Solution Manual for Principles of Corporate Finance 14th Edition by Richard Brealey, Stewart Myers, Verified Chapters 1 - 34, Complete Newest Version

Solution manual for principles of
uuu uuu u u




u corporate finance 14th edition by
u u u u u




richard Brealey, stewart myers, fr
u u u u




anklin allen
u




PDF FORMAT u




u




u

, CHAPTERu1
IntroductionutouCorporateuFinance


Theuvaluesushownuinutheusolutionsumayubeuroundeduforudisplayupurposes.uHowever,utheuanswersuwereuderiv
eduusinguauspreadsheetuwithoutuanyuintermediateurounding.


AnswersutouProblemuSets

1. a. realu

b. executiveuairplanesu

c. brandunamesu

d. financialu

e. bondsu

*f. investmentuorucapitaluexpenditureu

*g.

capitalubudgetinguoruinvestment

uh. financingu

*Noteuthatufuanduguareuinterchangeableuinutheuquestion.u
Estutime:u01-05



2. Autrademark,uaufactory,uundevelopeduland,uanduyouruworkuforceu(c,ud,ue,uandug)uareuallurealuassets.u
Realuassetsuareuidentifiableuasuitemsuwithuintrinsicuvalue.uTheuothersuinutheulistuareufinancialuassets,
uthatu is,utheseuassetsuderiveu valueubecauseu ofuaucontractual uclaim.u

Estutime:u01-05



3. a.
Financialuassets,usuchuasustocksuorubankuloans,uareuclaimsuheldubyuinvestors.uCorpo
rationsusellufinancialuassetsutouraiseutheucashutouinvestuinurealuassetsusuchuasuplantuandue
quipment.uSomeurealuassetsuareuintangible.u

b. Capitaluexpenditureumeansuinvestmentuinurealuassets.uFinancingumeansuraisingutheucash
uforuthisuinvestment.u



c. Theusharesuofupublicucorporationsuareutradeduonustockuexchangesuanducanubeupurchasedu
byuauwideurangeuofuinvestors.uTheusharesuofucloselyuhelducorporationsuareunotupubliclyutra
deduanduareuheldubyuausmallugroupuofuprivateuinvestors.u

d. Unlimiteduliability:uInvestorsuareuresponsibleuforuallutheufirm‘sudebts.uAusoleuproprietoruhas
uunlimiteduliability.uInvestorsuinucorporationsuhaveulimiteduliability.uTheyucanuloseutheiruinv

estment,ubutunoumore.u
Estutime:u01-05
u

, 4. Itemsucuanduduapplyutoucorporations.uBecauseucorporationsuhaveuperpetualulife,uownershipucanube
utransferreduwithoutuaffectinguoperations,uandumanagersucanubeufireduwithunoueffectuonuownership.

uOtheruformsu ofubusinessumayuhaveuunlimiteduliabilityuandulimitedulife.u

Estutime:u01-05



5. Separationuofuownershipufacilitatesutheukeyuattributesuofuaucorporation,uincludingulimiteduliabilityufor
uinvestors,utransferabilityuofuownership,uauseparateulegalupersonalityuofutheucorporation,uandudeleg

ateducentralizedumanagement.uTheseufouruattributesuprovideusubstantialubenefituforuinvestors,uincl
udingutheuabilityutou diversifyutheiruinvestmentuamongu manyuuncorrelatedureturns—
auveryuvaluableutooluexploreduinulateruchapters.uAlso,utheseuattributesuallowuinvestorsutouquicklyuexi
t,uenter,uorushortuselluanuinvestment,utherebyugeneratinguanuactiveuliquidumarketuforucorporations.u

However,utheseupositiveuaspectsualsouintroduceusubstantialunegativeuexternalitiesuasuwell.uTheusep
arationuofuownershipufromumanagementutypicallyuleadsutouagencyuproblems,uwhereumanagersupref
erutouconsumeuprivateuperksu orumakeuotherudecisionsuforutheiruprivateubenefit—
ratheruthanumaximizeushareholderuwealth.uShareholdersutendutouexerciseulessuoversightuofueachuin
dividualuinvestmentuasutheirudiversificationuincreases.uFinally,utheucorporation‘suseparateulegalupers
onalityumakesuitudifficultutouenforceuaccountabilityuifutheyuexternalizeucostsuontousociety.u
Estutime:u01-05



6. Shareholdersuwilluonlyuvoteutoumaximizeushareholderuwealth.uShareholdersucanumodifyutheirup
atternuofuconsumptionuthroughuborrowinguandulending,umatchuriskupreferences,uanduhopefullyu
balanceutheiruownucheckbooksu(oruhireuauqualifieduprofessionalutouhelputhemuwithutheseutasks).u
Estutime:u01-05



7. Ifutheuinvestmentuincreasesutheufirm‘suwealth,uituincreasesutheufirm‘sushareuvalue.uMs.uEspinoza
ucoulduthenusellusomeuoruallutheseumoreuvaluableu sharesutouprovideuforuheruretirementuincome.u

Estutime:u01-05



8. a.
Assuminguthatutheuencabulatorumarketuisurisky,uanu8%uexpecteduretur
nuonutheuF&Huencabulatoruinvestmentsumayubeuinferiorutouau4%ureturnuonu
U.S.u
governmentusecurities,udependinguonutheurelativeuriskubetweenutheutwouassets.u

b.
UnlessutheufinancialuassetsuareuasusafeuasuU.S.ugovernmentusecurities,utheirucostuofuca
pitaluwouldubeuhigher.uTheuCFOucoulduconsideruexpectedureturnsuonuassetsuwithusimilaruris
k.u
Estutime:u06-10



9. Managersuwoulduactuinushareholders‘uinterestsubecauseutheyuhaveuaulegaludutyutouactuinutheiruintere
sts.u Managersumayualsoureceiveu compensation—
ubonuses,ustock,u andu optionupayoutsu withuvalueutiedu(roughly)utoufirmuperformance.uManagersumayu

fearupersonalureputationaludamageufromunotuactinguinushareholders‘uinterests.uAndumanagersucanub
eufiredubyutheuboarduofudirectorsu(electedubyushareholders).u Ifumanagersu stillufailutou actu inusharehol
ders‘uinterests,u shareholdersumayusellutheirushares,uloweringutheustockupriceuandupotentiallyucreatin
gutheupossibilityuofuautakeover,uwhichucanuagainuleadutouchangesuinutheuboarduofu directorsuanduseni
u

, orumanagement.u
Estutime:u01-05




u