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