公司理財英文版第10版課后習(xí)題答案

1、公司理財英文版第10版課后習(xí)題答案 Solutions Manual Fundamentals of Corporate Finance10th edition Ross, Westerfield, and Jordan 06-25-2013 Prepared by Brad Jordan University of Kentucky Joe Smolira Belmont University 公司理財英文版第10版課后習(xí)題答案 CHAPTER 1 INTRODUCTION TO CORPORATE FINANCE Answers to Concepts Review and Critica

2、l 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 firms credit collection p 2. Disadvantages: unlimited

3、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

4、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 cost

5、s to comply with Sarbox can be several million dollars, which can be a large percentage of a small firms profits. A majorhe cost of 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 m

6、arket, the costs associated with raising funds in these markets are usually higher than the costs of raising funds in the public market. 5. The office and the office are the two primary groups that report directly to the chief financial officer. The controllers office handles cost and the current ma

7、rket (share of the of the firm its ther 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. Management may act in its own or someone elses best interests, ra treasurers controllers organizational financial accoun

8、ting, tax management, and management informati responsible for cash and credit management, capital budgeting, and financial planning. Therefore, the study of corporate finance is concentrated within the treasury groups functions. 6. To maximize value price) equity (whether publiclytraded or not). 7.

9、 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 th ownership from control in the corporate form of organization is what causes agency problems to exist. 8. A primary market transaction. 9.

10、In auction markets like the NYSE, brokers and agents meet at a physical location (the exchange) to match buyers and sellers of assets. Dealer markets like NASDAQ consist of dealers operating at dispersed locales who buy and sell assets themselves, communicating with other dealers either electronical

11、ly or literally over-the-counter. 10. Such organizations frequently pursue social or political missions, so many different goals are conceivable. One goal that is often cited is revenue minimization; that is, provide whatever goods and services are offered at the lowest possible cost to society. A b

12、etter approach might be to observe that even a not-for-profit business has equity. Thus, one answer is that the appropriate goal is to maximize the value of the equity. 11. Presumably, the current stock value reflects the risk, timing, and magnitude of all future cash flows, both short-term and long

13、-term. If this is correct, then the statement is false. 12. An argument can be made either way. At the one extreme, we could argue that in a market economy, all of these things are priced. There is thus an optimal level of, for example, ethical and/or illegal behavior, and the framework of stock val

14、uation explicitly includes these. At the other extreme, we could argue that these are noneconomic phenomena and are best handled through the political process. A classic (and highly relevant) thought question that illustrates this debate goes something like this: “A firm has estimated that the cost

15、of improvi million. However, the firm believes that improving the safety of the product will only save $20 million in product liability claims. What should the firm 13. The goal will be the same, but the best course of action toward that goal may be different because of differing social, political,

16、and economic institutions. 14. The goal of management should be to maximize the share price for the current shareholders. If management believes that it can improve the profitability of the firm so that the share price will exceed $35, then they should fight the offer from the outside company. If ma

17、nagement believes that this bidder or other unidentified bidders will actually pay more than $35 per share to acquire the company, then they should still fight the offer. However, if the current management cannot increase the value of the firm beyond the bid price, and no other higher bids come in,

18、then management is not acting in the interests of the shareholders by fighting the offer. Since current managers often lose their jobs when the corporation is acquired, poorly monitored managers have an incentive to fight corporate takeovers in situations such as this. 15. We would expect agency pro

19、blems to be less severe in countries with a relatively small percentage of individual ownership. Fewer individual owners should reduce the number of diverse opinions concerning corporate goals. The high percentage of institutional ownership might lead to a higher degree of agreement between owners a

20、nd managers on decisions concerning risky projects. In addition, institutions may be better able to implement effective monitoring mechanisms on managers with their own management. The increase in institutional ownership of stock in the United States and the growing activism of these large sharehold

21、er groups may lead to a reduction in agency problems for U.S. corporations and a more efficient market for corporate control. and experiences than can individual owners, based on the institutions de word 文檔 可自由復(fù)制編輯 16. How much is too much? Who is worth more, Lawrence Ellison or Tiger Woods? The sim

22、plest answer is that there is a market for executives just as there is for all types of labor. Executive compensation is the price that clears the market. The same is true for athletes and performers. Having said that, one aspect of executive compensation deserves comment. A primary reason executive

23、 compensation has grown so dramatically is that companies have increasingly moved to stock-based compensation. Such movement is obviously consistent with the attempt to better align stockholder and management interests. In recent years, stock prices have soared, so management has cleaned up. It is s

24、ometimes argued that much of this reward is simply due to rising stock prices in general, not managerial performance. Perhaps in the future, executive compensation will be designed to reward only differential performance, that is, stock price increases in excess of general market increases. word 文檔

25、可自由復(fù)制編輯 公司理財英文版第10版課后習(xí)題答案 CHAPTER 2 FINANCIAL STATEMENTS, TAXES, AND CASH FLOW Answers to Concepts Review and Critical Thinking Questions 1. Liquidity measures how quickly and easily an asset can be converted to cash without significant loss in value. Its desirable for firms to have high liqui meeti

26、ng short-term creditor demands. However, since liquidity also has an opportunity cost associated with itnamely that higher returns can generally be found by investing the cash into productive assetslow liquidity levels are also desirable to t management staff to find a reasonable compromise between

27、these opposing needs. 2. The recognition and matching principles in financial accounting call for revenues, and the costs associated with producing those revenues, to be “booked” when the revenue process is essenti ally complete, not necessarily when the cash is collected or bills are paid. Note tha

28、t this way is not necessarily correct; its the way accountants have c 3. Historical costs can be objectively and precisely measured whereas market values can be difficult to estimate, and different analysts would come up with different numbers. Thus, there is a trade-off between relevance (market va

29、lues) and objectivity (book values). 4. Depreciation is a noncash deduction that reflects adjustments made in asset book values in accordance with the matching principle in financial accounting. Interest expense is a cash outlay, but its a financing cost, not an operating cost. 5. Market values can

30、never be negative. Imagine a share of stock selling for $20. This would mean that if you placed an order for 100 shares, you would get the stock along with a check for $2,000. How many shares do you want to buy? More generally, because of corporate and individual bankruptcy laws, net worth for a per

31、son or a corporation cannot be negative, implying that liabilities cannot exceed assets in market value. 6. For a successful company that is rapidly expanding, for example, capital outlays will be large, possibly leading to negative cash flow from assets. In general, what matters is whether the mone

32、y is spent wisely, not whether cash flow from assets is positive or negative. - 7. Its probably not a good sign for an established comp up, so it depends. 8. For example, if a company were to become more efficient in inventory management, the amount of inventory needed would decline. The same might

33、be true if it becomes better at collecting its receivables. In general, anything that leads to a decline in ending NWC relative to beginning would have this effect. Negative net capital spending would mean more long-lived assets were liquidated than purchased. 9. If a company raises more money from

34、selling stock than it pays in dividends in a particular period, its cash flow to stockholders will be negative. If a company borrows more than it pays in interest, its cash flow to creditors will be negative. 10. The adjustments discussed were purely accounting changes; they had no cash flow or mark

35、et value consequences unless the new accounting information caused stockholders to revalue the derivatives. 11. Enterprise value is the theoretical takeover price. In the event of a takeover, an acquirer would have to take on the companys debt but would pocket its cash. Enterprise value differs sign

36、ificantly from simple market capitalization in several ways, and it may be a more accurate representation of a firms value. In a takeover, the value of a firms debt would need to be paid by the buyer when taking over a company. This enterprise value provides a much more accurate takeover valuation b

37、ecause it includes debt in its value calculation. 12. In general, it appears that investors prefer companies that have a steady earnings stream. If true, this encourages companies to manage earnings. Under GAAP, there are numerous choices for the way a company reports its financial statements. Altho

38、ugh not the reason for the choices under GAAP, one outcome is the ability of a company to manage earnings, which is not an ethical decision. Even though earnings and cash flow are often related, earnings management should have little effect on earnings, shareholder wealth can be increased, at least

39、temporarily. However, given the questionable ethics of this practice, the company (and shareholders) will lose value if the practice is discovered. (except for tax implications). If the market is “fooled” and prefers steady casfhl ow Solutions to Questions and Problems NOTE: All end of chapter probl

40、ems were solved using a spreadsheet. Many problems require multiple steps. Due to space and readability constraints, when these intermediate steps are included in this solutions manual, rounding may appear to have occurred. However, the final answer for each problem is found without rounding during

41、any step in the problem. Basic 1. To find owners equity, we must construct a balance shee Balance Sheet CA $ 4,800 CL $ 4,200 NFA 27,500 LTD 10,500 OE ? TA $32,300 TL & OE $32,300 We know that total liabilities and owners equity (TL & OE) must equal total assets of $32,300. term debt plus owners equ

42、ity, We also know that TL & OE is equal to current liabilities plus long- so owners equity is: OE = $32,300 10,500 4,200 = $17,600 NWC = CA CL = $4,800 4,200 = $600 word 文檔 可自由復(fù)制編輯 2. The income statement for the company is: Income Statement Sales $734,000 Costs 315,000 Depreciation 48,000 EBIT $371

43、,000 Interest 35,000 EBT $336,000 Taxes (35%) 117,600 Net income $218,400 3. One equation for net income is: Net income = Dividends + Addition to retained earnings Rearranging, we get: Addition to retained earnings = Net income Dividends = $218,400 85,000 = $133,400 4. EPS = Net income / Shares = $2

44、18,400 / 110,000 = $1.99 per share DPS = Dividends / Shares = $85,000 / 110,000 = $0.77 per share 5. To find the book value of current assets, we use: NWC = CA CL. Rearranging to solve for current assets, we get: CA = NWC + CL = $215,000 + 900,000 = $1,115,000 The market value of current assets and

45、fixed assets is given, so: Book value CA = $1,115,000 Market value CA = $1,250,000 Book value NFA = $3,200,000 Market value NFA = $5,300,000 Book value assets = $4,315,000 Market value assets = $6,550,000 6. Taxes = 0.15($50,000) + 0.25($25,000) + 0.34($25,000) + 0.39($255,000 100,000) = $82,700 7.

46、The average tax rate is the total tax paid divided by taxable income, so: Average tax rate = $82,700 / $255,000 = .3243, or 32.43% The marginal tax rate is the tax rate on the next $1 of earnings, so the marginal tax rate = 39%. word 文檔 可自由復(fù)制編輯 8. To calculate OCF, we first need the income statement

47、: Income Statement Sales $39,500 Costs 18,400 Depreciation 1,900 EBIT $19,200 Interest 1,400 Taxable income $17,800 Taxes (35%) 6,230 Net income $11,570 OCF = EBIT + Depreciation Taxes = $19,200 + 1,900 6,230 = $14,870 9. Net capital spending = NFAendNFA beg + Depreciation Net capital spending = $3,

48、600,000 2,800,000 + 345,000 Net capital spending = $1,145,000 Change in NWC = (CA end CLend ) (CA beg CLbeg 11. Cash flow to creditors = Interest paid Net new borrowing Cash flow to creditors = Interest paid (LTD end LTDbeg 12. Cash flow to stockholders = Dividends paid Net new equity Cash flow to s

49、tockholders = Dividends paid (Common end end beg 10. Change in NWC = NWC end NWCbeg ) Change in NWC = ($3,460 1,980) ($3,120 1,570) Change in NWC = $1,480 1,550 = $70 ) Cash flow to creditors = $190,000 ($2,550,000 2,300,000) Cash flow to creditors = $60,000 + APIS ) (Common + APIS beg ) Cash flow t

50、o stockholders = $540,000 ($715,000 + 4,700,000) ($680,000 + 4,300,000) Cash flow to stockholders = $105,000 Note, APIS is the additional paid-in surplus. 13. Cash flow from assets = Cash flow to creditors + Cash flow to stockholders = $60,000 + 105,000 = $45,000 Cash flow from assets = $45,000 = OC

51、F Change in NWC Net capital spending = $45,000 = OCF ($55,000) 1,300,000 Operating cash flow = $45,000 55,000 + 1,300,000 Operating cash flow = $1,290,000 word 文檔 可自由復(fù)制編輯 Intermediate 14. To find the OCF, we first calculate net income. Income Statement Sales $235,000 Costs 141,000 Other expenses 7,9

52、00 Depreciation 17,300 EBIT $ 68,800 Interest 12,900 Taxable income $ 55,900 Taxes 19,565 Net income $ 36,335 Dividends $12,300 Additions to RE $24,035 a. OCF = EBIT + Depreciation Taxes = $68,800 + 17,300 19,565 = $66,535 b. CFC = Interest Net new LTD = $12,900 (4,500) = $17,400 Note that the net n

53、ew long-term debt is negative because the company repaid part of its long- term debt. c. CFS = Dividends Net new equity = $12,300 6,100 = $6,200 d. We know that CFA = CFC + CFS, so: CFA = $17,400 + 6,200 = $23,600 CFA is also equal to OCF Net capital spending Change in NWC. We already know OCF. Net

54、capital spending is equal to: Net capital spending = Increase in NFA + Depreciation = $25,000 + 17,300 = $42,300 Now we can use: CFA = OCF Net capital spending Change in NWC $23,600 = $66,535 42,300 Change in NWC Change in NWC = $635 This means that the company increased its NWC by $635. 15. The sol

55、ution to this question works the income statement backwards. Starting at the bottom: Net income = Dividends + Addition to retained earnings = $1,800 + 5,300 = $7,100 word 文檔 可自由復(fù)制編輯 Now, looking at the income statement: EBT EBT Tax rate = Net income Recognize that EBT Tax rate is simply the calculat

56、ion for taxes. Solving this for EBT yields: EBT = NI / (1Tax rate) = $7,100 / (1 0.35) = $10,923 Now you can calculate: EBIT = EBT + Interest = $10,923 + 4,900 = $15,823 The last step is to use: EBIT = Sales Costs Depreciation $15,823 = $52,000 27,300 Depreciation Solving for depreciation, we find t

57、hat depreciation = $8,877 16. The balance sheet for the company looks like this: Balance Sheet Cash $ 127,000 Accounts payable $ 210,000 Accounts receivable 105,000 Notes payable 160,000 Inventory 293,000 Current liabilities $ 370,000 Current assets $ 525,000 Long-term debt 845,000 Total liabilities

58、 $1,215,300 Tangible net fixed assets 1,620,000 Intangible net fixed assets 630,000 Common stock ? Accumulated ret. earnings 1,278,000 $2,755,000 Total assets $2,775,000 Total liab. & owners equity Total liabilities and owners equity is: TL & OE = CL + LTD + Common stock + Retained earnings Solving

59、for this equation for equity gives us: Common stock = $2,755,000 1,215,300 1,278,000 = $282,000 17. The market value of shareholders equity cannot be negat would imply that the company would pay you to own the stock. The market value of shareholders is $7,100, equity is equal to $1,300, and if TA is

60、 $5,200, equity is equal to $0. We should note here that the book value of shareholders equity can be negative. equity can be stated as: ShareholdersTL),0.So,ifTA equity = Max (T word 文檔 可自由復(fù)制編輯 18. a. Taxes Growth = 0.15($50,000) + 0.25($25,000) + 0.34($1,000) = $14,090 Taxes Income = 0.15($50,000)