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