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INSTRUCTOR’S SOLUTIONS
MANUAL
Corporate Finance
Fifth Canadian Edition
Jonathan Berk
N
U
R
SE
TE
ST
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Contents
Part I: Introduction
Chapter 1 The Corporation and Financial Markets 1
Chapter 2 Introduction to Financial Statement Analysis 5
Part II: Tools
Chapter 3 Arbitrage and Financial Decision Making 15
Chapter 4 The Time Value of Money 26
Chapter 5 Interest Rates 49
Part III: Basic Valuation
N
Chapter 6 Valuing Bonds 65
Chapter 7 Valuing Stocks 77
Chapter 8 Investment Decision Rules 85
Chapter 9 Fundamentals of Capital Budgeting 100
U
Part IV: Risk and Return
Chapter 10 Capital Markets and the Pricing of Risk 108
Chapter 11 Optimal Portfolio Choice and the Capital Asset Pricing Model 117
R
Chapter 12 Estimating the Cost of Capital 131
Chapter 13 Investor Behaviour and Capital Market Efficiency 137
Part V: Options
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Chapter 14 Financial Options 143
Chapter 15 Option Valuation 152
Chapter 16 Real Options 162
Part VI: Capital Structure and Dividend Policy
Chapter 17 Capital Structure in a Perfect Market 185
Chapter 18 Debt and Taxes 192
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Chapter 19 Financial Distress, Managerial Incentives, and Information 199
Chapter 20 Payout Policy 207
Part VII: Valuation
Chapter 21 Capital Budgeting and Valuation with Leverage 213
Chapter 22 Valuation and Financial Modelling: A Case Study 227
ST
Part VIII: Long-Term Financing
Chapter 23 Raising Equity Capital 235
Chapter 24 Debt Financing 239
Chapter 25 Leasing 242
Part IX: Short-Term Financing
Chapter 26 Working Capital Management 248
Chapter 27 Short-Term Financial Planning 253
Part X: Special Topics
Chapter 28 Mergers and Acquisitions 257
Chapter 29 Corporate Governance 260
Chapter 30 Risk Management 263
Chapter 31 International Corporate Finance 272
lkjtgrfds
, kjhgfdsa All Chapters Included
All Answers Included
Chapter 1
The Corporation and Financial Markets
1-1. A corporation is a legal entity separate from its owners. This means ownership shares in the corporation can
be freely traded. None of the other organizational forms share this characteristic.
1-2. Owners’ liability is limited to the amount they invested in the firm. Shareholders are not responsible for any
encumbrances of the firm; in particular, they cannot be required to pay back any debts incurred by the firm.
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1-3. Corporations (all shareholders have limited liability). Limited partnerships provide limited liability for the
limited partners, but not for the general partners.
1-4. Advantages: Limited liability, liquidity, infinite life. Disadvantages: Double taxation, separation of
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ownership and control.
1-5. The corporation that only holds real estate must pay corporate income taxes. The real estate investment trust
(REIT) does not pay corporate taxes but must pass through substantially all of the income to the trust unit
R
holders to whom it is taxable.
1-6. First, the corporation pays the taxes. After taxes, $2 × (1 – 0.34) = $1.32 per share is left to pay dividends.
SE
Once the dividend is paid, personal tax on this must be paid, leaving $1.32 × (1 – 0.18) = $1.0824 per share.
So after all the taxes are paid, you are left with $1.0824 per share.
1-7. As a real estate investment trust (REIT) pays no corporate tax, the full amount of $2 per unit can be paid out
to you as a trust unit holder. You must then pay personal income tax on the distribution. So you are left with
$2 × (1 – 0.4) = $1.20 per unit.
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 projects will
offer your company a positive NPV and should, therefore, be developed by your company.
ii. You will make the decision on how to fund your iPhone application investments and what mix of debt
and equity your company will have.
iii. You will be responsible for the cash management of your company, ensuring that your company has the
ST
necessary funds to make investments, pay interest on loans, and pay your employees.
1-9. Shareholders can
i. ensure that employees are paid with company stock and/or stock options.
ii. ensure that underperforming managers are fired.
iii. write contracts that ensure that the interests of the managers and shareholders are closely aligned.
iv. mount hostile takeovers.
1-10. This will affect and hurt the customers. It will have a negative impact on the customers, for they will likely
get sour milk. It will also have a negative impact on shareholders because, in the long run, customers will
realize that the supermarket sells sour milk and will switch to other supermarkets. Thus, the value today of
the future income and cash flow streams generated by the supermarket will drop because of the long-term
loss of customers caused by this strategy. This will negatively affect the current stock price as shareholders
anticipate these long-term drawbacks.
lkjtgrfds
, kjhgfdsa
All Chapters solutions are given in this
PDF however some extra files are
available too with solutions set.
N
You can copy and paste below link to
download extra files for solutions
U
R
SE
https://www.mediafire.com/file/
TE
cxt0e5e0stbo4au/Extra_Files_-
_Corporate_Finance_5ce_Berk.rar/file
ST
lkjtgrfds
INSTRUCTOR’S SOLUTIONS
MANUAL
Corporate Finance
Fifth Canadian Edition
Jonathan Berk
N
U
R
SE
TE
ST
lkjtgrfds
, kjhgfdsa
Contents
Part I: Introduction
Chapter 1 The Corporation and Financial Markets 1
Chapter 2 Introduction to Financial Statement Analysis 5
Part II: Tools
Chapter 3 Arbitrage and Financial Decision Making 15
Chapter 4 The Time Value of Money 26
Chapter 5 Interest Rates 49
Part III: Basic Valuation
N
Chapter 6 Valuing Bonds 65
Chapter 7 Valuing Stocks 77
Chapter 8 Investment Decision Rules 85
Chapter 9 Fundamentals of Capital Budgeting 100
U
Part IV: Risk and Return
Chapter 10 Capital Markets and the Pricing of Risk 108
Chapter 11 Optimal Portfolio Choice and the Capital Asset Pricing Model 117
R
Chapter 12 Estimating the Cost of Capital 131
Chapter 13 Investor Behaviour and Capital Market Efficiency 137
Part V: Options
SE
Chapter 14 Financial Options 143
Chapter 15 Option Valuation 152
Chapter 16 Real Options 162
Part VI: Capital Structure and Dividend Policy
Chapter 17 Capital Structure in a Perfect Market 185
Chapter 18 Debt and Taxes 192
TE
Chapter 19 Financial Distress, Managerial Incentives, and Information 199
Chapter 20 Payout Policy 207
Part VII: Valuation
Chapter 21 Capital Budgeting and Valuation with Leverage 213
Chapter 22 Valuation and Financial Modelling: A Case Study 227
ST
Part VIII: Long-Term Financing
Chapter 23 Raising Equity Capital 235
Chapter 24 Debt Financing 239
Chapter 25 Leasing 242
Part IX: Short-Term Financing
Chapter 26 Working Capital Management 248
Chapter 27 Short-Term Financial Planning 253
Part X: Special Topics
Chapter 28 Mergers and Acquisitions 257
Chapter 29 Corporate Governance 260
Chapter 30 Risk Management 263
Chapter 31 International Corporate Finance 272
lkjtgrfds
, kjhgfdsa All Chapters Included
All Answers Included
Chapter 1
The Corporation and Financial Markets
1-1. A corporation is a legal entity separate from its owners. This means ownership shares in the corporation can
be freely traded. None of the other organizational forms share this characteristic.
1-2. Owners’ liability is limited to the amount they invested in the firm. Shareholders are not responsible for any
encumbrances of the firm; in particular, they cannot be required to pay back any debts incurred by the firm.
N
1-3. Corporations (all shareholders have limited liability). Limited partnerships provide limited liability for the
limited partners, but not for the general partners.
1-4. Advantages: Limited liability, liquidity, infinite life. Disadvantages: Double taxation, separation of
U
ownership and control.
1-5. The corporation that only holds real estate must pay corporate income taxes. The real estate investment trust
(REIT) does not pay corporate taxes but must pass through substantially all of the income to the trust unit
R
holders to whom it is taxable.
1-6. First, the corporation pays the taxes. After taxes, $2 × (1 – 0.34) = $1.32 per share is left to pay dividends.
SE
Once the dividend is paid, personal tax on this must be paid, leaving $1.32 × (1 – 0.18) = $1.0824 per share.
So after all the taxes are paid, you are left with $1.0824 per share.
1-7. As a real estate investment trust (REIT) pays no corporate tax, the full amount of $2 per unit can be paid out
to you as a trust unit holder. You must then pay personal income tax on the distribution. So you are left with
$2 × (1 – 0.4) = $1.20 per unit.
1-8. As the manager of an iPhone applications developer, you will make three types of financial decisions.
TE
i. You will make investment decisions such as determining which type of iPhone application projects will
offer your company a positive NPV and should, therefore, be developed by your company.
ii. You will make the decision on how to fund your iPhone application investments and what mix of debt
and equity your company will have.
iii. You will be responsible for the cash management of your company, ensuring that your company has the
ST
necessary funds to make investments, pay interest on loans, and pay your employees.
1-9. Shareholders can
i. ensure that employees are paid with company stock and/or stock options.
ii. ensure that underperforming managers are fired.
iii. write contracts that ensure that the interests of the managers and shareholders are closely aligned.
iv. mount hostile takeovers.
1-10. This will affect and hurt the customers. It will have a negative impact on the customers, for they will likely
get sour milk. It will also have a negative impact on shareholders because, in the long run, customers will
realize that the supermarket sells sour milk and will switch to other supermarkets. Thus, the value today of
the future income and cash flow streams generated by the supermarket will drop because of the long-term
loss of customers caused by this strategy. This will negatively affect the current stock price as shareholders
anticipate these long-term drawbacks.
lkjtgrfds
, kjhgfdsa
All Chapters solutions are given in this
PDF however some extra files are
available too with solutions set.
N
You can copy and paste below link to
download extra files for solutions
U
R
SE
https://www.mediafire.com/file/
TE
cxt0e5e0stbo4au/Extra_Files_-
_Corporate_Finance_5ce_Berk.rar/file
ST
lkjtgrfds
