Fundamentals of Corporate
Finance, 8th Canadian Edition by
Richard Brealey
Complete Chapter Solutions Manual
are included (Ch 1 to 26)
** Immediate Download
** Swift Response
** All Chapters included
** Excel Solutions included
, Brealey, Fundamentals of Corporate Finance, 8ce
Solutions for Chapter 1
1. real
plant and machinery
brand names
financial
stocks
investment
capital budgeting
financing
2. A firm might cut its labour force dramatically which could reduce immediate expenses
and increase profits in the short term. Over the long term, however, the firm might not
be able to serve its customers properly or it might alienate its remaining workers; if so,
future profits will decrease, and the stock price will decrease in anticipation of these
problems.
The moral of this examples is that because stock prices reflect present and future
profitability, the firm should not necessarily sacrifice future prospects for short-term
gains.
3. The key advantage of separating ownership and management in a large corporation
is that it gives the corporation permanence. The corporation continues to exist if
managers are replaced or if stockholders sell their ownership interests to other
investors. The corporation’s permanence is an essential characteristic in allowing
corporations to obtain the large amounts of financing required by many business
entities.
Both public and private corporations are distinct legal entities, separate from its
owners (i.e.., its shareholders). The key difference between public and private
corporations is the rules governing the sale of their common shares. The common
shares of a public corporation are listed for trading on a stock exchange and
investors can freely buy and sell the corporation’s shares at the current stock price.
The common shares of a private corporation are not listed for trading on a stock
exchange. Shareholders of private corporations must negotiate directly with
potential buyers and are subject to resale restrictions.
You can learn to identify the risks associated with investing in private companies
by going to Ontario Securities Commission's website at:
http://www.osc.gov.on.ca/en/Investors_cbyi_index.htm
,4. A sole proprietorship is easy to set up with a minimum of legal work. The business
itself is not taxed. For tax purposes, the income of the proprietorship is treated as the
income of the proprietor. The main disadvantages of a proprietorship are the
proprietor’s unlimited liability for the debts of the firm, and difficulty in raising large
amounts of financing as the business grows.
A partnership has the same tax advantage as the proprietorship. The partnership per se
does not pay taxes. The partnership files a tax return, but all the partnership income is
allocated to the partners and treated as personal income. Also, it is easy to set up a
partnership. Because there can be many partners, a partnership can raise capital more
easily than a proprietorship. However, like sole proprietors, general partners have
unlimited liability for the debts of the firm. In fact, each partner has unlimited liability
for all the business’ debts, not just his or her share.
Corporate organization has the advantage of limited liability. Its owners, the
shareholders, are not personally responsible for the debts of the corporation. It also
allows for separation of ownership and management, since shares in the firm can be
traded without changing management. A public corporation has the added advantage
of easier access to equity financing because its shares are traded in public stock
markets. The major disadvantage of corporate organization is the double taxation of
income. Corporations pay taxes on their income, and that income is taxed again when
it is passed through to shareholders in the form of dividends. Another disadvantage of
corporate organization is the extra time and cost required in order to manage a
corporation’s legal affairs. These costs arise because the corporation must be chartered
and is considered a distinct legal entity. Such administrative costs are significant only
for small corporations, however. Furthermore, public corporations must provide
investors with detailed financial information in their annual reports and inform
investors about significant events. Disclosure takes time and resources and may also be
costly in the sense that competitor firms become aware of inside information that the
corporation may not necessarily want competitors to be aware of.
LLP’s may be hybrid organizations to the extent that while individual partners have
unlimited liability, they are not liable for the actions of their partners.
5. Double taxation means that a corporation’s income is taxed first at the hands of the
corporation at the corporate tax rate, and then, when the income is distributed to
shareholders as dividends, the income is taxed again at the hands of shareholders at
the shareholder’s personal tax rate.
6. a, c, d.
7. The responsibilities of the treasurer include the following: supervising cash
management, raising capital, and banking relationships. The controller’s
responsibilities include supervision of accounting, preparation of financial
statements, and tax matters. The CFO of a large corporation supervises both the
treasurer and the controller. The CFO is responsible for large-scale corporate
planning and financial policy.
, 8. a. Investment decision
b. Financial asset
c. Public corporation
d. Corporation
e. Treasurer
f. The cost resulting from conflicts of interest between managers and shareholders
9. Financing decisions involve sources of capital used in the running of a firm.
Investment decisions, typically called capital budgeting, involve the uses of
capital raised in the financing process.
a. Investment decision
b. Financing decision
c. Investment decision
d. Investment decision
e. Investment decision
f. Financing decision: On the surface, this may appear similar to a dividend
decision, but in reality retiring debt is a change in capital structure and more
closely aligned with a financing decision.
10. a. Private corporation
b. Partnership
c. Public corporation
d. Public corporation
11. C. Ownership can be transferred without affecting operations and D. Managers
can be fired with no effect on ownership.
12. The individual stockholders of a corporation (i.e., the owners) are legally distinct
from the corporation itself, which is a separate legal entity. Consequently, the
stockholders are not personally liable for the debts of the corporation; the
stockholders’ liability for the debts of the corporation is limited to the investment
each stockholder has made in the shares of the corporation.
Finance, 8th Canadian Edition by
Richard Brealey
Complete Chapter Solutions Manual
are included (Ch 1 to 26)
** Immediate Download
** Swift Response
** All Chapters included
** Excel Solutions included
, Brealey, Fundamentals of Corporate Finance, 8ce
Solutions for Chapter 1
1. real
plant and machinery
brand names
financial
stocks
investment
capital budgeting
financing
2. A firm might cut its labour force dramatically which could reduce immediate expenses
and increase profits in the short term. Over the long term, however, the firm might not
be able to serve its customers properly or it might alienate its remaining workers; if so,
future profits will decrease, and the stock price will decrease in anticipation of these
problems.
The moral of this examples is that because stock prices reflect present and future
profitability, the firm should not necessarily sacrifice future prospects for short-term
gains.
3. The key advantage of separating ownership and management in a large corporation
is that it gives the corporation permanence. The corporation continues to exist if
managers are replaced or if stockholders sell their ownership interests to other
investors. The corporation’s permanence is an essential characteristic in allowing
corporations to obtain the large amounts of financing required by many business
entities.
Both public and private corporations are distinct legal entities, separate from its
owners (i.e.., its shareholders). The key difference between public and private
corporations is the rules governing the sale of their common shares. The common
shares of a public corporation are listed for trading on a stock exchange and
investors can freely buy and sell the corporation’s shares at the current stock price.
The common shares of a private corporation are not listed for trading on a stock
exchange. Shareholders of private corporations must negotiate directly with
potential buyers and are subject to resale restrictions.
You can learn to identify the risks associated with investing in private companies
by going to Ontario Securities Commission's website at:
http://www.osc.gov.on.ca/en/Investors_cbyi_index.htm
,4. A sole proprietorship is easy to set up with a minimum of legal work. The business
itself is not taxed. For tax purposes, the income of the proprietorship is treated as the
income of the proprietor. The main disadvantages of a proprietorship are the
proprietor’s unlimited liability for the debts of the firm, and difficulty in raising large
amounts of financing as the business grows.
A partnership has the same tax advantage as the proprietorship. The partnership per se
does not pay taxes. The partnership files a tax return, but all the partnership income is
allocated to the partners and treated as personal income. Also, it is easy to set up a
partnership. Because there can be many partners, a partnership can raise capital more
easily than a proprietorship. However, like sole proprietors, general partners have
unlimited liability for the debts of the firm. In fact, each partner has unlimited liability
for all the business’ debts, not just his or her share.
Corporate organization has the advantage of limited liability. Its owners, the
shareholders, are not personally responsible for the debts of the corporation. It also
allows for separation of ownership and management, since shares in the firm can be
traded without changing management. A public corporation has the added advantage
of easier access to equity financing because its shares are traded in public stock
markets. The major disadvantage of corporate organization is the double taxation of
income. Corporations pay taxes on their income, and that income is taxed again when
it is passed through to shareholders in the form of dividends. Another disadvantage of
corporate organization is the extra time and cost required in order to manage a
corporation’s legal affairs. These costs arise because the corporation must be chartered
and is considered a distinct legal entity. Such administrative costs are significant only
for small corporations, however. Furthermore, public corporations must provide
investors with detailed financial information in their annual reports and inform
investors about significant events. Disclosure takes time and resources and may also be
costly in the sense that competitor firms become aware of inside information that the
corporation may not necessarily want competitors to be aware of.
LLP’s may be hybrid organizations to the extent that while individual partners have
unlimited liability, they are not liable for the actions of their partners.
5. Double taxation means that a corporation’s income is taxed first at the hands of the
corporation at the corporate tax rate, and then, when the income is distributed to
shareholders as dividends, the income is taxed again at the hands of shareholders at
the shareholder’s personal tax rate.
6. a, c, d.
7. The responsibilities of the treasurer include the following: supervising cash
management, raising capital, and banking relationships. The controller’s
responsibilities include supervision of accounting, preparation of financial
statements, and tax matters. The CFO of a large corporation supervises both the
treasurer and the controller. The CFO is responsible for large-scale corporate
planning and financial policy.
, 8. a. Investment decision
b. Financial asset
c. Public corporation
d. Corporation
e. Treasurer
f. The cost resulting from conflicts of interest between managers and shareholders
9. Financing decisions involve sources of capital used in the running of a firm.
Investment decisions, typically called capital budgeting, involve the uses of
capital raised in the financing process.
a. Investment decision
b. Financing decision
c. Investment decision
d. Investment decision
e. Investment decision
f. Financing decision: On the surface, this may appear similar to a dividend
decision, but in reality retiring debt is a change in capital structure and more
closely aligned with a financing decision.
10. a. Private corporation
b. Partnership
c. Public corporation
d. Public corporation
11. C. Ownership can be transferred without affecting operations and D. Managers
can be fired with no effect on ownership.
12. The individual stockholders of a corporation (i.e., the owners) are legally distinct
from the corporation itself, which is a separate legal entity. Consequently, the
stockholders are not personally liable for the debts of the corporation; the
stockholders’ liability for the debts of the corporation is limited to the investment
each stockholder has made in the shares of the corporation.
