividends and Dividend Payment
Cash Dividends
Standard Method of Cash Dividend Payment
Dividend Payment: A Chronology
More on the Ex-Dividend Date
14.2 Does Dividend Policy Matter?
An Illustration of the Irrelevance of Dividend Policy
Current Policy: Dividends Set Equal to Cash Flow
Alternative Policy: Initial Dividend Greater Than Cash Flow
A Test
Some Real-World Factors Favoring a Low Payout
Taxes
Flotation Costs
Dividend Restrictions
Some Real-World Factors Favoring a High Payout
Desire for Current Income
Tax and Legal Benefits from High Dividends
Clientele Effects: A Resolution of Real-World Factors?
14.3 Stock Repurchases: An Alternative to Cash Dividends
Cash Dividends versus Repurchase
Real-World Considerations in a Repurchase
Share Repurchase and EPS
14.4 What We Know And Do Not Know About Dividend and Payout Policies
Dividends and Dividend Payers
Corporations Smooth Dividends
Putting It All Together
Some Survey Evidence on Dividends
14.5 Stock Dividends and Stock Splits
Value of Stock Splits and Stock Dividends
The Benchmark Case
Popular Trading Range
Reverse Splits
Summary and Conclusions
Chapter Review and Self-Test Problems
Answer to Chapter Review and Self-Test Problem
Critical Thinking and Concepts Review
Questions and Problems
What’s on the Web?
Chapter Case: Electronic Timing, Inc.
15 Raising Capital
15.1 The Financing Life Cycle of A Firm: Early-Stage Financing and Venture Capital
Entrepreneurship
Venture Capital
Stages of Financing
Some Venture Capital Realities
Venture Capital Firms
Crowdfunding
Initial Coin Offerings
Conclusion
15.2 Selling Securities to the Public: The Basic Procedure
15.3 Alternative Issue Methods
15.4 Underwriters
Choosing an Underwriter
Types of Underwriting
Firm Commitment Underwriting
Best Efforts Underwriting
Dutch Auction Underwriting
The Green Shoe Provision
The Aftermarket
Lockup Agreements
The Quiet Period
Direct Listing
Special-purpose acquisition companies
15.5 IPOs and Underpricing
Evidence on Underpricing
IPO Underpricing: The 1999–2000 Experience
The Partial Adjustment Phenomenon
Why Does Underpricing Exist?
15.6 New Equity Sales and the Value of The Firm
15.7 The Cost of Issuing Securities
15.8 Issuing Long-Term Debt
15.9 Shelf Registration
Summary and Conclusions
Chapter Review and Self-Test Problems
Answer to Chapter Review and Self-Test Problem
Critical Thinking and Concepts Review
Questions and Problems
What’s on the Web?
Chapter Case: S&S Air Goes Public
Part Eight: Short-Term Financial Management
16 Short-Term Financial Planning
16.1 Tracing Cash and Net Working Capital
16.2 The Operating Cycle and the Cash Cycle
Defining the Operating and Cash Cycles
The Operating Cycle
The Cash Cycle
The Operating Cycle and the Firm’s Organizational Chart
Calculating the Operating and Cash Cycles
The Operating Cycle
The Cash Cycle
Interpreting the Cash Cycle
16.3 Some Aspects of Short-Term Financial Policy
The Size of the Firm’s Investment in Current Assets
Alternative Financing Policies for Current Assets
Which Financing Policy Is Best?
Current Assets and Liabilities in Practice
16.4 The Cash Budget
Sales and Cash Collections
Cash Outflows
The Cash Balance
16.5 Short-Term Borrowing
Unsecured Loans
Secured Loans
Accounts Receivable Financing
Other Sources
16.6 A Short-Term Financial Plan
Summary and Conclusions
Chapter Review and Self-Test Problems
Answers to Chapter Review and Self-Test Problems
Critical Thinking and Concepts Review
Questions and Problems
What’s on the Web?
Excel Master It! Problem
Chapter Case: Piepkorn Manufacturing Working Capital Management, Part 1
17 Working Capital Management
17.1 Float and Cash Management
Reasons for Holding Cash
The Speculative and Precautionary Motives
The Transaction Motive
Benefits of Holding Cash
Understanding Float
Disbursement Float
Collection Float and Net Float
Float Management
Ethical and Legal Questions
Electronic Data Interchange and Check 21: The End of Float?
17.2 Cash Management: Collection, Disbursement, and Investment
Cash Collection and Concentration
Components of Collection Time
Cash Collection
Lockboxes
Cash Concentration
Managing Cash Disbursements
Increasing Disbursement Float
Controlling Disbursements
Investing Idle Cash
Temporary Cash Surpluses
Characteristics of Short-Term Securities
Some Different Types of Money Market Securities
17.3 Credit and Receivables
Components of Credit Policy
Terms of Sale
The Basic Form
The Credit Period
Cash Discounts
Optimal Credit Policy
The Total Credit Cost Curve
Organizing the Credit Function
Credit Analysis
Credit Information
Credit Evaluation and Scoring
Collection Policy
Monitoring Receivables
Collection Effort
17.4 Inventory Management
The Financial Manager and Inventory Policy
Inventory Types
Inventory Costs
17.5 Inventory Management Techniques
The ABC Approach
The Economic Order Quantity Model
Inventory Depletion
Carrying Costs
Shortage Costs
Total Costs
Extensions to the EOQ Model
Safety Stocks
Reorder Points
Managing Derived-Demand Inventories
Materials Requirements Planning
Just-in-Time Inventory
Summary and Conclusions
Chapter Review and Self-Test Problems
Answers to Chapter Review and Self-Test Problems
Critical Thinking and Concepts Review
Questions and Problems
What’s on the Web?
Chapter Case: Piepkorn Manufacturing Working Capital Management, Part 2
Part Nine: Topics in Business Finance
18 International Aspects of Financial Management
18.1 TERMINOLOGY
18.2 FOREIGN EXCHANGE MARKETS AND EXCHANGE RATES
Exchange Rates
Exchange Rate Quotations
Cross-Rates and Triangle Arbitrage
Types of Transactions
18.3 PURCHASING POWER PARITY
Absolute Purchasing Power Parity
Relative Purchasing Power Parity
The Basic Idea
The Result
Currency Appreciation and Depreciation
18.4 EXCHANGE RATES AND INTEREST RATES
Covered Interest Arbitrage
Interest Rate Parity
18.5 EXCHANGE RATE RISK
Short-Run Exposure
Long-Run Exposure
Translation Exposure
Managing Exchange Rate Risk
18.6 POLITICAL RISK
The Tax Cuts and Jobs Act
Managing Political Risk
Summary and Conclusions
Chapter Review and Self-Test Problems
Answers to Chapter Review and Self-Test Problems
Critical Thinking and Concepts Review
Questions and Problems
What’s on the Web?
Excel Master It! Problem
Chapter Case: S&S Air Goes International
Appendix A: Mathematical Tables
Appendix B: Key Equations
Appendix C: Answers to Selected End-of-Chapter Problems
Appendix D: Using the HP-10B and TI BA II Plus Financial Calculators
Glossary
Name Index
Subject Index

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Corporate Finance 11th Edition Ross Solutions Manual

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