Solutions for Corporate Finance, 6th Canadian Edition by Berk

I ‘S
NSTRUCTOR S g OLUTIONS M
g ANUAL




Corporate Finance g




Sixth Canadian Edition
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Jonathan Berk g



Stanford University g




Peter DeMarzo g



Stanford University g




David Stangeland g



University of Manitoba g g




** Immediate Download
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** Swift Response
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** All Chapters included
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** Data Case Solutions
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** Problem solutions
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** Excel Solutions
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, Contents
Part I: Introduction
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Chapter 1 g The Corporation and Financial Markets
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Chapter 2 g Introduction to Financial Statement Analysis g g g g 5

Part II: Tools
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Chapter 3 g Arbitrage and Financial Decision Making
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Chapter 4 g The Time Value of Money
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Chapter 5 g Interest Rates g 48

Part III: Basic Valuation
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Chapter 6 g Valuing Bonds g 64
Chapter 7 g Valuing Stocks g 76
Chapter 8 g Investment Decision Rules g g 84
Chapter 9 g Fundamentals of Capital Budgeting g g g 103

Part IV: Risk and Return
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Chapter 10 g Capital Markets and the Pricing of Risk g g g g g g 113
Chapter 11 g Optimal Portfolio Choice and the Capital Asset Pricingg g g g g g g 122
Model
Chapter 12 g Estimating the Cost of Capital g g g g 137
Chapter 13 g Investor Behaviour and Capital Market Efficiency g g g g g 143

Part V: Options
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Chapter 14 g Financial Options g 150
Chapter 15 g Option Valuation g 159
Chapter 16 g Real Options
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Part VI: Capital Structure and Dividend Policy
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Chapter 17 g Capital Structure in a Perfect Market g g g g g 192
Chapter 18 g Debt and Taxes g g 199
Chapter 19 g Financial Distress, Managerial Incentives, and g g g g 206
Information
Chapter 20 g Payout Policy g 214

Part VII: Advanced Valuation
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Chapter 21 g Capital Budgeting and Valuation with Leverage g g g g g 220
Chapter 22 g Valuation and Financial Modelling: A Case Study g g g g g g 234

Part VIII: Long-Term Financing
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Chapter 23 g Raising Equity Capital g g 242
Chapter 24 g Debt Financing g 247
Chapter 25 g Leasing 250



ii

,Part IX: Short-Term Financing
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Chapter 26
g Working Capital Management
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Chapter 27
g Short-Term Financial Planning
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Part X: Special Topics
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Chapter 28
g Mergers and Acquisitions
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Chapter 29
g Corporate Governance
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Chapter 30
g Risk Management
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Chapter 31
g International Corporate Finance
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iii

, Chapter 1 g




The Corporation and Financial Markets
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1-1. g g A corporation is a legal entity separate from its owners. This means ownership shares in the
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g corporation can be freely traded. None of the other organizational forms share this characteristic.
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1-2. g Owners‘ liability is limited to the amount they invested in the firm. Shareholders are not
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responsible for any encumbrances of the firm; in particular, they cannot be required to pay back any
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debts incurred by the firm.
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1-3. g g Corporations (all shareholders have limited liability). Limited partnerships provide limited liability for the
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limited partners, but not for the general partners.
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1-4. g g Advantages: Limited liability, liquidity, infinite life. Disadvantages: Double taxation, separation of
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ownership and control.
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1-5. g g The corporation that only holds real estate must pay corporate income taxes. The real estate
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investment trust (REIT) does not pay corporate taxes but must pass through substantially all of the
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income to the trust unit holders to whom it is taxable.
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1-6. All calculations are on a ‗per-share basis‘.
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At the business level, corporate tax will be paid. Corporate Tax = $2  .34 = $0.68. After
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corporate tax, there is $2 − $0.68 = $1.32 to be paid out as a dividend.
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At the personal level, $1.32 is received as a dividend. Personal tax on the dividend is $1.32  .18 =
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$0.24. This leaves $1.08 after all taxes.
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If the shares were held in a TFSA, there would be no personal taxes and thus the amount left after all
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gtaxes would be $1.32. g g g




1-7. All calculations are on a ‗per-unit basis‘.
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At the business level, no corporate tax will be paid as this is a REIT. Thus, there is the full $2 to be paid
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out as a distribution.
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At the personal level, $2 is received as a distribution from the REIT. Personal tax on the distribution is
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$2  .40 = $0.80. This leaves $1.20 after all taxes.
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If the units were held in a TFSA, there would be no personal taxes and thus the amount left after all taxes
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gwould be $2.00. So no taxes would be paid at either the business or personal level and you would get to
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gkeep the full amount! g g g




1-8. As the manager of an iPhone applications developer, you will make three types of financial decisions.
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i. You will make investment decisions such as determining which type of iPhone application
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projects will offer your company a positive NPV and should, therefore, be developed by your
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company.
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ii. You will make the decision on how to fund your iPhone application investments and what mix of
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debt and equity your company will have.
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