SOLUTION MANUAL FOR Principles Of Corporate Finance 14th Edition By Richard Brealey, Stewart Myers, ALL Chapters (1 - 34) Complete Solutions

SOLUTION MANUAL FOR
Principles Of Corporate Finance
14th Edition By Richard Brealey, Stewart Myers, ALL Chapters (1 - 34)




TABLE OF CONTENTS
HD HD




Chapter 1: Introduction to Corporate Finance
hd hd hd hd hd



Chapter 2: How to Calculate Present Values
hd hd hd hd hd hd



Chapter 3: Valuing Bonds
hd hd hd



Chapter 4: Valuing Stocks
hd hd hd

,Chapter 5: Net Present Value and Other Investment Criteria
hd hd hd hd hd hd hd hd



Chapter 6: Making Investment Decisions with the Net Present Value Rule
hd hd hd hd hd hd hd hd hd hd hd




Chapter 7: Introduction to Risk, Diversification, and Portfolio Selection
hd hd hd hd hd hd hd hd



Chapter 8: The Capital Asset Pricing Model
hd hd hd hd hd hd



Chapter 9: Risk and the Cost of Capital
hd hd hd hd hd hd hd




Chapter 10: Project Analysis
hd hd hd



Chapter 11: How to Ensure That Projects Truly Have PositiveNPVs
hd hd hd hd hd hd hd hd hd hd




Chapter 12: Efficient Markets and Behavioral Finance
hd hd hd hd hd hd



Chapter 13: An Overview of Corporate Financing
hd hd hd hd hd hd



Chapter 14: How Corporations Issue Securities
hd hd hd hd hd hd




Chapter 15: Payout Policy
hd hd hd



Chapter 16: Does Debt Policy Matter?
hd hd hd hd hd



Chapter 17: How Much Should a Corporation Borrow?
hd hd hd hd hd hd hd



Chapter 18: Financing and Valuation
hd hd hd hd hd




Chapter 19: Agency Problems and Corporate Governance
hd hd hd hd hd hd



Chapter 20: Stakeholder Capitalism and Responsible Business
hd hd hd hd hd hd hd




Chapter 21: Understanding Options
hd hd hd



Chapter 22: Valuing Options
hd hd hd



Chapter 23: Real Options
hd hd hd hd




Chapter 24: Credit Risk and the Value of Corporate Debt
hd hd hd hd hd hd hd hd hd



Chapter 25: The Many Different Kinds of Debt
hd hd hd hd hd hd hd



Chapter 26: Leasing
hd hd




Chapter 27: Managing Risk
hd hd hd



Chapter 28: International Financial Management
hd hd hd hd hd




Chapter 29: Financial Analysis
hd hd hd



Chapter 30: Financial Planning
hd hd hd



Chapter 31: Working Capital Management
hd hd hd hd




Chapter 32: Mergers
hd hd



Chapter 33: Corporate Restructuring
hd hd hd hd




Chapter 34: Conclusion: What We Do and Do Not Know about Finance
hd hd hd hd hd hd hd hd hd hd hd

, CHAPTER 1 hd



Introduction to Corporate Finance hd hd hd




The values shown in the solutions may be rounded for display purposes. However, the answers werederi
hd hd hd hd hd hd hd hd hd hd hd hd hd hd hd d
h


ved using a spreadsheet without any intermediate rounding.
hd hd hd hd hd hd hd




Answers to Problem Sets
hd hd hd




1. a. real

b. executive airplanes hd




c. brand names hd




d. financial

e. bonds

*f. investment or capital expenditure hd hd hd




*g. capital budgeting or investment hd hd hd




h. financing

*Note that f and g are interchangeable in the question.
hd hd hd hd hd hd hd hd hd


Est time: 01-05
hd hd




2. A trademark, a factory, undeveloped land, and your work force (c, d, e, and g) are all real asse
hd hd hd hd hd hd hd hd hd hd hd hd hd hd hd hd hd hd


ts. Real assets are identifiable as items with intrinsic value. The others in the list are financial a
hd hd hd hd hd hd hd hd hd hd hd hd hd hd hd hd hd


ssets,that is, these assets derive value because of a contractual claim.
d
h hd hd hd hd hd hd hd hd hd hd


Est time: 01-05
hd hd




3. a.
Financial assets, such as stocks or bank loans, are claims held by investors. C
hd hd hd hd hd hd hd hd hd hd hd hd hd


orporations sell financial assets to raise the cash to invest in real assets such as plan
hd hd hd hd hd hd hd hd hd hd hd hd hd hd hd


tand equipment. Some real assets are intangible.
d
h hd hd hd hd hd hd




b. Capital expenditure means investment in real assets. Financing means raising the ca
hd hd hd hd hd hd hd hd hd hd hd


shfor this investment.
d
h hd hd




c. The shares of public corporations are traded on stock exchanges and can be purchas
hd hd hd hd hd hd hd hd hd hd hd hd hd


edby a wide range of investors. The shares of closely held corporations are not public
d
h hd hd hd hd hd hd hd hd hd hd hd hd hd hd


ly traded and are held by a small group of private investors.
hd hd hd hd hd hd hd hd hd hd hd




d. Unlimited liability: Investors are responsible for all the firm‘s debts. A sole proprietor h
hd hd hd hd hd hd hd hd hd hd hd hd hd


asunlimited liability. Investors in corporations have limited liability. They can lose their
d
h hd hd hd hd hd hd hd hd hd hd hd h


investment, but no more.
d hd hd hd


Est time: 01-05
hd hd

, 4. Items c and d apply to corporations. Because corporations have perpetual life, ownership can
hd hd hd hd hd hd hd hd hd hd hd hd hd hd


betransferred without affecting operations, and managers can be fired with no effect on owners
d
h hd hd hd hd hd hd hd hd hd hd hd hd hd


hip. Other forms of business may have unlimited liability and limited life.
hd hd hd hd hd hd hd hd hd hd hd


Est time: 01-05
hd hd




5. Separation of ownership facilitates the key attributes of a corporation, including limited liability f
hd hd hd hd hd hd hd hd hd hd hd hd hd


orinvestors, transferability of ownership, a separate legal personality of the corporation, and de
d
h hd hd hd hd hd hd hd hd hd hd hd hd


legated centralized management. These four attributes provide substantial benefit for investors,
hd hd hd hd hd hd hd hd hd hd


including the ability to diversify their investment among many uncorrelated returns—
hd hd hd hd hd hd hd hd hd hd hd


a very valuable tool explored in later chapters. Also, these attributes allow investors to quickly
hd hd hd hd hd hd hd hd hd hd hd hd hd hd hd


exit,enter, or short sell an investment, thereby generating an active liquid market for corporatio
d
h hd hd hd hd hd hd hd hd hd hd hd hd hd


ns.

However, these positive aspects also introduce substantial negative externalities as well. The
hd hd hd hd hd hd hd hd hd hd h d hd


separation of ownership from management typically leads to agency problems, where managers
hd hd hd hd hd hd hd hd hd hd hd d
h


prefer to consume private perks or make other decisions for their private benefit—
hd hd hd hd hd hd hd hd hd hd hd hd


rather than maximize shareholder wealth. Shareholders tend to exercise less oversight of each
hd hd hd hd hd hd hd hd hd hd hd hd hd


individual investment as their diversification increases. Finally, the corporation‘s separate legal
hd hd hd hd hd hd hd hd hd hd hd


personalitymakes it difficult to enforce accountability if they externalize costs onto society.
d
h hd hd hd hd hd hd hd hd hd hd hd


Est time: 01-05
hd hd




6. Shareholders will only vote to maximize shareholder wealth. Shareholders can modify their
hd hd hd hd hd hd hd hd hd hd hd hd


pattern of consumption through borrowing and lending, match risk preferences, and hopeful
hd hd hd hd hd hd hd hd hd hd hd


lybalance their own checkbooks (or hire a qualified professional to help them with these tas
d
h hd hd hd hd hd hd hd hd hd hd hd hd hd hd


ks).
Est time: 01-05
hd hd




7. If the investment increases the firm‘s wealth, it increases the firm‘s share value. Ms. Espino
hd hd hd hd hd hd hd hd hd hd hd hd hd hd


zacould then sell some or all these more valuable shares to provide for her retirement inco
d
h hd hd hd hd hd hd hd hd hd hd hd hd hd hd hd


me.
Est time: 01-05
hd hd




8. a.
Assuming that the encabulator market is risky, an 8% expected r hd hd hd hd hd hd hd hd hd hd


eturn onthe F&H encabulator investments may be inferior to a 4% retur
hd d
h hd hd hd hd hd hd hd hd hd hd


n on U.S.
hd hd


government securities, depending on the relative risk between the two assets.
hd hd hd hd hd hd hd hd hd hd




b.
Unless the financial assets are as safe as U.S. government securities, their cost o
hd hd hd hd hd hd hd hd hd hd hd hd hd


f capitalwould be higher. The CFO could consider expected returns on assets with simil
hd d
h hd hd hd hd hd hd hd hd hd hd hd hd


ar risk. hd


Est time: 06-10
hd hd




9. Managers would act in shareholders‘ interests because they have a legal duty to act in their int
hd hd hd hd hd hd hd hd hd hd hd hd hd hd hd hd


erests. Managers may also receive compensation—
hd hd hd hd hd


bonuses, stock, and option payouts with value tied (roughly) to firm performance. Managers m
hd hd hd hd hd hd hd hd hd hd hd hd hd hd


ay fear personal reputational damage from not acting in shareholders‘ interests. And managers
hd hd hd hd hd hd hd hd hd hd hd hd hd