YYY YYY Y Y
f corporate finance 14th edition b
Y Y Y Y Y
y richard Brealey, stewart myers,
Y Y Y Y Y
franklin allen Y
PDF FORMAT Y
Y
Y
, CHAPTERY1
IntroductionYtoYCorporateYFinance
TheYvaluesYshownYinYtheYsolutionsYmayYbeYroundedYforYdisplayYpurposes.YHowever,YtheYanswersYwereYder
ivedYusingYaYspreadsheetYwithoutYanyYintermediateYrounding.
AnswersYtoYProblemYSets
1. a. realY
b. executiveYairplanesY
c. brandYnamesY
d. financialY
e. bondsY
*f. investmentYorYcapitalYexpenditureY
*g.
capitalYbudgetingYorYinvestment
Yh. financingY
*NoteYthatYfYandYgYareYinterchangeableYinYtheYquestion.Y
EstYtime:Y01-05
2. AYtrademark,YaYfactory,YundevelopedYland,YandYyourYworkYforceY(c,Yd,Ye,YandYg)YareYallYrealYasset
s.YRealYassetsYareYidentifiableYasYitemsYwithYintrinsicYvalue.YTheYothersYinYtheYlistYareYfinancialYas
sets,YthatYis,YtheseYassetsYderiveYvalueYbecauseYofYaYcontractualYclaim.Y
EstYtime:Y01-05
3. a.
FinancialYassets,YsuchYasYstocksYorYbankYloans,YareYclaimsYheldYbyYinvestors.YCorp
orationsYsellYfinancialYassetsYtoYraiseYtheYcashYtoYinvestYinYrealYassetsYsuchYasYplantYan
dYequipment.YSomeYrealYassetsYareYintangible.Y
b. CapitalYexpenditureYmeansYinvestmentYinYrealYassets.YFinancingYmeansYraisingYtheYcas
hYforYthisYinvestment.Y
c. TheYsharesYofYpublicYcorporationsYareYtradedYonYstockYexchangesYandYcanYbeYpurchas
edYbyYaYwideYrangeYofYinvestors.YTheYsharesYofYcloselyYheldYcorporationsYareYnotYpublicl
yYtradedYandYareYheldYbyYaYsmallYgroupYofYprivateYinvestors.Y
d. UnlimitedYliability:YInvestorsYareYresponsibleYforYallYtheYfirm‘sYdebts.YAYsoleYproprietorYh
asYunlimitedYliability.YInvestorsYinYcorporationsYhaveYlimitedYliability.YTheyYcanYloseYtheir
Yinvestment,YbutY noYmore.Y
EstYtime:Y01-05
Y
, 4. ItemsYcYandYdYapplyYtoYcorporations.YBecauseYcorporationsYhaveYperpetualYlife,YownershipYcanY
beYtransferredYwithoutYaffectingYoperations,YandYmanagersYcanYbeYfiredYwithYnoYeffectYonYowner
ship.YOtherYformsYofYbusinessYmayYhaveYunlimitedYliabilityYandYlimitedYlife.Y
EstYtime:Y01-05
5. SeparationYofYownershipYfacilitatesYtheYkeyYattributesYofYaYcorporation,YincludingYlimitedYliabilityYf
orYinvestors,YtransferabilityYofYownership,YaYseparateYlegalYpersonalityYofYtheYcorporation,YandYde
legatedYcentralizedYmanagement.YTheseYfourYattributesYprovideYsubstantialYbenefitYforYinvestors,
YincludingY theY abilityYtoY diversifyYtheirYinvestmentY amongY manyYuncorrelatedY returns—
aYveryYvaluableYtoolYexploredYinYlaterYchapters.YAlso,YtheseYattributesYallowYinvestorsYtoYquicklyY
exit,Yenter,YorYshortYsellYanYinvestment,YtherebyYgeneratingYanYactiveYliquidYmarketYforYcorporatio
ns.Y
However,YtheseYpositiveYaspectsYalsoYintroduceYsubstantialYnegativeYexternalitiesYasYwell.YTheYs
eparationYofYownershipYfromYmanagementYtypicallyYleadsYtoYagencyYproblems,YwhereYmanagersY
preferYtoYconsumeYprivateYperksY orYmakeYotherYdecisionsYforYtheirYprivateYbenefit—
ratherYthanYmaximizeYshareholderYwealth.YShareholdersYtendYtoYexerciseYlessYoversightYofYeachYi
ndividualYinvestmentYasYtheirYdiversificationYincreases.YFinally,YtheYcorporation‘sYseparateYlegalYp
ersonalityYmakesYitYdifficultYtoYenforceYaccountabilityYifYtheyYexternalizeYcostsYontoYsociety.Y
EstYtime:Y01-05
6. ShareholdersYwillYonlyYvoteYtoYmaximizeYshareholderYwealth.YShareholdersYcanYmodifyYtheirY
patternYofYconsumptionYthroughYborrowingYandYlending,YmatchYriskYpreferences,YandYhopefull
yYbalanceYtheirYownYcheckbooksY(orYhireYaYqualifiedYprofessionalYtoYhelpYthemYwithYtheseYtas
ks).Y
EstYtime:Y01-05
7. IfYtheYinvestmentYincreasesYtheYfirm‘sYwealth,YitYincreasesYtheYfirm‘sYshareYvalue.YMs.YEspino
zaYcouldYthenYsellYsomeYorYallYtheseYmoreYvaluableYsharesYtoYprovideYforYherYretirementYinco
me.Y
EstYtime:Y01-05
8. a.
AssumingYthatYtheYencabulatorYmarketYisYrisky,YanY8%YexpectedYretu
rnYonYtheYF&HYencabulatorYinvestmentsYmayYbeYinferiorYtoYaY4%YreturnYo
nYU.S.Y
governmentYsecurities,YdependingYonYtheYrelativeYriskYbetweenYtheYtwoYassets.Y
b.
UnlessYtheYfinancialYassetsYareYasYsafeYasYU.S.YgovernmentYsecurities,YtheirYcostYofY
capitalYwouldYbeYhigher.YTheYCFOYcouldYconsiderYexpectedYreturnsYonYassetsYwithYsimila
rYrisk.Y
EstYtime:Y06-10
9. ManagersYwouldYactYinYshareholders‘YinterestsYbecauseYtheyYhaveYaYlegalYdutyYtoYactYinYtheirYinte
rests.Y ManagersYmayYalsoYreceiveY compensation—
Ybonuses,Ystock,Y andY optionYpayoutsY withYvalueYtiedY(roughly)YtoYfirmYperformance.YManagersYma
yYfearYpersonalYreputationalYdamageYfromYnotYactingYinYshareholders‘Yinterests.YAndYmanagersYc
Y
, anYbeYfiredYbyYtheYboardYofYdirectorsY(electedYbyYshareholders).Y IfYmanagersY stillYfailYtoY actYinYsh
areholders‘Yinterests,Y shareholdersYmayYsellYtheirYshares,YloweringYtheYstockYpriceYandYpotentially
YcreatingYtheYpossibilityYofYaYtakeover,YwhichYcanYagainY leadYtoYchangesY inYtheYboardYofY directors
YandY seniorYmanagement.Y
EstYtime:Y01-05
Y