Principles of managerial finance 13th edition solution manual

Interest Rates and Bond Valuation Chapter 7. Risk and Return Chapter 9. Capital Budgeting Techniques Chapter Capital Budgeting Cash Flows Chapter Leverage and Capital Structure Chapter Hybrid and Derivative Securities Chapter International Managerial Finance. You must be logged in to post a review. Manual solutions provide electronic and soft downloadable products for the selected Textbooks and not the actual hard copy Materials.

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You get what you paid for securely and anonymously…. Comparison of advantages and disadvantages of a partnership versus incorporation.

Answer: While Jack and Ann disagree over whether or not their firm should incorporate or remain as a partnership, each form of business organization has its advantages and disadvantages.

If corporate earnings are paid out as salary, Jack and Ann will pay their individual rates as they do on their partnership earnings. While taxation of income is a key factor in deciding which form of business organization to select, two other factors are also important.

In a partnership, each partner has unlimited liability and may have to cover debts of other partners, while corporate owners have limited liability that guarantees that they cannot lose more than they have invested in the corporation. The third major consideration is ease of transfer of the business.

Partnerships are harder to transfer and are technically dissolved when a partner dies, while a corporation can have a very long life with ownership readily transferred through the sale of stock.

The most common cause is when expenses have a shorter due date than expected revenue. On the other hand, if the firm has not experienced such a cash crunch before, there may be larger problems looming ahead and it would be unseemly to spend cash on a party that would be better spent meeting the debt obligations of the firm. At this point there are two questions that must be answered. In other words, will the project generate a positive net PV? If it does, the project must be considered further to see if it is the best use of capital.

If the firm has a need to ration capital, the project must then be compared to other projects competing for the limited capital to see if it is viable. Depending upon the industry, however, failure to keep up with competitors can be devastating.

Agency costs Answer: Agency costs are the costs borne by stockholders to maintain a governance structure that ensures against dishonest acts of management, and gives managers the financial incentive to maximize share price.

One example of agency costs is stock options, which are used to provide an incentive for managers to work diligently for the benefit of the firm. Tips are similar to stock options in that they are offered as rewards for good service much as stock options are used to reward managers, presumably based on their good performance—which subsequently leads to a higher stock price.

The Donut Shop, Inc. By banning tips, the management has created a situation where an agency cost may be necessary to provide an incentive for employees to resume their former level of performance. Liability comparisons LG 2; Basic a. Harper has unlimited liability. Harper has limited liability, which guarantees that she cannot lose more than she invested.

Accrual income vs. The cash flow statement is more useful to the financial manager. The accounting net income includes amounts that will not be collected and, as a result, do not contribute to the wealth of the owners. Cash flow statement LG 4; Intermediate a. If Jane is facing a shortage, she could cut back on some of her discretionary items, including clothing, dining out, and gas i. She may, for instance, observe the existence of large automobile insurance bills or tendency to spend more during the Christmas holiday season.

If her August net cash flow is not needed to pay anticipated bills, she should invest in a diversified portfolio. Ken Allen should recommend the new robotics be used on the heavy truck gear line.

The marginal benefits exceed the marginal costs e. Ken Allen should determine whether there will be additional training necessary with the new robotics, whether even better robotics may be available in a short while, and what will be the energy consumption of the new robotics. Identifying agency problems, costs, and resolutions LG 4; Intermediate a. In this case the employee is being compensated for unproductive time. The company must pay someone to take her place during her absence.

Installation of a time clock that must be punched by the receptionist every time she leaves work and returns would result in either: 1 her returning on time or 2 reducing the cost to the firm by reducing her pay for the lost work. The costs to the firm are in the form of opportunity costs.

Money budgeted to cover the inflated costs of this project proposal is not available to fund other projects that may help to increase shareholder wealth. The manager may negotiate a deal with the merging competitor that is extremely beneficial to the executive and then sell the firm for less than its fair market value.

A good way to reduce the loss of shareholder wealth would be to open the firm up for purchase bids from other firms once the manager makes it known that the firm is willing to merge. If the price offered by the competitor is too low, other firms will raise the price closer to its fair market value. These workers have not been on the job as long to increase their work efficiency.

Also, the better employees generally need to be highly compensated for their skills. One approach to reducing the problem would be to give the manager performance shares if he or she meets certain stated goals. Implementing a stock incentive plan tying management compensation to share price would also encourage the manager to retain quality employees.

The company may be referring to legal issues, and the fact that it will comply with laws. For instance, it may be implying that it will not be using illegal immigrants and paying them a reduced salary. It may refer to the use of substandard materials, which are less likely to hold up over an extended period of time. Sometimes the use of substandard manufacturing facilities will increase the chance of harm to employees or worse, as witnessed by the BP Gulf oil spill in April Assessing the Goal of Sports Products, Inc.

Maximization of shareholder wealth, which means maximization of share price, should be the primary goal of the firm. Unlike profit maximization, this goal considers timing, cash flows, and risk.

It is the value they can realize should they decide to sell their shares. Yes, there appears to be an agency problem. Each chapter includes an early discussion of the relevance of the topic to majors in accounting, information systems, management, marketing, and operations. These pedagogic tools should motivate students to quickly grasp an understanding of the chapter content and employ it in both their professional and personal lives.

While the public might reward him with a higher salary in good years, there is a potential that he could be removed from office in bad years. Also, Facebook would be a tantalizing company to many other firms, making it a takeover target. Finance is the art and science of managing money. Finance affects all individuals, businesses, and governments in the process of the transfer of money through institutions, markets, and instruments.

Businesses also have to determine how to spend and invest revenues. Financial services is the area of finance concerned with the design and delivery of advice and financial products to individuals, businesses, and government.

This field offers many career opportunities, including financial analyst, capital budgeting analyst, and cash manager. Note: Other answers possible. Sole proprietorships are the most common form of business organization, while corporations are responsible for the majority of business receipts and profits.

Corporations account for the majority of business receipts and profits because they receive certain tax advantages and can expand more easily due to access to capital markets. Stockholders are the true owners, through equity in common and preferred stock, of a corporation.

They elect the board of directors, which has the ultimate authority to guide corporate affairs and set general policy. The board is usually composed of key corporate personnel and outside directors. The president or chief executive officer CEO reports to the board. The owners of the corporation do not have a direct relationship with management but give their input through the election of board members and voting on major charter issues.

The owners of the firm are compensated through the receipt of cash dividends paid by the firm or by realizing capital gains through increases in the price of their common stock shares. In return for the limited liability, the limited partners are prohibited from active management of the partnership.

The LLP is taxed as a partnership. This form is most frequently used by legal and accounting professionals. These firms generally do not have large numbers of owners. Most typically they have fewer than owners. Virtually every function within a firm is in some way connected with the receipt or disbursement of cash. The cash relationship may be associated with the generation of sales through the marketing department, the incurring of raw material costs through purchasing, or the earnings of production workers.

Since finance deals primarily with management of cash for operation of the firm, every person within the firm needs to be knowledgeable of finance to effectively work with employees of the financial departments. Individuals plan, monitor, and assess the financial aspects of their activities over a given period through the consideration of cash inflows and outflows.

The goal of the firm, and therefore all managers, is to maximize shareholder wealth. This goal is measured by share price; an increasing price per share of common stock relative to the stock market as a whole indicates achievement of this goal. Profit maximization is not consistent with wealth maximization due to: 1 the timing of earnings per share, 2 earnings that do not represent cash flows available to stockholders, and 3 a failure to consider risk.

Risk is the chance that actual outcomes may differ from expected outcomes. Financial managers must consider both risk and return because of their inverse effect on the share price of the firm. Increased risk may decrease the share price, while increased return is likely to increase the share price.

As a result, the actions of all corporations and their executives have been subjected to closer scrutiny. This increased scrutiny of this type of crime has resulted in many firms establishing corporate ethics guidelines and policies to cover employee actions in dealing with all corporate constituents.

The adoption of high ethical standards by a corporation strengthens its competitive position by reducing the potential for litigation, maintaining a positive image, and building shareholder confidence. The treasurer or financial manager within the mature firm must make decisions with respect to handling financial planning, acquisition of fixed assets, obtaining funds to finance fixed assets, managing working capital needs, managing the pension fund, managing foreign exchange, and distribution of corporate earnings to owners.

Finance is often considered a form of applied economics. Firms operate within the economy and must be aware of economic principles, changes in economic activity, and economic policy. Principles developed in economic theory are applied to specific areas in finance. From macroeconomics comes the institutional structure in which money and credit flows take place. From microeconomics, finance draws the primary principle used in financial management, marginal analysis.

Since this analysis of marginal benefits and costs is a critical component of most financial decisions, the financial manager needs basic economic knowledge. Accountants operate on an accrual basis, recognizing revenues at the point of sale and expenses when incurred.

The financial manager focuses on the actual inflows and outflows of cash, recognizing revenues when actually received and expenses when actually paid.

The accountant primarily gathers and presents financial data; the financial manager devotes attention primarily to decision making through analysis of financial data. Making investment decisions: Determining both the most efficient level and the best mix of assets; and b. Corporate governance refers to a system of organizational control that is used to define and establish lines of responsibility and accountability among major participants in the corporation.

These participants include the shareholders, board of directors, officers, and managers of the corporations and other stakeholders. More detailed responsibilities would be established within each branch of the organizational chart. The act has many provisions, but the major thrust of the act is to reduce the number of situations in which a conflict of interest can arise and to hold management more accountable for the financial and operating information they communicated to the public.

Firms incur agency costs to prevent or minimize agency problems. It is unclear whether they are effective in practice. The four categories of agency cost are monitoring expenditures incurred by the owners for audit and control procedures, bonding expenditures to protect against the potential consequences of dishonest acts by managers, structuring expenditures that use managerial compensation plans to provide financial incentives for managerial actions consistent with share price maximization, and opportunity costs resulting from the difficulties typically encountered by large organizations in responding to new opportunities.

The agency problem and the associated agency costs can be reduced by a properly constructed and followed corporate governance structure. The structure of the governance system should be designed to institute a system of checks and balances to reduce the ability and incentives of management to deviate from the goal of shareholder wealth maximization.

Structuring expenditures are currently the most popular way to deal with the agency problem—and also the most powerful and expensive.