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Solution Manual for Principles of Corporate Finance 14th Edition by Richard Brealey, Stewart Myers, Franklin Allen and Alex Edmans €14,43
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Solution Manual for Principles of Corporate Finance 14th Edition by Richard Brealey, Stewart Myers, Franklin Allen and Alex Edmans
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Solution Manual for Principles of Corporate Finance 14th Edition by Richard Brealey, Stewart Myers, Franklin Allen and Alex Edmans

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  • 13 december 2024
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  • Solution Manual for Principles of Corporate Finance 14th Edition by Richard Brealey, Stewart Myers, Verified Chapters 1 - 34, Complete 2024-2025.
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Voorbeeld van de inhoud

CHAPTER 1 t




Introduction to Corporate Finance t t t




The values shown in the solutions may be rounded for display purposes. However, the answers
t t t t t t t t t t t t t t t


werederived using a spreadsheet without any intermediate rounding.
t t t t t t t t




Answers to Problem Sets t t t




1. a. real

b. executive airplanes t




c. brand names t




d. financial

e. bonds

*f. investment or capital expenditure t t t




*g. capital budgeting or investment t t t




h. financing
*Note that f and g are interchangeable in the question.
t t t t t t t t t

Est time: 01-05
t t




2. A trademark, a factory, undeveloped land, and your work force (c, d, e, and g) are
t t t t t t t t t t t t t t t


all real assets. Real assets are identifiable as items with intrinsic value. The others in
t t t t t t t t t t t t t t t


the list are financial assets,that is, these assets derive value because of a contractu
t t t t t t t t t t t t t t t


al claim. t

Est time: 01-05
t t




3. a.
Financial assets, such as stocks or bank loans, are claims held by inves
t t t t t t t t t t t t


tors. Corporations sell financial assets to raise the cash to invest in real ass
t t t t t t t t t t t t t



© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

, ets such as plantand equipment. Some real assets are intangible.
t t t t t t t t t t




b. Capital expenditure means investment in real assets. Financing means rais
t t t t t t t t t


ing the cashfor this investment.
t t t t t




c. The shares of public corporations are traded on stock exchanges and can
t t t t t t t t t t t t


be purchasedby a wide range of investors. The shares of closely held corp
t t t t t t t t t t t t t


orations are not publicly traded and are held by a small group of private i
t t t t t t t t t t t t t t


nvestors.

d. Unlimited liability: Investors are responsible for all the firm‘s debts. A sole
t t t t t t t t t t t t


proprietor hasunlimited liability. Investors in corporations have limited lia
t t t t t t t t t


bility. They can lose their investment, but no more.
t t t t t t t t

Est time: 01-05
t t




© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

,4. Items c and d apply to corporations. Because corporations have perpetual life, ow
t t t t t t t t t t t t


nership can betransferred without affecting operations, and managers can be fir
t t t t t t t t t t t


ed with no effect on ownership. Other forms of business may have unlimited liabilit
t t t t t t t t t t t t t


y and limited life.
t t t

Est time: 01-05
t t




5. Separation of ownership facilitates the key attributes of a corporation, including l
t t t t t t t t t t t


imited liability forinvestors, transferability of ownership, a separate legal person
t t t t t t t t t t


ality of the corporation, and delegated centralized management. These four attri
t t t t t t t t t t


butes provide substantial benefit for investors, including the ability to diversify th
t t t t t t t t t t t


eir investment among many uncorrelated returns—
t t t t t


a very valuable tool explored in later chapters. Also, these attributes allow invest
t t t t t t t t t t t t


ors to quickly exit,enter, or short sell an investment, thereby generating an active li
t t t t t t t t t t t t t t


quid market for corporations.
t t t




However, these positive aspects also introduce substantial negative externalities
t t t t t t t t t


as well. The separation of ownership from management typically leads to agency
t t t t t t t t t t t t


problems, where managersprefer to consume private perks or make other decisio
t t t t t t t t t t t


ns for their private benefit—
t t t t


rather than maximize shareholder wealth. Shareholders tend to exercise less over
t t t t t t t t t t


sight of each individual investment as their diversification increases. Finally, the cor
t t t t t t t t t t t


poration‘s separate legal personalitymakes it difficult to enforce accountability if
t t t t t t t t t t t


they externalize costs onto society.
t t t t

Est time: 01-05
t t




6. Shareholders will only vote to maximize shareholder wealth. Shareholders ca t t t t t t t t t


n modify their pattern of consumption through borrowing and lending, match ri
t t t t t t t t t t t


sk preferences, and hopefullybalance their own checkbooks (or hire a qualifie
t t t t t t t t t t t


d professional to help them with these tasks).
t t t t t t t

Est time: 01-05
t t




7. If the investment increases the firm‘s wealth, it increases the firm‘s share value. M
t t t t t t t t t t t t t


s. Espinozacould then sell some or all these more valuable shares to provide for h
t t t t t t t t t t t t t t t


er retirement income.
t t


Est time: 01-05
t t




8. a.
Assuming that the encabulator market is risky, an 8% ex t t t t t t t t t

© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

, pected return onthe F&H encabulator investments may be inf
t t t t t t t t t


erior to a 4% return on U.S.
t t t t t t


government securities, depending on the relative risk between the two assets.
t t t t t t t t t t




b.
Unless the financial assets are as safe as U.S. government securities, the
t t t t t t t t t t t


ir cost of capitalwould be higher. The CFO could consider expected returns
t t t t t t t t t t t t t


on assets with similar risk. t t t t

Est time: 06-10
t t




9. Managers would act in shareholders‘ interests because they have a legal duty to a
t t t t t t t t t t t t t


ct in their interests. Managers may also receive compensation—
t t t t t t t t


bonuses, stock, and option payouts with value tied (roughly) to firm performance.
t t t t t t t t t t t t t


Managers may fear personal reputational damage from not acting in shareholde
t t t t t t t t t t


rs‘ interests. And managers can be fired by the board of directors (electedby share
t t t t t t t t t t t t t t


holders). If managers still fail to act in shareholders‘ interests, shareholders may se
t t t t t t t t t t t t


ll their shares, lowering the stock price and potentially creating the possibility of a t
t t t t t t t t t t t t t t


akeover, which can again lead to changes in the board of directors and senior man
t t t t t t t t t t t t t t


agement.
Est time: 01-05
t t




© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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