SOLUTION MANUAL FOR
xx xx xx
Principles xx xx xx xx
14th xx xx By Richard Brealey, Stewart Myers,
xx xx xx xx
ALL Chapters (1 - 34)
xx xx xx xx xx
, TABLE OF CONTENTS
XX XX
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
CHAPTER 1
Introduction to Corporate Finance
The values shown in the solutions may be rounded for display purposes. However, the
answers werexxderived using a spreadsheet without any intermediate rounding.
Answers to Problem Sets
1. a. real
b. executive airplanes
c. brand names
d. financial
e. bonds
*f. investment or capital expenditure
*g. capital budgeting or investment
h. financing
*Note that f and g are interchangeable in the question.
Est time: 01-05
2. A trademark, a factory, undeveloped land, and your work force (c, d, e, and g)
are all real assets. Real assets are identifiable as items with intrinsic value. The
others in the list are financial assets,xxthat is, these assets derive value because of
a contractual claim.
Est time: 01-05
3. a. Financial assets, such as stocks or bank loans, are claims held by
investors. Corporations sell financial assets to raise the cash to invest in
real assets such as plantxxand equipment. Some real assets are intangible.
b. Capital expenditure means investment in real assets. Financing means
raising the cashxxfor this investment.
, c. The shares of public corporations are traded on stock exchanges and can
be purchasedxxby a wide range of investors. The shares of closely held
corporations are not publicly traded and are held by a small group of
private investors.
d. Unlimited liability: Investors are responsible for all the firm‘s debts. A sole
proprietor hasxxunlimited liability. Investors in corporations have limited liability.
They can lose their investment, but no more.
Est time: 01-05
xx xx xx
Principles xx xx xx xx
14th xx xx By Richard Brealey, Stewart Myers,
xx xx xx xx
ALL Chapters (1 - 34)
xx xx xx xx xx
, TABLE OF CONTENTS
XX XX
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
CHAPTER 1
Introduction to Corporate Finance
The values shown in the solutions may be rounded for display purposes. However, the
answers werexxderived using a spreadsheet without any intermediate rounding.
Answers to Problem Sets
1. a. real
b. executive airplanes
c. brand names
d. financial
e. bonds
*f. investment or capital expenditure
*g. capital budgeting or investment
h. financing
*Note that f and g are interchangeable in the question.
Est time: 01-05
2. A trademark, a factory, undeveloped land, and your work force (c, d, e, and g)
are all real assets. Real assets are identifiable as items with intrinsic value. The
others in the list are financial assets,xxthat is, these assets derive value because of
a contractual claim.
Est time: 01-05
3. a. Financial assets, such as stocks or bank loans, are claims held by
investors. Corporations sell financial assets to raise the cash to invest in
real assets such as plantxxand equipment. Some real assets are intangible.
b. Capital expenditure means investment in real assets. Financing means
raising the cashxxfor this investment.
, c. The shares of public corporations are traded on stock exchanges and can
be purchasedxxby a wide range of investors. The shares of closely held
corporations are not publicly traded and are held by a small group of
private investors.
d. Unlimited liability: Investors are responsible for all the firm‘s debts. A sole
proprietor hasxxunlimited liability. Investors in corporations have limited liability.
They can lose their investment, but no more.
Est time: 01-05
