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INSTRUCTOR’S SOLUTIONS MANUAL Corporate Finance Fifth Canadian Edition By Jonathan Berk, Peter DeMarzo,David Stangeland - All Chapters (1-31) || Latest & Newest Version 2024 A+$12.99
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INSTRUCTOR’S SOLUTIONS MANUAL Corporate Finance Fifth Canadian Edition By Jonathan Berk, Peter DeMarzo,David Stangeland - All Chapters (1-31) || Latest & Newest Version 2024 A+
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Corporate Finance Fifth Canadian Edition
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Corporate Finance Fifth Canadian Edition
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CORPORATE FINANCE, FIFTH CANADIAN EDITION.
INSTRUCTOR’S SOLUTIONS MANUAL Corporate Finance Fifth
Canadian Edition By Jonathan Berk, Peter DeMarzo,David Stangeland -
All Chapters (1-31) || Latest & Newest Version 2024 A+
Test Bank for Corporate Finance, Canadian Edition 5th Edition by Jonathan Berk, David Stangeland, Peter DeMarzo
Test Bank for Corporate Finance, Canadian Edition 5th Edition by Jonathan Berk, David Stangeland, Peter DeMarzo
Test Bank for Corporate Finance, Canadian Edition 5th Edition by Jonathan Berk, David Stangeland, Peter DeMarzo
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INSTRUCTOR’S SOLUTIONS MANUAL Corporate Finance Fifth
Canadian Edition By Jonathan Berk, Peter DeMarzo,David Stangeland -
All Chapters (1-31) || Latest & Newest Version 2024 A+
Contents
Part I: Introduction
Chapter 1 The Corporation and Financial Markets 1
Chapter 2 Introduction to Financial Statement Analysis 5
Part II: Tools
Chapter 3 Arbitrage and Financial Decision Making 15
Chapter 4 The Time Value of Money 26
Chapter 5 Interest Rates 49
Part III: Basic Valuation
Chapter 6 Valuing Bonds 65
Chapter 7 Valuing Stocks 77
Chapter 8 Investment Decision Rules 85
Chapter 9 Fundamentals of Capital Budgeting 100
Part IV: Risk and Return
Chapter 10 Capital Markets and the Pricing of Risk 108
Chapter 11 Optimal Portfolio Choice and the Capital Asset Pricing Model 117
Chapter 12 Estimating the Cost of Capital 131
Chapter 13 Investor Behaviour and Capital Market Efficiency 137
Part V: Options
Chapter 14 Financial Options 143
Chapter 15 Option Valuation 152
Chapter 16 Real Options 162
Part VI: Capital Structure and Dividend Policy
Chapter 17 Capital Structure in a Perfect Market 185
Chapter 18 Debt and Taxes 192
Chapter 19 Financial Distress, Managerial Incentives, and Information 199
Chapter 20 Payout Policy 207
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Part VII: Valuation
Chapter 21 Capital Budgeting and Valuation with Leverage 213
Chapter 22 Valuation and Financial Modelling: A Case Study 227
Part VIII: Long-Term Financing
Chapter 23 Raising Equity Capital 235
Chapter 24 Debt Financing 239
Chapter 25 Leasing 242
Part IX: Short-Term Financing
Chapter 26 Working Capital Management 248
Chapter 27 Short-Term Financial Planning 253
Part X: Special Topics
Chapter 28 Mergers and Acquisitions 257
Chapter 29 Corporate Governance 260
Chapter 30 Risk Management 263
Chapter 31 International Corporate Finance 272
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Chapter 1
The Corporation and Financial Markets
1-1. A corporation is a legal entity separate from its owners. This means ownership
shares in the corporation can be freely traded. None of the other organizational forms
share this characteristic.
1-2. Owners’ liability is limited to the amount they invested in the firm. Shareholders are
not responsible for any encumbrances of the firm; in particular, they cannot be required to
pay back any debts incurred by the firm.
1-3. Corporations (all shareholders have limited liability). Limited partnerships provide
limited liability for the limited partners, but not for the general partners.
1-4. Advantages: Limited liability, liquidity, infinite life. Disadvantages: Double taxation,
separation of ownership and control.
1-5. The corporation that only holds real estate must pay corporate income taxes. The
real estate investment trust (REIT) does not pay corporate taxes but must pass through
substantially all of the income to the trust unit holders to whom it is taxable.
1-6. First, the corporation pays the taxes. After taxes, $2 × (1 – 0.34) = $1.32 per share is
left to pay dividends. Once the dividend is paid, personal tax on this must be paid, leaving
$1.32 × (1 – 0.18) = $1.0824 per share. So after all the taxes are paid, you are left with
$1.0824 per share.
1-7. As a real estate investment trust (REIT) pays no corporate tax, the full amount of $2
per unit can be paid out to you as a trust unit holder. You must then pay personal income
tax on the distribution. So you are left with $2 × (1 – 0.4) = $1.20 per unit.
1-8. As the manager of an iPhone applications developer, you will make three types of
financial decisions.
i. You will make investment decisions such as determining which type of iPhone
application projects will offer your company a positive NPV and should, therefore, be
developed by your company.
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ii. You will make the decision on how to fund your iPhone application investments and
what mix of debt and equity your company will have.
iii. You will be responsible for the cash management of your company, ensuring that your
company has the necessary funds to make investments, pay interest on loans, and pay
your employees.
1-9. Shareholders can
i. ensure that employees are paid with company stock and/or stock options.
ii. ensure that underperforming managers are fired.
iii. write contracts that ensure that the interests of the managers and shareholders are
closely aligned. iv. mount hostile takeovers.
1-10. This will affect and hurt the customers. It will have a negative impact on the
customers, for they will likely get sour milk. It will also have a negative impact on
shareholders because, in the long run, customers will realize that the supermarket sells
sour milk and will switch to other supermarkets. Thus, the value today of the future
income and cash flow streams generated by the supermarket will drop because of the
long-term loss of customers caused by this strategy. This will negatively affect the current
stock price as shareholders anticipate these long-term drawbacks.
1-11. The agent (renter) will not take the same care of the apartment as the principal
(owner), because the renter does not share in the costs of fixing damage to the
apartment. This problem can be mitigated by having the renter pay a deposit and agree to
share in the costs of fixing any problems that are caused by the renter. Such an
arrangement should motivate the renter to keep damages to a minimum.
1-12. An ethical dilemma arises when the CEO of a firm has opposite incentives to those
of the shareholders. In this case, you (as the CEO) have an incentive to improve your pay
and prestige by buying another company, but the potential overpayment involved in the
deal would be damaging to your shareholders.
1-13. No. They are a way to discipline managers who are not working in the interests of
shareholders.
1-14. For each of (a) to (d), you must determine if your personal change in monetary
wealth more than offsets the value of the leisure time you would lose (valued at $51,000).
If it does, then you would decide to proceed with the new project.
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