Solution Manual for Principles of Corporate Finance 14th Edition by Richard Brealey, Stewart Myers, Verified Chapters 1 - 34, Complete

Solution Manual for Principles of Corporate Finance
14th Edition by Richard Brealey
Complete Chapters




©bMcGrawbHillbLLC.bAllbrightsbreserved.bNobreproductionborbdistributionbwithoutbthebpriorbwrittenbconsentbofbMcGrawbHillbLL
C.

,Thebvaluesbshownbinbthebsolutionsbmaybbebroundedbforbdisplaybpurposes.bHowever,bthebanswers
bwerebderivedbusingbabspreadsheetbwithoutbanybintermediatebrounding.

Chapter 1
AnswersbtobProblembSets

1. a. real

b. executivebairplanes

c. brandbnames

d. financial

e. bonds

*f. investmentborbcapitalbexpenditure

*g. capitalbbudgetingborbinvestment

h. financing

*Notebthatbfbandbgbarebinterchangeablebinbthebquestion.
Estbtime:b01-05



2. Abtrademark,babfactory,bundevelopedbland,bandbyourbworkbforceb(c,bd,be,bandbg)
bareballbrealbassets.bRealbassetsbarebidentifiablebasbitemsbwithbintrinsicbvalue.bTheb
othersbinbtheblistbarebfinancialbassets,bthatbis,bthesebassetsbderivebvaluebbecausebof
babcontractualbclaim.
Estbtime:b01-05



3. a.
Financialbassets,bsuchbasbstocksborbbankbloans,barebclaimsbheldbbybinve
stors.bCorporationsbsellbfinancialbassetsbtobraisebthebcashbtobinvestbinbrealb
assetsbsuchbasbplantbandbequipment.bSomebrealbassetsbarebintangible.

b. Capitalbexpenditurebmeansbinvestmentbinbrealbassets.bFinancingbmeansbraisi
ngbthebcashbforbthisbinvestment.

c. Thebsharesbofbpublicbcorporationsbarebtradedbonbstockbexchangesbandbcan
bbebpurchasedbbybabwidebrangebofbinvestors.bThebsharesbofbcloselybheldb
corporationsbarebnotbpubliclybtradedbandbarebheldbbybabsmallbgroupbofb
privatebinvestors.

d. Unlimitedbliability:bInvestorsbarebresponsiblebforballbthebfirm‘sbdebts.bAbsole
bproprietorbhasbunlimitedbliability.bInvestorsbinbcorporationsbhaveblimitedblia
©bMcGrawbHillbLLC.bAllbrightsbreserved.bNobreproductionborbdistributionbwithoutbthebpriorbwrittenbconsentbofbMcGrawbHillbLL
C.

, bility.b Theybcanblosebtheirbinvestment,bbutbnobmore.
Estbtime:b01-05




©bMcGrawbHillbLLC.bAllbrightsbreserved.bNobreproductionborbdistributionbwithoutbthebpriorbwrittenbconsentbofbMcGrawbHillbLL
C.

, 4. Itemsbcbandbdbapplybtobcorporations.b Becausebcorporationsbhavebperpetualblife,bo
wnershipbcanbbebtransferredbwithoutbaffectingboperations,bandbmanagersbcanbbebfi
redbwithbnobeffectbonbownership.bOtherbformsbofbbusinessbmaybhavebunlimitedbliab
ilitybandblimitedblife.
Estbtime:b01-05



5. Separationbofbownershipbfacilitatesbthebkeybattributesbofbabcorporation,bincludingbli
mitedbliabilitybforbinvestors,btransferabilitybofbownership,babseparateblegalbpersonal
itybofbthebcorporation,bandbdelegatedbcentralizedbmanagement.b Thesebfourbattribu
tesbprovidebsubstantialbbenefitbforbinvestors,bincludingbthebabilitybtobdiversifybtheirb
investmentbamongbmanybuncorrelatedbreturns—
abverybvaluablebtoolbexploredbinblaterbchapters.b Also,bthesebattributesballowbinves
torsbtobquicklybexit,benter,borbshortbsellbanbinvestment,btherebybgeneratingbanbactiv
ebliquidbmarketbforbcorporations.

However,bthesebpositivebaspectsbalsobintroducebsubstantialbnegativebexternalitiesbas
bwell.b Thebseparationbofbownershipbfrombmanagementbtypicallybleadsbtobagencyb
problems,bwherebmanagersbpreferbtobconsumebprivatebperksborbmakebotherbdecisio
nsbforbtheirbprivatebbenefit—
ratherbthanbmaximizebshareholderbwealth.b Shareholdersbtendbtobexerciseblessbovers
ightbofbeachbindividualbinvestmentbasbtheirbdiversificationbincreases.b Finally,bthebcor
poration‘sbseparateblegalbpersonalitybmakesbitbdifficultbtobenforcebaccountabilitybifb
theybexternalizebcostsbontobsociety.
Estbtime:b01-05



6. Shareholdersbwillbonlybvotebtobmaximizebshareholderbwealth.b Shareholdersbcanb
modifybtheirbpatternbofbconsumptionbthroughbborrowingbandblending,bmatchbrisk
bpreferences,bandbhopefullybbalancebtheirbownbcheckbooksb(orbhirebabqualified
bprofessionalbtobhelpbthembwithbthesebtasks).
Estbtime:b01-05



7. Ifbthebinvestmentbincreasesbthebfirm‘sbwealth,bitbincreasesbthebfirm‘sbsharebvalue.
b Ms.bEspinozabcouldbthenbsellbsomeborballbthesebmorebvaluablebsharesbtobprovi
debforbherbretirementbincome.
Estbtime:b01-05



8. a.
Assumingbthatbthebencabulatorbmarketbisbrisky,banb8%bexp
ectedbreturnbonbthebF&Hbencabulatorbinvestmentsbmaybbebinfe
riorbtobab4%breturnbonbU.S.
governmentbsecurities,bdependingbonbthebrelativebriskbbetweenbthebtwobassets.

b. UnlessbthebfinancialbassetsbarebasbsafebasbU.S.bgovernmentbsecurities,btheirbc
©bMcGrawbHillbLLC.bAllbrightsbreserved.bNobreproductionborbdistributionbwithoutbthebpriorbwrittenbconsentbofbMcGrawbHillbLL
C.