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1、SolutionsManualFundamentalsofCorporateFinance9theditionRoss,Westerfield,andJordanUpdated12-20-2008CHAPTER1B-3CHAPTER1INTRODUCTIONTOCORPORATEFINANCEAnswerstoConceptsReviewandCriticalThinkingQuestions1.Capitalbudgeting(decidingwhethertoexpandamanufacturingplant),capi
2、talstructure(decidingwhethertoissuenewequityandusetheproceedstoretireoutstandingdebt),andworkingcapitalmanagement(modifyingthefirm’screditcollectionpolicywithitscustomers).2.Disadvantages:unlimitedliability,limitedlife,difficultyintransferringownership,hardtoraisec
3、apitalfunds.Someadvantages:simpler,lessregulation,theownersarealsothemanagers,sometimespersonaltaxratesarebetterthancorporatetaxrates.3.Theprimarydisadvantageofthecorporateformisthedoubletaxationtoshareholdersofdistributedearningsanddividends.Someadvantagesinclude:
4、limitedliability,easeoftransferability,abilitytoraisecapital,andunlimitedlife.4.InresponsetoSarbanes-Oxley,smallfirmshaveelectedtogodarkbecauseofthecostsofcompliance.ThecoststocomplywithSarboxcanbeseveralmilliondollars,whichcanbealargepercentageofasmallfirmsprofits
5、.Amajorcostofgoingdarkislessaccesstocapital.Sincethefirmisnolongerpubliclytraded,itcannolongerraisemoneyinthepublicmarket.Althoughthecompanywillstillhaveaccesstobankloansandtheprivateequitymarket,thecostsassociatedwithraisingfundsinthesemarketsareusuallyhigherthant
6、hecostsofraisingfundsinthepublicmarket.5.Thetreasurer’sofficeandthecontroller’sofficearethetwoprimaryorganizationalgroupsthatreportdirectlytothechieffinancialofficer.Thecontroller’sofficehandlescostandfinancialaccounting,taxmanagement,andmanagementinformationsystem
7、s,whilethetreasurer’sofficeisresponsibleforcashandcreditmanagement,capitalbudgeting,andfinancialplanning.Therefore,thestudyofcorporatefinanceisconcentratedwithinthetreasurygroup’sfunctions.6.Tomaximizethecurrentmarketvalue(shareprice)oftheequityofthefirm(whetherit’
8、spublicly-tradedornot).7.Inthecorporateformofownership,theshareholdersaretheownersofthefirm.Theshareholderselectthedirectorsofthecorporation,whoi
