SOLUTIONMANUALFOR
n n
PrinciplesOfCorporateFinance
n n n
n 14thEditionByRichardBrealey,StewartMyers,
n n n n n n
ALLChapters(1-34)
n n n n
, TABLE OF CONTENTS D D
Chapter 1: Introduction to Corporate Finance
n n n n n
Chapter 2: How to Calculate Present Values
n n n n n n n
Chapter 3: Valuing Bonds
n n n n
Chapter 4: Valuing Stocks
n n n
Chapter 5: Net Present Value and Other Investment Criteria
n n n n n n n n
Chapter 6: Making Investment Decisions with the Net Present Value Rule
n n n n n n n n n n
Chapter 7: Introduction to Risk, Diversification, and Portfolio Selection Chapter 8:
n n n n n n n n n n
The Capital Asset Pricing Model
n n n n n
Chapter 9: Risk and the Cost of Capital
n n n n n n n
Chapter 10: Project Analysis
n n n
Chapter 11: How to Ensure That Projects Truly Have PositiveNPVs
n n n n n n n n n
Chapter 12: Efficient Markets and Behavioral Finance
n n n n n n
Chapter 13: An Overview of Corporate Financing Chapter
n n n n n n n n
14: How Corporations Issue Securities
n n n n n
Chapter 15: Payout Policy
n n n
Chapter 16: Does Debt Policy Matter?
n n n n n
Chapter 17: How Much Should a Corporation Borrow?
n n n n n n n
Chapter 18: Financing and Valuation
n n n n n
Chapter 19: Agency Problems and Corporate Governance Chapter
n n n n n n n
20: Stakeholder Capitalism and Responsible Business
n n n n n n
Chapter 21: Understanding Options
n n n
Chapter 22: Valuing Options Chapter
n n n n n
23: Real Options
n n n
Chapter 24: Credit Risk and the Value of Corporate Debt Chapter
n n n n n n n n n n
25: The Many Different Kinds of Debt
n n n n n n n
Chapter 26: Leasing n n
Chapter 27: Managing Risk
n n n
Chapter 28: International Financial Management
n n n n
Chapter 29: Financial Analysis
n n n
Chapter 30: Financial Planning
n n n n
Chapter 31: Working Capital Management
n n n n
Chapter 32: Mergers n n
Chapter 33: Corporate Restructuring
n n n
,Chapter 34: Conclusion: What We Do and Do Not Know about Finance
n n n n n n n n n n n
CHAPTER 1 n
Introduction to Corporate Finance n n n
The values shown in the solutions may be rounded forDdisplayDpurposes. However, the answers were
n n n n n n n n n n n n n
derived using a spreadsheet without any intermediate rounding.
n n n n n n n n
Answers to Problem Sets n n n
1. a. real
b. executive airplanes n
c. brand names n
d. financial
e. bonds
*f. investment or capital expenditure n n n
*g. capital budgeting or investment n n n
h. financing
*Note that f and g are interchangeable in the question.
n n n n n n n n n
Est time: 01-05
n n
2. A trademark, a factory, undeveloped land, and your work force (c, d, e, and g) are all real a ssets.
n n n n n n n n n n n n n n n n n n n
Real assets are identifiable as items with intrinsic value. The others in the list are fina ncial
n n n n n n n n n n n n n n n n n
assets,that is, these assets derive value because of a contractual claim.
n n n n n n n n n n n n
Est time: 01-05
n n
3. a.
Financial assets, such as stocks or bank loans, are claims held by investors. n n n n n n n n n n n n
Corporations sell financial assets to raise the cash to invest in real assets such a
n n n n n n n n n n n n n n n
s plantand equipment. Some real assets are intangible.
n n n n n n n n n
b. Capital expenditure means investment in real assets. Financing means raising the
n n n n n n n n n n
cash for this investment.
n n n n
, c. The shares ofDpublic corporations are traded on stock exchanges and can be purch
n n n n n n n n n n n n
asedby a wide range of investors. The shares of closely held corporations are not
n n n n n n n n n n n n n n n
publicly traded and are held by a small group of private investors.
n n n n n n n n n n n n
d. Unlimited liability: Investors are responsible for all the firm‘s debts. ADsole proprieto r
n n n n n n n n n n n n
has unlimited liability. Investors in corporations have limited liability. They can lose their
n n n n n n n n n n n n n
investment, but no more.
n n n n
Est time: 01-05
n n
n n
PrinciplesOfCorporateFinance
n n n
n 14thEditionByRichardBrealey,StewartMyers,
n n n n n n
ALLChapters(1-34)
n n n n
, TABLE OF CONTENTS D D
Chapter 1: Introduction to Corporate Finance
n n n n n
Chapter 2: How to Calculate Present Values
n n n n n n n
Chapter 3: Valuing Bonds
n n n n
Chapter 4: Valuing Stocks
n n n
Chapter 5: Net Present Value and Other Investment Criteria
n n n n n n n n
Chapter 6: Making Investment Decisions with the Net Present Value Rule
n n n n n n n n n n
Chapter 7: Introduction to Risk, Diversification, and Portfolio Selection Chapter 8:
n n n n n n n n n n
The Capital Asset Pricing Model
n n n n n
Chapter 9: Risk and the Cost of Capital
n n n n n n n
Chapter 10: Project Analysis
n n n
Chapter 11: How to Ensure That Projects Truly Have PositiveNPVs
n n n n n n n n n
Chapter 12: Efficient Markets and Behavioral Finance
n n n n n n
Chapter 13: An Overview of Corporate Financing Chapter
n n n n n n n n
14: How Corporations Issue Securities
n n n n n
Chapter 15: Payout Policy
n n n
Chapter 16: Does Debt Policy Matter?
n n n n n
Chapter 17: How Much Should a Corporation Borrow?
n n n n n n n
Chapter 18: Financing and Valuation
n n n n n
Chapter 19: Agency Problems and Corporate Governance Chapter
n n n n n n n
20: Stakeholder Capitalism and Responsible Business
n n n n n n
Chapter 21: Understanding Options
n n n
Chapter 22: Valuing Options Chapter
n n n n n
23: Real Options
n n n
Chapter 24: Credit Risk and the Value of Corporate Debt Chapter
n n n n n n n n n n
25: The Many Different Kinds of Debt
n n n n n n n
Chapter 26: Leasing n n
Chapter 27: Managing Risk
n n n
Chapter 28: International Financial Management
n n n n
Chapter 29: Financial Analysis
n n n
Chapter 30: Financial Planning
n n n n
Chapter 31: Working Capital Management
n n n n
Chapter 32: Mergers n n
Chapter 33: Corporate Restructuring
n n n
,Chapter 34: Conclusion: What We Do and Do Not Know about Finance
n n n n n n n n n n n
CHAPTER 1 n
Introduction to Corporate Finance n n n
The values shown in the solutions may be rounded forDdisplayDpurposes. However, the answers were
n n n n n n n n n n n n n
derived using a spreadsheet without any intermediate rounding.
n n n n n n n n
Answers to Problem Sets n n n
1. a. real
b. executive airplanes n
c. brand names n
d. financial
e. bonds
*f. investment or capital expenditure n n n
*g. capital budgeting or investment n n n
h. financing
*Note that f and g are interchangeable in the question.
n n n n n n n n n
Est time: 01-05
n n
2. A trademark, a factory, undeveloped land, and your work force (c, d, e, and g) are all real a ssets.
n n n n n n n n n n n n n n n n n n n
Real assets are identifiable as items with intrinsic value. The others in the list are fina ncial
n n n n n n n n n n n n n n n n n
assets,that is, these assets derive value because of a contractual claim.
n n n n n n n n n n n n
Est time: 01-05
n n
3. a.
Financial assets, such as stocks or bank loans, are claims held by investors. n n n n n n n n n n n n
Corporations sell financial assets to raise the cash to invest in real assets such a
n n n n n n n n n n n n n n n
s plantand equipment. Some real assets are intangible.
n n n n n n n n n
b. Capital expenditure means investment in real assets. Financing means raising the
n n n n n n n n n n
cash for this investment.
n n n n
, c. The shares ofDpublic corporations are traded on stock exchanges and can be purch
n n n n n n n n n n n n
asedby a wide range of investors. The shares of closely held corporations are not
n n n n n n n n n n n n n n n
publicly traded and are held by a small group of private investors.
n n n n n n n n n n n n
d. Unlimited liability: Investors are responsible for all the firm‘s debts. ADsole proprieto r
n n n n n n n n n n n n
has unlimited liability. Investors in corporations have limited liability. They can lose their
n n n n n n n n n n n n n
investment, but no more.
n n n n
Est time: 01-05
n n
