Archives: Solution Manual
978-1259289903 Chapter 17 Solution Manual Part 2
20. We can use the Black-Scholes model to value the equity of a firm. Using the asset value of $23,200 as the stock price, and the face value of debt of $22,000 as the exercise price, the value of the […]
978-1259289903 Chapter 17 Solution Manual Part 1
CHAPTER 17 OPTIONS AND CORPORATE FINANCE Answers to Concept Questions 1. A call option confers the right, without the obligation, to buy an asset at a given price on or before a given date. A put option confers the right, […]
978-1259289903 Chapter 17 Case
CHAPTER 17 EXOTIC CUISINE EMPLOYEE STOCK OPTIONS 1. We can use the Black-Scholes equation to value the employee stock options. We need to use the risk- free rate that is the same as the maturity as the options. So, assuming […]
978-1259289903 Chapter 16 Solution Manual Part 2
CHAPTER 16 B – 1 12. If you only want $200 in Year 1, you will buy: Shares to buy at Year 1 = ($1,950 – 200)/$56.52 Shares to buy at Year 1 = 30.96 shares at Year 1. Your […]
978-1259289903 Chapter 16 Solution Manual Part 1
CHAPTER 16 DIVIDENDS AND OTHER PAYOUTS Answers to Concept Questions 1. Dividend policy deals with the timing of dividend payments, not the amounts ultimately paid. 2. A stock repurchase reduces equity while leaving debt unchanged. The debt ratio rises. A […]
978-1259289903 Chapter 16 Case
C-1 CASE SOLUTIONS CHAPTER 16 ELECTRONIC TIMING, INC. 1. The one-time dividend will not affect the stock price. The value of the company will decline by the amount of the dividend. Ignoring taxes, shareholder wealth will not be affected because […]
978-1259289903 Chapter 15 Solution Manual
CHAPTER 15 B – 1 CHAPTER 15 CAPITAL STRUCTURE: LIMITS TO THE USE OF DEBT Answers to Concept Questions 1. Direct costs are potential legal and administrative costs. These are the costs associated with the litigation arising from a liquidation […]
978-1259289903 Chapter 15 Case
CHAPTER 15 C-1 CHAPTER 15 DUGAN CORPORATION’S CAPITAL BUDGETING 1. We assume the $3.7 million is spent at the start of the year so we can ignore time value of money considerations. If we include the time value of money, […]
978-1259289903 Chapter 14 Solution Manual Part 3
CHAPTER 14 B – 1 22. a. To purchase 5 percent of Knight’s equity, the investor would need: Knight investment = .05($1,550,000) Knight investment = $77,500 And to purchase 5 percent of Veblen without borrowing would require: However, to have […]
978-1259289903 Chapter 14 Solution Manual Part 2
9. a. The rate of return earned will be the dividend yield. The company has debt, so it must make an interest payment. The net income for the company is: NI = $70,000 – .08($325,000) NI = $44,000 The investor […]
978-1259289903 Chapter 14 Solution Manual Part 1
CHAPTER 14 CAPITAL STRUCTURE: BASIC CONCEPTS Answers to Concept Questions 1. Assumptions of the Modigliani-Miller theory in a world without taxes: 1) Individuals can borrow at the same interest rate at which the firm borrows. Since investors can purchase securities […]
978-1259289903 Chapter 14 Case
CHAPTER 14 C-1 CHAPTER 14 STEPHENSON REAL ESTATE RECAPITALIZATION 1. If Stephenson wishes to maximize the overall value of the firm, it should use debt to finance the $95 million purchase. Since interest payments are tax deductible, debt in the […]
978-1259289903 Chapter 13 Solution Manual
CHAPTER 13 B – 1 CHAPTER 13 EFFICIENT CAPITAL MARKETS AND BEHAVIORAL CHALLENGES Answers to Concept Questions 1. To create value, firms should accept financing proposals with positive net present values. Firms can create valuable financing opportunities in three ways: […]
978-1259289903 Chapter 13 Case
CHAPTER 13 C-1 CHAPTER 13 YOUR 401k ACCOUNT AT EAST COAST YACHTS 1. Before the fact, you would expect that mutual funds managers would be able to outperform the market. This is due, in part, to the Darwinian nature of […]
978-1259289903 Chapter 12 Solution Manual Part 2
CHAPTER 12 B – 1 18. The total cost of the equipment including flotation costs was: Total costs = $24,000,000 + 1,420,000 Total costs = $25,420,000 Using the equation to calculate the total cost including flotation costs, we get: We […]
978-1259289903 Chapter 12 Solution Manual Part 1
CHAPTER 12 RISK, COST OF CAPITAL, AND VALUATION Answers to Concepts Review and Critical Thinking Questions 1. No. The cost of capital depends on the risk of the project, not the source of the money. 2. Interest expense is tax-deductible. […]
978-1259289903 Chapter 12 Case
CHAPTER 12 C-1 CHAPTER 12 THE COST OF CAPITAL FOR SWAN MOTORS NOTE: The example below shows the results during May 2016. The actual answer to the case will change based on current market conditions. 1. The book value of […]
978-1259289903 Chapter 11 Solution Manual Part 3
CHAPTER 11 B – 1 32. First, we need to find the standard deviation of the market and the portfolio, which are: Now we can use the equation for beta to find the beta of the portfolio, which is: Z […]
978-1259289903 Chapter 11 Solution Manual Part 2
20. a. We have a special case where the portfolio is equally weighted, so we can sum the returns of each asset and divide by the number of assets. The expected return of the portfolio is: b. We need to […]
978-1259289903 Chapter 11 Solution Manual Part 1
CHAPTER 11 RISK AND RETURN: THE CAPITAL ASSET PRICING MODEL (CAPM) Answers to Concept Questions 1. Some of the risk in holding any asset is unique to the asset in question. By investing in a variety of assets, this unique […]
978-1259289903 Chapter 11 Case
CHAPTER 11 C-1 CHAPTER 11 A JOB AT EAST COAST YACHTS, PART 2 1. There should be little, if any, money allocated to the company stock. The principle of diversification indicates that an individual should hold a diversified portfolio. Investing […]
978-1259289903 Chapter 10 Solution Manual Part 2
CHAPTER 10 B – 1 17. Looking at the long-term corporate bond return history in Table 10.2, we see that the mean return was 6.3 percent, with a standard deviation of 8.4 percent. The range of returns you would expect […]
978-1259289903 Chapter 10 Solution Manual Part 1
CHAPTER 10 RISK AND RETURN LESSONS FROM MARKET HISTORY Answers to Concept Questions 1. They all wish they had! Since they didn’t, it must have been the case that the stellar performance was 2. As in the previous question, it’s […]
978-1259289903 Chapter 10 Case
CHAPTER 10 C-1 CHAPTER 10 A JOB AT EAST COAST YACHTS 1. The biggest advantage the mutual funds have is instant diversification. The mutual funds have a 2. Both the APR and EAR are infinite. The match is instantaneous, so […]
978-1259289903 Chapter 1 Solution Manual
CHAPTER 2 B – 1 CHAPTER 1 INTRODUCTION TO CORPORATE FINANCE Answers to Concept Questions 1. The three basic forms are sole proprietorships, partnerships, and corporations. Some disadvantages of sole proprietorships and partnerships are: unlimited liability, limited life, difficulty in […]
978-1259289903 Chapter 1 Case
CHAPTER 1 EAST COAST YACHTS 1. An LLC (limited liability company) is essentially a hybrid form of a partnership (or sole proprietorship) and a corporation. The goal is to operate like a partnership or sole proprietorship, but Transfer of ownership. […]
978-1259278211 Chapter 9 Solution Manual Part 4
VI.Summary For firms to be successful, they must implement their strategies by means of effective We began the chapter with the key role of informational control. We contrasted two types of control systems: what we termed “traditional” and “contemporary” […]
978-1259278211 Chapter 9 Solution Manual Part 3
3. Managerial Rewards and Incentives From a corporate governance perspective, one of the most critical roles of the board of directors is to create incentives that align the interests of the CEO and top executives with the However, CEO pay […]
978-1259278211 Chapter 9 Solution Manual Part 2
1. The Potential Downside While rewards can be powerful tools to get employees to work for the benefit of the firm, they can also have some negative outcomes. First, if the incentive criteria seem out of the control of workers […]
978-1259278211 Chapter 9 Solution Manual Part 1
part 3 Strategic Implementation Chapter 9 Strategic Control and Corporate Governance…………………….. 278 (9-2) Ensuring Informational Control: Responding Effectively to Environmental Change…………………………………………………………….……..280 (9-4) A Traditional Approach to Strategic Control……………………………………………………….…280 (9-4) A Contemporary Approach to Strategic Control……………………………..….……….…………281 (9-4) Attaining Behavioral Control: Balancing […]
978-1259278211 Chapter 8 Solution Manual Part 3
E. Likelihood of Competitive Reaction The final step before initiating a competitive response is to evaluate what a competitor’s reaction is likely to be. Evaluating potential competitive reactions helps companies plan for future counterattacks. How a competitor is likely to […]
978-1259278211 Chapter 8 Solution Manual Part 2
4. Government Resources The U.S. government is an important resource for many young and small businesses. It Teaching Tip: Examples of how young firm start-ups were aided and/or encouraged by mentors, experienced businesspeople, and local or federal government support programs […]
978-1259278211 Chapter 8 Solution Manual Part 1
Chapter 8 Entrepreneurial Strategy and Competitive Dynamics…..….…. 248 (8-2) Recognizing Entrepreneurial Opportunities…………….………….………….. 250 (8-5) Entrepreneurial Opportunities……………………………………………………………………….……. 250 (8-5) Entrepreneurial Resources…………………………………………………………………………….……. 253 (8-8) Entrepreneurial Leadership…………………………………………………………………….….………. 257 (8-12) Entrepreneurial Strategy………………………………………………………………… 260 (8-13) Entry Strategies…………………………………………………………………………………………………. 260 (8-13) Generic Strategies……………………………………………………………………………………………… 263 (8-16) Combination Strategies………………………………………………………………………………………. […]
978-1259278211 Chapter 7 Solution Manual Part 4
3. Explain the two opposing forces—cost reduction and adaptation to local markets—that firms must deal with when they go global. Response: As firms go global, they gain an ability to reduce costs by exploiting economies of scale, reducing costs of […]
978-1259278211 Chapter 7 Solution Manual Part 3
A. Licensing and Franchising 1. Benefits Licensing and franchising are both forms of contractual arrangements. Franchise contracts typically include a broader range of factors in an operation and have a longer period 2. Risks and Limitations The other side of […]
978-1259278211 Chapter 7 Solution Manual Part 2
A. Potential Risks of International Expansion There are also many potential risks associated with international expansion. To help companies assess such risks, rating systems have been developed. EXHIBIT 7.3 depicts a sample Next, we address the four main types of […]
978-1259278211 Chapter 7 Solution Manual Part 1
Chapter 7 International Strategy: Creating Value in Global Markets…………………………………………………………………………………………………………. 212 (7-2) The Global Economy: A Brief Overview….…….……..…….……..……..…….…………….…..…….… 214 (7-4) Factors Affecting a Nation’s Competitiveness……..…….……..…….……..……..…….…..…..……… 215 (7-5) Factor Endowments…………………………………………………………………………………………………….. 215 (7-5) Demand Conditions…………………………………………………………………………………………………….. 216 (7-6) Related and Supporting Industries……………………………………………………………….….……….…… 216 (7-7) […]
978-1259278211 Chapter 6 Solution Manual Part 3
VIII. Reflecting on Career Implications Below, we provide some suggestions on how you can lead the discussion on the career implications for the material in Chapter 6. Corporate-Level Strategy: Is your current employer a single business firm or a diversified […]
978-1259278211 Chapter 6 Solution Manual Part 2
A. Portfolio Management Here, the key concept is the idea of a balanced portfolio of businesses. This consists of 1. Description and Potential Benefits The Boston Consulting Group’s growth/share matrix is among the best known of these approaches. Each of […]
978-1259278211 Chapter 6 Solution Manual Part 1
Chapter 6 Corporate-Level Strategy: Creating Value through Diversification………………………………………………………..….……… 180 (6-2) Making Diversification Work: An Overview………………………..…….……. 183 (6-5) Related Diversification: Economies of Scope and Revenue Enhancement…………………………………..…….…….….. 184 (6-6) Leveraging Core Competencies…………………………………………………………………….…….. 184 (6-7) Sharing Activities………………………………………………………………………………….….…….…. 186 (6-8) Related Diversification: Market Power………………….…….…….…….….…. […]
978-1259278211 Chapter 5 Solution Manual Part 3
This point is part of a larger issue of having students examine and assess firms with which they are Industry Life Cycle: If you sense that your career is maturing (or in the decline phase!), what actions can you take […]
978-1259278211 Chapter 5 Solution Manual Part 2
Discussion Question 20: Would customers be willing to pay higher prices for such customized services? Discussion Question 21: Do you believe that this approach might fit a majority or a minority of firms that seek consulting services? What type of […]
978-1259278211 Chapter 5 Solution Manual Part 1
part 2 Strategic Formulation Chapter 5 Business-Level Strategy: Creating and Sustaining Competitive Advantages…………………. 146 (5-2) Types of Competitive Advantage and Sustainability…………………………………………………….. 148 (5-4) Overall Cost Leadership………………………………………………………………………………………………. 148 (5-5) Differentiation………………………………………………………………………………………………………..….. 153 (5-7) Focus………………………………………………………………………………………………………………………… 159 (5-11) Combination Strategies: Integrating Overall Low Cost […]
978-1259278211 Chapter 4 Solution Manual Part 4
Chapter 4: Recognizing a Firm’s Intellectual Assets Refer to Exhibit 4.7: Issues to Consider in Creating Value through Human Capital, Social Capital, and Technology. Ask students in a group to use this “checklist” to evaluate an Teaching suggestions: The checklist […]
978-1259278211 Chapter 4 Solution Manual Part 3
C. The Potential Downside of Social Capital To provide balance to the discussion, it is useful to address some of the downsides of social capital. There are primarily two issues: First, when people identify strongly with a group they sometimes […]
978-1259278211 Chapter 4 Solution Manual Part 2
B. Developing Human Capital Organizations must do more than merely hire top-level talent and expect the skills and We provide the example of Solectron and Motorola. The following SUPPLEMENT provides some guidelines/suggestions for enhancing one’s career success. Although these points […]
978-1259278211 Chapter 4 Solution Manual Part 1
Chapter 4 Recognizing a Firm’s Intellectual Assets: Moving beyond a Firm’s Tangible Resources….….…….…….….. 108 (4-2) The Central Role of Knowledge in Today’s Economy..….……….………… 110 (4-5) Human Capital: The Foundation of Intellectual Capital..……….……….. 112 (4-6) Attracting Human Capital…………………………………………………………………………………… 114 (4-7) Developing […]
978-1259278211 Chapter 3 Solution Manual Part 4
End of Chapter Teaching Notes Chapter 3: Assessing the Internal Environment of the Firm Summary Review Questions 1. SWOT analysis is a technique to analyze the internal and external environment of a firm. What are its advantages and disadvantages? (page […]
978-1259278211 Chapter 3 Solution Manual Part 3
IIV. Issue for Debate This is an issue that is about brand value and how overextending a brand can erode its value. The World Triathlon Organization (which holds the Ironman competitions) extended its QUESTIONS: 1. What actions should WTC take? […]
978-1259278211 Chapter 3 Solution Manual Part 2
II. Resource-Based View of the Firm The resource-based view of the firm (RBV) combines two perspectives: (1) the internal analysis of phenomena within a company, and (2) an external analysis of the industry and its EXHIBIT 3.5 addresses the types […]