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Corporate Finance 10th Ross SOLUTIONS MANUAL and test bank

Corporate Finance 10th Ross SOLUTIONS MANUAL and test bank

the sample of the test bank

Corporate Finance, 10/e

Stephen A. Ross, Massachusetts Institute of Technology
Randolph W. Westerfield, University of Southern California
Jeffrey Jaffe, University of Pennsylvania

ISBN: 0078034779

Solutions Manual

Corporate Finance

Ross, Westerfield, and Jaffe

10th edition


Prepared by:

Joe Smolira

Belmont University

Book Description

September 27, 2012 0078034779 978-0078034770 10

Corporate Finance, by Ross, Westerfield, and Jaffe 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 Tenth Edition includes many exciting new research findings as well as an enhanced Connect Finance, now with even more student learning resources.



Answers to Concept Questions

1. 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. If such events occur, they may contradict the goal of maximizing the share price of the equity of the firm.

2. Such organizations frequently pursue social or political missions, so many different goals are conceivable. One goal that is often cited is revenue minimization; i.e., provide whatever goods and services are offered at the lowest possible cost to society. A better 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.

3. Presumably, the current stock value reflects the risk, timing, and magnitude of all future cash flows, both short-term and long-term. If this is correct, then the statement is false.

4. 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 valuation explicitly includes these. At the other extreme, we could argue that these are non-economic 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 of improving the safety of one of its products is $30 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 do?"

5. The goal will be the same, but the best course of action toward that goal may be different because of differing social, political, and economic institutions.

6. 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 management 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, then management is not acting in the interests of the shareholders by fighting the offer. Since cur

the solutions manual include the case solutions

Case Solutions

Corporate Finance

Ross, Westerfield, and Jaffe

10th edition


Prepared by:

Joe Smolira

Belmont University



The operating cash flow for the company is: (NOTE: All numbers are in thousands of dollars)

OCF = EBIT + Depreciation - Current taxes

OCF = $1,598 + 191 - 467

OCF = $1,322

To calculate the cash flow from assets, we need to find the capital spending and change in net working capital. The capital spending for the year was:

Capital spending

Ending net fixed assets


- Beginning net fixed assets


+ Depreciation


Net capital spending

$ 810

And the change in net working capital was:

Change in net working capital

Ending NWC


- Beginning NWC


Change in NWC


So, the cash flow from assets was:

Cash flow from assets

Operating cash flow


- Net capital spending


- Change in NWC


Cash flow from assets


The cash flow to creditors was:

Cash flow to creditors

Interest paid


- Net New Borrowing


Cash flow to Creditors


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