SOLUTION MANUAL FOR
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PrinciplesOfCorporate Finance
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14th EditionByRichard Brealey, Stewart Myers, ALL
s s s s s s s
Chapters (1 - 34)
s s s s
, TABLE OF CONTENTS S S
Chapter 1: Introduction to Corporate Finance
s s s s s
Chapter 2: How to Calculate Present Values
s s s s s s
Chapter 3: Valuing Bonds
s s s
Chapter 4: Valuing Stocks
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Chapter 5: Net Present Value and Other Investment Criteria
s s s s s s s s
Chapter 6: Making Investment Decisions with the Net Present Value Rule
s s s s s s s s s s s
Chapter 7: Introduction to Risk, Diversification, and Portfolio Selection
s s s s s s s s
Chapter 8: The Capital Asset Pricing Model
s s s s s s
Chapter 9: Risk and the Cost of Capital
s s s s s s s
Chapter 10: Project Analysis
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Chapter 11: How to Ensure That Projects Truly Have PositiveNPVs
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Chapter 12: Efficient Markets and Behavioral Finance
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Chapter 13: An Overview of Corporate Financing
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Chapter 14: How Corporations Issue Securities
s s s s s s
Chapter 15: Payout Policy
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Chapter 16: Does Debt Policy Matter?
s s s s s
Chapter 17: How Much Should a Corporation Borrow?
s s s s s s s
Chapter 18: Financing and Valuation
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Chapter 19: Agency Problems and Corporate Governance
s s s s s s
Chapter 20: Stakeholder Capitalism and Responsible Business
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Chapter 21: Understanding Options
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Chapter 22: Valuing Options
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Chapter 23: Real Options
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Chapter 24: Credit Risk and the Value of Corporate Debt
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Chapter 25: The Many Different Kinds of Debt
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Chapter 26: Leasing
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Chapter 27: Managing Risk
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Chapter 28: International Financial Management
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Chapter 29: Financial Analysis
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Chapter 30: Financial Planning
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Chapter 31: Working Capital Management
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Chapter 32: Mergers
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Chapter 33: Corporate Restructuring
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,Chapter 34: Conclusion: What We Do and Do Not Know about Finance
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CHAPTER 1 s
Introduction to Corporate Finance s s s
The values shown in the solutions may be rounded for display purposes. However, the answers werederived
s s s s s s s s s s s s s s s s
using a spreadsheet without any intermediate rounding.
s s s s s s s
Answers to Problem Sets s s s
1. a. real
b. executive airplanes s
c. brand names s
d. financial
e. bonds
*f. investment or capital expenditure s s s
*g. capital budgeting or investment s s s
h. financing
*Note that f and g are interchangeable in the question.
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Est time: 01-05
s s
2. A trademark, a factory, undeveloped land, and your work force (c, d, e, and g) are all real assets. Real
s s s s s s s s s s s s s s s s s s s
assets are identifiable as items with intrinsic value. The others in the list are financial assets,that is,
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these assets derive value because of a contractual claim.
s s s s s s s s s
Est time: 01-05
s s
3. a. Financial assets, such as stocks or bank loans, are claims held by investors. Corporations
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sell financial assets to raise the cash to invest in real assets such as plantand equipment.
s s s s s s s s s s s s s s s s s
Some real assets are intangible.
s s s s s
b. Capital expenditure means investment in real assets. Financing means raising the cashfor
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this investment.
s s
, c. The shares of public corporations are traded on stock exchanges and can be purchasedby a
s s s s s s s s s s s s s s s
wide range of investors. The shares of closely held corporations are not publicly traded and
s s s s s s s s s s s s s s s
are held by a small group of private investors.
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d. Unlimited liability: Investors are responsible for all the firm‘s debts. A sole proprietor has
s s s s s s s s s s s s s
unlimited liability. Investors in corporations have limited liability. They can lose their
s s s s s s s s s s s s
investment, but no more.
s s s s
Est time: 01-05
s s
s s s
PrinciplesOfCorporate Finance
s s s s
14th EditionByRichard Brealey, Stewart Myers, ALL
s s s s s s s
Chapters (1 - 34)
s s s s
, TABLE OF CONTENTS S S
Chapter 1: Introduction to Corporate Finance
s s s s s
Chapter 2: How to Calculate Present Values
s s s s s s
Chapter 3: Valuing Bonds
s s s
Chapter 4: Valuing Stocks
s s s
Chapter 5: Net Present Value and Other Investment Criteria
s s s s s s s s
Chapter 6: Making Investment Decisions with the Net Present Value Rule
s s s s s s s s s s s
Chapter 7: Introduction to Risk, Diversification, and Portfolio Selection
s s s s s s s s
Chapter 8: The Capital Asset Pricing Model
s s s s s s
Chapter 9: Risk and the Cost of Capital
s s s s s s s
Chapter 10: Project Analysis
s s s
Chapter 11: How to Ensure That Projects Truly Have PositiveNPVs
s s s s s s s s s s
Chapter 12: Efficient Markets and Behavioral Finance
s s s s s s
Chapter 13: An Overview of Corporate Financing
s s s s s s
Chapter 14: How Corporations Issue Securities
s s s s s s
Chapter 15: Payout Policy
s s s
Chapter 16: Does Debt Policy Matter?
s s s s s
Chapter 17: How Much Should a Corporation Borrow?
s s s s s s s
Chapter 18: Financing and Valuation
s s s s s
Chapter 19: Agency Problems and Corporate Governance
s s s s s s
Chapter 20: Stakeholder Capitalism and Responsible Business
s s s s s s s
Chapter 21: Understanding Options
s s s
Chapter 22: Valuing Options
s s s
Chapter 23: Real Options
s s s s
Chapter 24: Credit Risk and the Value of Corporate Debt
s s s s s s s s s
Chapter 25: The Many Different Kinds of Debt
s s s s s s s
Chapter 26: Leasing
s s
Chapter 27: Managing Risk
s s s
Chapter 28: International Financial Management
s s s s s
Chapter 29: Financial Analysis
s s s
Chapter 30: Financial Planning
s s s
Chapter 31: Working Capital Management
s s s s
Chapter 32: Mergers
s s
Chapter 33: Corporate Restructuring
s s s s
,Chapter 34: Conclusion: What We Do and Do Not Know about Finance
s s s s s s s s s s s
CHAPTER 1 s
Introduction to Corporate Finance s s s
The values shown in the solutions may be rounded for display purposes. However, the answers werederived
s s s s s s s s s s s s s s s s
using a spreadsheet without any intermediate rounding.
s s s s s s s
Answers to Problem Sets s s s
1. a. real
b. executive airplanes s
c. brand names s
d. financial
e. bonds
*f. investment or capital expenditure s s s
*g. capital budgeting or investment s s s
h. financing
*Note that f and g are interchangeable in the question.
s s s s s s s s s
Est time: 01-05
s s
2. A trademark, a factory, undeveloped land, and your work force (c, d, e, and g) are all real assets. Real
s s s s s s s s s s s s s s s s s s s
assets are identifiable as items with intrinsic value. The others in the list are financial assets,that is,
s s s s s s s s s s s s s s s s s s
these assets derive value because of a contractual claim.
s s s s s s s s s
Est time: 01-05
s s
3. a. Financial assets, such as stocks or bank loans, are claims held by investors. Corporations
s s s s s s s s s s s s s
sell financial assets to raise the cash to invest in real assets such as plantand equipment.
s s s s s s s s s s s s s s s s s
Some real assets are intangible.
s s s s s
b. Capital expenditure means investment in real assets. Financing means raising the cashfor
s s s s s s s s s s s s
this investment.
s s
, c. The shares of public corporations are traded on stock exchanges and can be purchasedby a
s s s s s s s s s s s s s s s
wide range of investors. The shares of closely held corporations are not publicly traded and
s s s s s s s s s s s s s s s
are held by a small group of private investors.
s s s s s s s s s
d. Unlimited liability: Investors are responsible for all the firm‘s debts. A sole proprietor has
s s s s s s s s s s s s s
unlimited liability. Investors in corporations have limited liability. They can lose their
s s s s s s s s s s s s
investment, but no more.
s s s s
Est time: 01-05
s s
