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1、SolutionsManualthFundamentalsofCorporateFinance9editionRoss,Westerfield,andJordanUpdated12-20-2008CHAPTER1INTRODUCTIONTOCORPORATEFINANCEAnswerstoConceptsReviewandCriticalThinkingQuestions1.Capitalbudgeting(decidingwhethertoexpandamanufacturingplant),capitalstructure(decidin
2、gwhethertoissuenewequityandusetheproceedstoretireoutstandingdebt),andworkingcapitalmanagement(modifyingthefirm’screditcollectionpolicywithitscustomers).2.Disadvantages:unlimitedliability,limitedlife,difficultyintransferringownership,hardtoraisecapitalfunds.Someadvantages:si
3、mpler,lessregulation,theownersarealsothemanagers,sometimespersonaltaxratesarebetterthancorporatetaxrates.3.Theprimarydisadvantageofthecorporateformisthedoubletaxationtoshareholdersofdistributedearningsanddividends.Someadvantagesinclude:limitedliability,easeoftransferability
4、,abilitytoraisecapital,andunlimitedlife.4.InresponsetoSarbanes-Oxley,smallfirmshaveelectedtogodarkbecauseofthecostsofcompliance.ThecoststocomplywithSarboxcanbeseveralmilliondollars,whichcanbealargepercentageofasmallfirmsprofits.Amajorcostofgoingdarkislessaccesstocapital.Sin
5、cethefirmisnolongerpubliclytraded,itcannolongerraisemoneyinthepublicmarket.Althoughthecompanywillstillhaveaccesstobankloansandtheprivateequitymarket,thecostsassociatedwithraisingfundsinthesemarketsareusuallyhigherthanthecostsofraisingfundsinthepublicmarket.5.Thetreasurer’so
6、fficeandthecontroller’sofficearethetwoprimaryorganizationalgroupsthatreportdirectlytothechieffinancialofficer.Thecontroller’sofficehandlescostandfinancialaccounting,taxmanagement,andmanagementinformationsystems,whilethetreasurer’sofficeisresponsibleforcashandcreditmanagemen
7、t,capitalbudgeting,andfinancialplanning.Therefore,thestudyofcorporatefinanceisconcentratedwithinthetreasurygroup’sfunctions.6.Tomaximizethecurrentmarketvalue(shareprice)oftheequityofthefirm(whetherit’spublicly-tradedornot).7.Inthecorporateformofownership,theshareholdersaret
8、heownersofthefirm.Theshareholderselectthedirectorsofthecorporation,whointurnappoin
