SOLUTION MANUAL FOR
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Principles Of Corporate Finance 1
b6 b6 b6 b6
th Edition By Richard Brealey, Stewart Myers,
b6 b6 b6 b6 b6 b6
ALL Chapters (1 - 34)
b6 b6 b6 b6
, TABLE OF CONTENTS D D
Chapter 1: Introduction to Corporate Financ
b6 b6 b6 b6 b6
e Chapter 2: How to Calculate Present Valu
b6 b6 b6 b6 b6 b6 b6
es Chapter 3: Valuing Bonds
b6 b6 b6 b6
Chapter 4: Valuing Stocks b6 b6 b6
Chapter 5: Net Present Value and Other Investment Criteria
b6 b6 b6 b6 b6 b6 b6 b6
Chapter 6: Making Investment Decisions with the Net Present Value Rule
b6 b6 b6 b6 b6 b6 b6 b6 b6 b6
Chapter 7: Introduction to Risk, Diversification, and Portfolio Selection Cha
b6 b6 b6 b6 b6 b6 b6 b6 b6
pter 8: The Capital Asset Pricing Model
b6 b6 b6 b6 b6 b6
Chapter 9: Risk and the Cost of Capital
b6 b6 b6 b6 b6 b6 b6
Chapter 10: Project Analysis b6 b6 b6
Chapter 11: How to Ensure That Projects Truly Have PositiveNPVs
b6 b6 b6 b6 b6 b6 b6 b6 b6
Chapter 12: Efficient Markets and Behavioral Finance
b6 b6 b6 b6 b6 b6 b6
Chapter 13: An Overview of Corporate Financing Chap
b6 b6 b6 b6 b6 b6 b6
ter 14: How Corporations Issue Securities
b6 b6 b6 b6 b6
Chapter 15: Payout Policy b6 b6 b6
Chapter 16: Does Debt Policy Matter?
b6 b6 b6 b6 b6
Chapter 17: How Much Should a Corporation Borrow?
b6 b6 b6 b6 b6 b6 b6 b
Chapter 18: Financing and Valuation
6 b6 b6 b6 b6
Chapter 19: Agency Problems and Corporate Governance Ch
b6 b6 b6 b6 b6 b6 b6
apter 20: Stakeholder Capitalism and Responsible Business
b6 b6 b6 b6 b6 b6
Chapter 21: Understanding Options
b6 b6 b6
Chapter 22: Valuing Options Chap
b6 b6 b6 b6 b6
ter 23: Real Options
b6 b6 b6
Chapter 24: Credit Risk and the Value of Corporate Debt Cha
b6 b6 b6 b6 b6 b6 b6 b6 b6 b6
pter 25: The Many Different Kinds of Debt
b6 b6 b6 b6 b6 b6 b6
Chapter 26: Leasing b6 b6
Chapter 27: Managing Risk b6 b6 b6
Chapter 28: International Financial Management
b6 b6 b6 b6
Chapter 29: Financial Analysis Cha
b6 b6 b6 b6
pter 30: Financial Planning
b6 b6 b6
Chapter 31: Working Capital Management
b6 b6 b6 b6
Chapter 32: Mergers b6 b6
Chapter 33: Corporate Restructuring
b6 b6 b6
,Chapter 34: Conclusion: What We Do and Do Not Know about Finance
b6 b6 b6 b6 b6 b6 b6 b6 b6 b6 b6
CHAPTER 1 b6
Introduction to Corporate Finance b6 b6 b6
The values shown in the solutions may be rounded forDdisplayDpurposes. However, the answer
b6 b6 b6 b6 b6 b6 b6 b6 b6 b6 b6 b6
s were derived using a spreadsheet without any intermediate rounding.
b6 b6 b 6 b 6 b6 b 6 b6 b 6 b 6
Answers to Problem Sets
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1. a. real
b. executive airplanes b6
c. brand names b6
d. financial
e. bonds
*f. investment or capital expenditureb6 b6 b6
*g. capital budgeting or investment
b6 b6 b6
h. financing
*Note that f and g are interchangeable in the question.
b6 b6 b6 b6 b6 b6 b6 b6 b6
Est time: 01-05
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2. A trademark, a factory, undeveloped land, and your work force (c, d, e, and g) are all
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real a ssets. Real assets are identifiable as items with intrinsic value. The others in
b6 b6 b6 b6 b6 b6 b6 b6 b6 b6 b6 b6 b6 b 6 b
the list are fina ncial assets, that is, these assets derive value because of a cont
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ractual claim. b 6
Est time: 01-05
b6 b6
3. a.
Financial assets, such as stocks or bank loans, are claims held by investors.
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Corporations sell financial assets to raise the cash to invest in real ass
b6 b 6 b 6 b 6 b 6 b 6 b 6 b 6 b 6 b 6 b 6 b 6 b 6
ets such a s plant and equipment. Some real assets are intangible.
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b. Capital expenditure means investment in real assets. Financing means raisi
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ng the cash for this investment.
b6 b6 b6 b 6 b 6
, c. The shares ofDpublic corporations are traded on stock exchanges and can b
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e purch ased by a wide range of investors. The shares of closely held co
b 6 b6 b6 b 6 b 6 b 6 b 6 b 6 b 6 b 6 b 6 b 6 b 6 b 6
rporations are not publicly traded and are held by a small group of priva
b 6 b 6 b6 b 6 b 6 b 6 b 6 b 6 b 6 b 6 b 6 b 6 b 6
te investors.
b 6
d. Unlimited liability: Investors are responsible for all the firm‘s debts. ADsole
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proprieto r has unlimited liability. Investors in corporations have limited liability. The
b6 b6 b6 b6 b6 b6 b6 b6 b6 b6 b6
y can lose their investment, but no more.
b6 b6 b6 b 6 b 6 b 6 b 6
Est time: 01-05
b6 b6
b6 b6
Principles Of Corporate Finance 1
b6 b6 b6 b6
th Edition By Richard Brealey, Stewart Myers,
b6 b6 b6 b6 b6 b6
ALL Chapters (1 - 34)
b6 b6 b6 b6
, TABLE OF CONTENTS D D
Chapter 1: Introduction to Corporate Financ
b6 b6 b6 b6 b6
e Chapter 2: How to Calculate Present Valu
b6 b6 b6 b6 b6 b6 b6
es Chapter 3: Valuing Bonds
b6 b6 b6 b6
Chapter 4: Valuing Stocks b6 b6 b6
Chapter 5: Net Present Value and Other Investment Criteria
b6 b6 b6 b6 b6 b6 b6 b6
Chapter 6: Making Investment Decisions with the Net Present Value Rule
b6 b6 b6 b6 b6 b6 b6 b6 b6 b6
Chapter 7: Introduction to Risk, Diversification, and Portfolio Selection Cha
b6 b6 b6 b6 b6 b6 b6 b6 b6
pter 8: The Capital Asset Pricing Model
b6 b6 b6 b6 b6 b6
Chapter 9: Risk and the Cost of Capital
b6 b6 b6 b6 b6 b6 b6
Chapter 10: Project Analysis b6 b6 b6
Chapter 11: How to Ensure That Projects Truly Have PositiveNPVs
b6 b6 b6 b6 b6 b6 b6 b6 b6
Chapter 12: Efficient Markets and Behavioral Finance
b6 b6 b6 b6 b6 b6 b6
Chapter 13: An Overview of Corporate Financing Chap
b6 b6 b6 b6 b6 b6 b6
ter 14: How Corporations Issue Securities
b6 b6 b6 b6 b6
Chapter 15: Payout Policy b6 b6 b6
Chapter 16: Does Debt Policy Matter?
b6 b6 b6 b6 b6
Chapter 17: How Much Should a Corporation Borrow?
b6 b6 b6 b6 b6 b6 b6 b
Chapter 18: Financing and Valuation
6 b6 b6 b6 b6
Chapter 19: Agency Problems and Corporate Governance Ch
b6 b6 b6 b6 b6 b6 b6
apter 20: Stakeholder Capitalism and Responsible Business
b6 b6 b6 b6 b6 b6
Chapter 21: Understanding Options
b6 b6 b6
Chapter 22: Valuing Options Chap
b6 b6 b6 b6 b6
ter 23: Real Options
b6 b6 b6
Chapter 24: Credit Risk and the Value of Corporate Debt Cha
b6 b6 b6 b6 b6 b6 b6 b6 b6 b6
pter 25: The Many Different Kinds of Debt
b6 b6 b6 b6 b6 b6 b6
Chapter 26: Leasing b6 b6
Chapter 27: Managing Risk b6 b6 b6
Chapter 28: International Financial Management
b6 b6 b6 b6
Chapter 29: Financial Analysis Cha
b6 b6 b6 b6
pter 30: Financial Planning
b6 b6 b6
Chapter 31: Working Capital Management
b6 b6 b6 b6
Chapter 32: Mergers b6 b6
Chapter 33: Corporate Restructuring
b6 b6 b6
,Chapter 34: Conclusion: What We Do and Do Not Know about Finance
b6 b6 b6 b6 b6 b6 b6 b6 b6 b6 b6
CHAPTER 1 b6
Introduction to Corporate Finance b6 b6 b6
The values shown in the solutions may be rounded forDdisplayDpurposes. However, the answer
b6 b6 b6 b6 b6 b6 b6 b6 b6 b6 b6 b6
s were derived using a spreadsheet without any intermediate rounding.
b6 b6 b 6 b 6 b6 b 6 b6 b 6 b 6
Answers to Problem Sets
b6 b6 b6
1. a. real
b. executive airplanes b6
c. brand names b6
d. financial
e. bonds
*f. investment or capital expenditureb6 b6 b6
*g. capital budgeting or investment
b6 b6 b6
h. financing
*Note that f and g are interchangeable in the question.
b6 b6 b6 b6 b6 b6 b6 b6 b6
Est time: 01-05
b6 b6
2. A trademark, a factory, undeveloped land, and your work force (c, d, e, and g) are all
b6 b6 b6 b6 b6 b 6 b 6 b 6 b 6 b6 b6 b6 b6 b 6 b6 b 6 b 6
real a ssets. Real assets are identifiable as items with intrinsic value. The others in
b6 b6 b6 b6 b6 b6 b6 b6 b6 b6 b6 b6 b6 b 6 b
the list are fina ncial assets, that is, these assets derive value because of a cont
6 b6 b6 b6 b6 b 6 b6 b 6 b 6 b 6 b 6 b 6 b 6 b 6 b 6 b 6
ractual claim. b 6
Est time: 01-05
b6 b6
3. a.
Financial assets, such as stocks or bank loans, are claims held by investors.
b6 b6 b6 b6 b6 b6 b6 b6 b6 b6 b6 b6
Corporations sell financial assets to raise the cash to invest in real ass
b6 b 6 b 6 b 6 b 6 b 6 b 6 b 6 b 6 b 6 b 6 b 6 b 6
ets such a s plant and equipment. Some real assets are intangible.
b 6 b 6 b6 b 6 b6 b 6 b 6 b 6 b 6 b 6 b 6
b. Capital expenditure means investment in real assets. Financing means raisi
b6 b 6 b6 b6 b6 b6 b6 b6 b6
ng the cash for this investment.
b6 b6 b6 b 6 b 6
, c. The shares ofDpublic corporations are traded on stock exchanges and can b
b6 b 6 b6 b6 b6 b 6 b6 b6 b 6 b6 b6
e purch ased by a wide range of investors. The shares of closely held co
b 6 b6 b6 b 6 b 6 b 6 b 6 b 6 b 6 b 6 b 6 b 6 b 6 b 6
rporations are not publicly traded and are held by a small group of priva
b 6 b 6 b6 b 6 b 6 b 6 b 6 b 6 b 6 b 6 b 6 b 6 b 6
te investors.
b 6
d. Unlimited liability: Investors are responsible for all the firm‘s debts. ADsole
b 6 b6 b6 b6 b6 b 6 b 6 b 6 b6 b 6 b 6
proprieto r has unlimited liability. Investors in corporations have limited liability. The
b6 b6 b6 b6 b6 b6 b6 b6 b6 b6 b6
y can lose their investment, but no more.
b6 b6 b6 b 6 b 6 b 6 b 6
Est time: 01-05
b6 b6
