Exam (elaborations)

Solutions for Fundamentals of Corporate Finance, 7th Canadian Edition Brealey (All Chapters included)

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Course
Financial planning 1

Institution
Financial Planning 1

Complete Solutions Manual for Fundamentals of Corporate Finance, 7th Canadian Edition by Richard A. Brealey, Stewart C. Myers, Alan J. Marcus, Devashis Mitra, Dinesh Gajurel ; ISBN13: 9781259272011. (Full Chapters included Chapter 1 to 26).... Chapter 1-Goals and Governance of the Firm. Chapter 2...

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Uploaded on December 13, 2023
Number of pages 844
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solutions
manual
fundamentals
corporate
finance
corporate finance
7th canadian edition
7ce
brealey
9781259272011
excel solutions
solutions manual

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Fundamentals of Corporate Finance
7th Canadian Edition
by Richard A. Brealey

Complete Chapter Solutions Manual
are included (Ch 1 to 26)

** Immediate Download
** Swift Response
** All Chapters included
** Excel solutions

, Brealey 7CE
Solutions to Chapter 1

1. real
executive airplanes
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 (ie., 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 of the partnership income
is allocated to the partners and treated as personal income. Also, it is fairly 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 considered to 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. If you go to the website, www.td.com, you will see a list of TD’s business and
their financial products and services. To work as an investment banker, you would work

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Solutions for Fundamentals of Corporate Finance, 7th Canadian Edition Brealey (All Chapters included)

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