100% satisfaction guarantee Immediately available after payment Both online and in PDF No strings attached
Previously searched by you
Solution Manual for Principles of Corporate Finance 14th Edition by Richard Brealey, Stewart Myers, Franklin Allen and Alex Edmans, Complete Chapter 1 - 34 | Newest VersionR339,50
Solution Manual for Principles of Corporate Finance 14th Edition by Richard Brealey, Stewart Myers, Franklin Allen and Alex Edmans, Complete Chapter 1 - 34 | Newest Version
9 views 0 purchase
Course
Principles Of Corporate Finance 14e, Brealey
Institution
Principles Of Corporate Finance 14e, Brealey
Book
Principles of Corporate Finance
Solution Manual for Principles of Corporate Finance 14th Edition by Richard Brealey, Stewart Myers, Franklin Allen and Alex Edmans, Complete Chapter 1 - 34 | Newest Version
solution manual for principles of corporate financ
14th edition by richard brealey stewart myers fr
complete chapter 1 34 newest version
principles of corporate finance
Connected book
Book Title:
Author(s):
Edition:
ISBN:
Edition:
More summaries for
Solution Manual for Principles of Corporate Finance 14th Edition by Richard Brealey, Stewart Myers, Verified Chapters 1 - 34, Complete
Examenvragen NCOI MBA master business administration 2024/ veel voorkomende examenvragen
Solution Manual for Principles of Corporate Finance 14th Edition by Richard Brealey, Stewart Myers, Verified Chapters 1 - 34, Complete Newest Version
All for this textbook (83)
Written for
Principles Of Corporate Finance 14e, Brealey
Principles Of Corporate Finance 14e, Brealey
Seller
Follow
bonie314
Reviews received
Content preview
e
, CHAPTER 1 e
Introduction to Corporate Finance e e e
The values shown in the solutions may be rounded for display purposes. However, the answers were
e e e e e e e e e e e e e e e
derived using a spreadsheet without any intermediate rounding.
e e e e e e e e
Answers to Problem Sets e e e
1. a. real e
b. executive airplanes e e
c. brand names e e
d. financial e
e. bonds e
*f. investment or capital expenditure e e e e
*g. capital budgeting or investment e e e
h.
e financing e
*Note that f and g are interchangeable in the question.
e e e e e e e e e e
Est time: 01-05
e e
2. A trademark, a factory, undeveloped land, and your work force (c, d, e, and g) are all real
e e e e e e e e e e e e e e e e e
assets. Real assets are identifiable as items with intrinsic value. The others in the list are
e e e e e e e e e e e e e e e e
financial assets, that is, these assets derive value because of a contractual claim.
e e e e e e e e e e e e e e
Est time: 01-05
e e
3. a. Financial assets, such as stocks or bank loans, are claims held by investors.
e e e e e e e e e e e e
Corporations sell financial assets to raise the cash to invest in real assets such as
e e e e e e e e e e e e e e e
plant and equipment. Some real assets are intangible.
e e e e e e e e e
b. Capital expenditure means investment in real assets. Financing means raising the
e e e e e e e e e e
cash for this investment.
e e e e e
c. The shares of public corporations are traded on stock exchanges and can be
e e e e e e e e e e e e
purchasedby a wide range of investors. The shares of closely held corporations are
e e e e e e e e e e e e e e
not publicly traded and are held by a small group of private investors.
e e e e e e e e e e e e e e
d. Unlimited liability: Investors are responsible for all the firm‘s debts. A sole proprietor
e e e e e e e e e e e e
has unlimited liability. Investors in corporations have limited liability. They can lose
e e e e e e e e e e e e
their investment, but no more.
e e e e e e
Est time: 01-05
e e
e
, 4. Items c and d apply to corporations. Because corporations have perpetual life, ownership can
e e e e e e e e e e e e e
be transferred without affecting operations, and managers can be fired with no effect on
e e e e e e e e e e e e e e
ownership. Other forms of business may have unlimited liability and limited life.
e e e e e e e e e e e e e
Est time: 01-05
e e
5. Separation of ownership facilitates the key attributes of a corporation, including limited liability
e e e e e e e e e e e e
for investors, transferability of ownership, a separate legal personality of the corporation, and
e e e e e e e e e e e e e
delegated centralized management. These four attributes provide substantial benefit for
e e e e e e e e e e
investors, including the ability to diversify their investment among many uncorrelated returns—a
e e e e e e e e e e e e
very valuable tool explored in later chapters. Also, these attributes allow investors to quickly
e e e e e e e e e e e e e e
exit, enter, or short sell an investment, thereby generating an active liquid market for
e e e e e e e e e e e e e e
corporations.
e e
However, these positive aspects also introduce substantial negative externalities as well. The
e e e e e e e e e e e
separation of ownership from management typically leads to agency problems, where
e e e e e e e e e e e
managers prefer to consume private perks or make other decisions for their private benefit—
e e e e e e e e e e e e e e
rather than maximize shareholder wealth. Shareholders tend to exercise less oversight of each
e e e e e e e e e e e e
individual investment as their diversification increases. Finally, the corporation‘s separate legal
e e e e e e e e e e e
personality makes it difficult to enforce accountability if they externalize costs onto society.
e e e e e e e e e e e e e e
Est time: 01-05
e e
6. Shareholders will only vote to maximize shareholder wealth. Shareholders can modify their
e e e e e e e e e e e
pattern of consumption through borrowing and lending, match risk preferences, and
e e e e e e e e e e e
hopefully balance their own checkbooks (or hire a qualified professional to help them with
e e e e e e e e e e e e e e
these tasks).
e e e
Est time: 01-05
e e
7. If the investment increases the firm‘s wealth, it increases the firm‘s share value. Ms.
e e e e e e e e e e e e e
Espinoza could then sell some or all these more valuable shares to provide for her
e e e e e e e e e e e e e e e
retirement income.
e e e
Est time: 01-05
e e
8. a. Assuming that the encabulator market is risky, an 8% expected return
e e e e e e e e e e
on the F&H encabulator investments may be inferior to a 4% return on
e e e e e e e e e e e e e
U.S.
e e
government securities, depending on the relative risk between the two assets.
e e e e e e e e e e e
b. Unless the financial assets are as safe as U.S. government securities, their cost of
e e e e e e e e e e e e e
capital would be higher. The CFO could consider expected returns on assets with
e e e e e e e e e e e e e
similar risk.
e e e
Est time: 06-10
e e
9. Managers would act in shareholders‘ interests because they have a legal duty to act in their
e e e e e e e e e e e e e e e
interests. Managers may also receive compensation— bonuses, stock, and option payouts with
e e e e e e e e e e e e
value tied (roughly) to firm performance. Managers may fear personal reputational damage from
e e e e e e e e e e e e e
not acting in shareholders‘ interests. And managers can be fired by the board of directors
e e e e e e e e e e e e e e e
(elected by shareholders). If managers still fail to act in shareholders‘ interests, shareholders
e e e e e e e e e e e e e
may sell their shares, lowering the stock price and potentially creating the possibility of a
e e e e e e e e e e e e e e e
e
, e takeover, which can again lead to changes in the board of directors and senior management.
e e e e e e e e e e e e e e e
Est time: 01-05
e e
e
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through EFT, credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying this summary from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller bonie314. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy this summary for R339,50. You're not tied to anything after your purchase.
