Essentials of Corporate Finance solution manual Ross 9ed

Solutions Manual for Essentials of Corporate Finance 9th Edition Ross Chapter 02 Financial Statements, Taxes, and Cash Flow Shaehde equity consists of the common stock account, paid in surplus, retained earnings and treasury stock. The fi e ic e beg he e. It can either be paid out in dividends or reinvested in the firm. When it is reinvested in the firm, it becomes additional equity investment and shows up in the retained earnings account. Slide 2.6 The Balance Sheet Net Working Capital = Current assets Current liabilities Liquidity has two components: how long it takes to convert to cash and the value that must be relinquished to convert to cash quickly. Any asset can be converted to cash quickly if you are willing to lower the price enough. Liquid assets provide lower returns so too much liquidity can be just as detrimental to shareholder wealth maximization as too little liquidity. Debt versus Equity Interest and principal payments on debt have to be paid before cash may be paid to stockholders. The ca gai ad e ae agified a he ca iceae he amount of debt in the capital structure, which is why the use of debt is called fiacia eeage. Slide 2.7 U.S. Corporation Balance Sheet (Table 2.1) This is an example of a simplified balance sheet. If possible, bring in some annual reports and let the students see the differences between the simplified statements they see in textbooks and the real thing or ue Wk he Web (Side 2.14) to show real financial statements. Slide 2.8 Market versus Book Value Current assets and current liabilities generally have book values and market values that are very close. Assets are listed at historical cost less accumulated depreciation. Ttal Ae on the balance sheet is generally not a very good estimate of what the assets of the firm are actually worth. Liabilities are listed at face value. When interest rates or the risk of the firm changes, the value of those liabilities change as well, especially longer-term liabilities. Equity is the ownership interest in the firm. The market value of equity (stock price times number of shares) depends on the future growth prospects of the firm and on the ake eiai of the current value of ALL of the assets of the firm. The be eiae f he ake ae f he fi ae i ake ae f Liabilities + Market value of equity.