Solutions for Corporate Finance, 5th Canadian Edition by Berk (All 31 Chapters included) ISBN9780136648802.pdf

INSTRUCTOR’S SOLUTIONS M M




MANUAL

Corporate Finance m



Fifth Canadian Edition
m m




Jonathan Berk m


Stanford mUniversity


Peter DeMarzo
m


Stanford mUniversity

David Stangeland
m


University mofmManitoba




Complete Chapter Solutions Manual ar
m m m m



e included (Ch 1 to 31)
m m m m m




** Immediate Download
m m



** Swift Response
m m



** All Chapters included
m m m



** Cases solutions included
m m m

,Contents
PartmI:mIntroduction
Chapterm1 ThemCorporation mand mFinancialmMarkets 1
Chapterm2 Introduction mto mFinancialmStatement mAnalysis 5

PartmII:mTools
Chapterm3 Arbitragemand mFinancialmDecision mMaking 15
Chapterm4 ThemTimemValuemof mMoney 26
Chapterm5 Interest mRates 49

PartmIII:mBasicmValuation
Chapterm6 ValuingmBonds 65
Chapterm7 ValuingmStocks 77
Chapterm8 Investment mDecision mRules 85
Chapterm9 Fundamentalsmof mCapitalmBudgeting 100

PartmIV:mRiskmandmReturn
Chapterm10 CapitalmMarketsmand mthemPricingmof mRisk 108
Chapterm11 OptimalmPortfolio mChoicemand mthemCapitalmAsset mPricingmModel 117
Chapterm12 EstimatingmthemCost mof mCapital 131
Chapterm13 InvestormBehaviourmand mCapitalmMarket mEfficiency 137

PartmV:mOptions
Chapterm14 FinancialmOptions 143
Chapterm15 Option mValuation 152
Chapterm16 RealmOptions 162

PartmVI:mCapital mStructuremandmDividendmPolicy
Chapterm17 CapitalmStructuremin ma mPerfect mMarket 185
Chapterm18 Debt mand mTaxes 192
Chapterm19 FinancialmDistress,mManagerialmIncentives,mand mInformation 199
Chapterm20 Payout mPolicy 207

PartmVII:mValuation
Chapterm21 CapitalmBudgetingmand mValuation mwith mLeverage 213
Chapterm22 Valuation mand mFinancialmModelling: mAmCasemStudy 227

PartmVIII:mLong-TermmFinancing
Chapterm23 RaisingmEquity mCapital 235
Chapterm24 Debt mFinancing 239
Chapterm25 Leasing 242

PartmIX:mShort-TermmFinancing
Chapterm26 WorkingmCapitalmManagement 248
Chapterm27 Short-Term mFinancialmPlanning 253

PartmX:mSpecial mTopics
Chapterm28 Mergersmand mAcquisitions 257
Chapterm29 CorporatemGovernance 260
Chapterm30 Risk mManagement 263
Chapterm31 InternationalmCorporate mFinance 272

,Chapter 1 m



The Corporation and Financial Markets
m m m m




1-
1.m m m Amcorporation misma mlegalmentity mseparatemfrom mitsmowners.mThismmeansmownership msharesmin mthemco
rporation mcan mbemfreely mtraded.mNonemof mthemothermorganizationalmformsmsharemthismcharacteristic.

1-
2.m m Owners’ mliability mism limited mto mthemamount mthey minvested min mthemfirm.mShareholdersmaremnot mresponsi
blemformany mencumbrancesmof mthemfirm; min mparticular,mthey mcannot mbemrequired mto mpay mback many mdebtsminc
urred mby mthemfirm.

1-
3.m Corporationsm(allmshareholdersmhavemlimited mliability).mLimited mpartnershipsmprovidemlimited m liability m
formthemlimited mpartners,mbut mnot mformthemgeneralmpartners.

1-
4.m Advantages: m Limited m liability,m liquidity,m infin item life.m Disadvantages: m Doublem taxation,m separation
m of mownership mand mcontrol.



1-
5.m m Themcorporation mthat monly mholdsmrealmestatemmust mpay mcorporatemincomemtaxes.mThemrealmestateminves
tment mtrust m(REIT)mdoesmnot mpay mcorporatemtaxesmbut mmust mpassmthrough msubstantially mallmof mthemincomem
to mthemtrust munit mholdersmto mwhom mit mismtaxable.

1-6.m m First,mthemcorporation mpaysmthemtaxes.mAftermtaxes,m$2 m×m(1 m–
m0.34)m=m$1.32 mpermshare mismleft mto mpay mdividends.mOnce mthe mdividend mismpaid,mpersonalmtax mon mthismmust m

bempaid,mleavingm$1.32 m×m(1 m–
m0.18)m=m$1.0824 mpermshare.mSo maftermallmthe mtaxesmare mpaid,myou mare mleft mwith m$1.0824 mpermshare.



1-
7.m m m Asma mrealmestateminvestment mtrust m(REIT)mpaysmno mcorporatemtax,mthemfullmamount mof m$2 mpermunit mc
an mbempaid mout mto myou masma mtrust munit mholder.mYou mmust mthen mpay mpersonalmincomemtax mon mthemdistributio
n.mSo myou maremleft mwith
$2 m×m(1 m– m0.4)m=m$1.20 mpermunit.

1-8. Asmthemmanagermof man miPhonemapplicationsmdeveloper,myou mwillmmakemthreemtypesmof mfinancialmdecisions.
i. You mwillmmakeminvestment mdecisionsmsuch masmdeterminingmwhich mtypemof miPhonemapplication mprojects
mwillmoffermyourmcompany ma mpositive mNPVmand mshould,mtherefore,mbe mdeveloped mby myourmcompany.


ii. You mwillmmakemthemdecision mon mhowmto mfund myourmiPhonemapplication minvestmentsmandmwhatmmix mo
f mdebt mand mequity myourmcompany mwillmhave.
iii. You mwillmbemresponsiblemformthemcash mmanagementmofmyourmcompany,mensuringmthat myourmcompany mh
asmthemnecessary mfundsmto mmakeminvestments,mpay minterest mon mloans,mand mpay myourmemployees.

1-9. Shareholdersmcan
i. ensuremthat memployeesmarempaid mwith mcompany mstock mand/ormstock moptions.
ii. ensuremthat munderperformingmmanagersmaremfired.
iii. writemcontractsmthat mensuremthat mtheminterestsmof mthemmanagersmand mshareholdersmaremclosely maligned.
iv . mount mhostilemtakeovers.

1-
10.m m Thismwillmaffect mand mhurt mthemcustomers.mItmwillmhavema mnegativemimpact mon mthemcustomers,mformthe
y mwillm likely mget msourmmilk.mItmwillmalso mhavema mnegativemimpact mon mshareholdersmbecause,min mthemlongmru
n,mcustomersmwillm realizemthat mthemsupermarket msellsmsourmmilk mand mwillmswitch mto mothermsupermarkets.mT

, hus,mthemvaluemtoday mof mthemfuturemincomemand mcash mflowmstreamsmgenerated mby mthemsupermarket mwillmdr
op mbecausemof mthemlong-
term mlossmof mcustomersmcaused mby mthismstrategy.mThism willmnegatively maffect mthemcurrent mstock mpricemasmsh
areholdersmanticipatemthesemlong-term mdrawbacks.
Themagent m(renter)mwillmnot mtakemthemsamemcaremof mthemapartment masmthemprincipalm(owner), mbecausemthemrentermdoe
smnotmsharemin mthemcostsmof mfixingmdamagemto mthemapartment.mThismproblem mcan mbemmitigated mby mhavingmth
emrentermpay ma mdeposit mand magreemto msharemin mthemcostsmof mfixingmany mproblemsmthat maremcaused mby mthemre
nter.mSuch man marrangement mshould mmotivatemthemrentermto mkeep mdamagesmto ma mminimum.

1-12. An methicalmdilemma marisesmwhen mthemCEOmof ma mfirm mhasmoppositemincentivesmto mthosemof mthemshareholders.mIn