Solutions to Chapter 1
The Firm and the Financial Manager
1.
Thestockpricereflectsthevalueofbothcurrentandfuturedividendsthe
shareholderswillreceive.Incontrast,profitsreflectperformanceinthecurrent
yearonly.Profitmaximizersmaytrytoimprovethisyearsprofitsa

Solutions to Chapter 9
1.
a.
DIV1 = $1 1.04 = $1.04
DIV2 = $1 1.042 = $1.0816
DIV3 = $1 1.043 = $1.1249
b.P0 =
c.
DIV1
$1.04
$13.00
r g
0.12 0.04
Since the growth rate is 4%, one way to solve for this is 13(1.04) 3=14.6237.
Another way is to calculate the

Chapter 6 Homework Solutions
1.
See Excel spreadsheet for the SL Solution. The MACRS solution showed an NPV of
$63,192 whereas the SL solution shows $53,419. The value of accelerated depreciation
relative to straight line depreciation is therefore equal t

Chapter 4 Solutions
Time Value of Money
Note: My solutions store all the decimals and therefore if you do not do this you will get rounding
errors.
1. What is the future value a $1,000 investment under the following scenarios?
a. Value in 22 years assumin

Solutions to Chapter 3
1.
a. See Excel spreadsheet
b.
Current Ratio
=
Quick Ratio
=
6,930
6,415
=
1.08
6,930-1,412
6,415
=
.860
820
6,415
=
.128
Cash Ratio
Debt-Asset Ratio
=
13,453
25,327
=
.531
Debt-Equity Ratio
=
13,453
11,874
=
1.133
Times Interest Ea

Solutions to Chapter 2
1.
2.
3.
The accounting definition for assets states that it is a future economic benefit obtained or
controlled by the entity. People have feet and are free to walk away. They are therefore not
obtained or controlled in the sense t

Solutions to Chapter 13
Weighted Average Cost of Capital and Company Valuation
1.
The rate on the companys debt is 5 percent. The cost of equity capital is the required
rate of return on equity, which can be calculated from the CAPM as follows:
4% + (0.90