Solution manual for Principles Of Corporate Finance 14th Edition by Richard Brealey, Stewart Myers, ALL Chapters (1 - 34)

Solution manual for principles o
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f corporate finance 14th edition b
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y richard Brealey, stewart myers,
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franklin allen Y




PDF FORMAT Y




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, CHAPTERY1
IntroductionYtoYCorporateYFinance


TheYvaluesYshownYinYtheYsolutionsYmayYbeYroundedYforYdisplayYpurposes.YHowever,YtheYanswersYwereYder
ivedYusingYaYspreadsheetYwithoutYanyYintermediateYrounding.


AnswersYtoYProblemYSets

1. a. realY

b. executiveYairplanesY

c. brandYnamesY

d. financialY

e. bondsY

*f. investmentYorYcapitalYexpenditureY

*g.

capitalYbudgetingYorYinvestment

Yh. financingY

*NoteYthatYfYandYgYareYinterchangeableYinYtheYquestion.Y
EstYtime:Y01-05



2. AYtrademark,YaYfactory,YundevelopedYland,YandYyourYworkYforceY(c,Yd,Ye,YandYg)YareYallYrealYasset
s.YRealYassetsYareYidentifiableYasYitemsYwithYintrinsicYvalue.YTheYothersYinYtheYlistYareYfinancialYas
sets,YthatYis,YtheseYassetsYderiveYvalueYbecauseYofYaYcontractualYclaim.Y
EstYtime:Y01-05



3. a.
FinancialYassets,YsuchYasYstocksYorYbankYloans,YareYclaimsYheldYbyYinvestors.YCorp
orationsYsellYfinancialYassetsYtoYraiseYtheYcashYtoYinvestYinYrealYassetsYsuchYasYplantYan
dYequipment.YSomeYrealYassetsYareYintangible.Y

b. CapitalYexpenditureYmeansYinvestmentYinYrealYassets.YFinancingYmeansYraisingYtheYcas
hYforYthisYinvestment.Y

c. TheYsharesYofYpublicYcorporationsYareYtradedYonYstockYexchangesYandYcanYbeYpurchas
edYbyYaYwideYrangeYofYinvestors.YTheYsharesYofYcloselyYheldYcorporationsYareYnotYpublicl
yYtradedYandYareYheldYbyYaYsmallYgroupYofYprivateYinvestors.Y

d. UnlimitedYliability:YInvestorsYareYresponsibleYforYallYtheYfirm‘sYdebts.YAYsoleYproprietorYh
asYunlimitedYliability.YInvestorsYinYcorporationsYhaveYlimitedYliability.YTheyYcanYloseYtheir
Yinvestment,YbutY noYmore.Y

EstYtime:Y01-05
Y

, 4. ItemsYcYandYdYapplyYtoYcorporations.YBecauseYcorporationsYhaveYperpetualYlife,YownershipYcanY
beYtransferredYwithoutYaffectingYoperations,YandYmanagersYcanYbeYfiredYwithYnoYeffectYonYowner
ship.YOtherYformsYofYbusinessYmayYhaveYunlimitedYliabilityYandYlimitedYlife.Y
EstYtime:Y01-05



5. SeparationYofYownershipYfacilitatesYtheYkeyYattributesYofYaYcorporation,YincludingYlimitedYliabilityYf
orYinvestors,YtransferabilityYofYownership,YaYseparateYlegalYpersonalityYofYtheYcorporation,YandYde
legatedYcentralizedYmanagement.YTheseYfourYattributesYprovideYsubstantialYbenefitYforYinvestors,
YincludingY theY abilityYtoY diversifyYtheirYinvestmentY amongY manyYuncorrelatedY returns—

aYveryYvaluableYtoolYexploredYinYlaterYchapters.YAlso,YtheseYattributesYallowYinvestorsYtoYquicklyY
exit,Yenter,YorYshortYsellYanYinvestment,YtherebyYgeneratingYanYactiveYliquidYmarketYforYcorporatio
ns.Y

However,YtheseYpositiveYaspectsYalsoYintroduceYsubstantialYnegativeYexternalitiesYasYwell.YTheYs
eparationYofYownershipYfromYmanagementYtypicallyYleadsYtoYagencyYproblems,YwhereYmanagersY
preferYtoYconsumeYprivateYperksY orYmakeYotherYdecisionsYforYtheirYprivateYbenefit—
ratherYthanYmaximizeYshareholderYwealth.YShareholdersYtendYtoYexerciseYlessYoversightYofYeachYi
ndividualYinvestmentYasYtheirYdiversificationYincreases.YFinally,YtheYcorporation‘sYseparateYlegalYp
ersonalityYmakesYitYdifficultYtoYenforceYaccountabilityYifYtheyYexternalizeYcostsYontoYsociety.Y
EstYtime:Y01-05



6. ShareholdersYwillYonlyYvoteYtoYmaximizeYshareholderYwealth.YShareholdersYcanYmodifyYtheirY
patternYofYconsumptionYthroughYborrowingYandYlending,YmatchYriskYpreferences,YandYhopefull
yYbalanceYtheirYownYcheckbooksY(orYhireYaYqualifiedYprofessionalYtoYhelpYthemYwithYtheseYtas
ks).Y
EstYtime:Y01-05



7. IfYtheYinvestmentYincreasesYtheYfirm‘sYwealth,YitYincreasesYtheYfirm‘sYshareYvalue.YMs.YEspino
zaYcouldYthenYsellYsomeYorYallYtheseYmoreYvaluableYsharesYtoYprovideYforYherYretirementYinco
me.Y
EstYtime:Y01-05



8. a.
AssumingYthatYtheYencabulatorYmarketYisYrisky,YanY8%YexpectedYretu
rnYonYtheYF&HYencabulatorYinvestmentsYmayYbeYinferiorYtoYaY4%YreturnYo
nYU.S.Y
governmentYsecurities,YdependingYonYtheYrelativeYriskYbetweenYtheYtwoYassets.Y

b.
UnlessYtheYfinancialYassetsYareYasYsafeYasYU.S.YgovernmentYsecurities,YtheirYcostYofY
capitalYwouldYbeYhigher.YTheYCFOYcouldYconsiderYexpectedYreturnsYonYassetsYwithYsimila
rYrisk.Y
EstYtime:Y06-10



9. ManagersYwouldYactYinYshareholders‘YinterestsYbecauseYtheyYhaveYaYlegalYdutyYtoYactYinYtheirYinte
rests.Y ManagersYmayYalsoYreceiveY compensation—
Ybonuses,Ystock,Y andY optionYpayoutsY withYvalueYtiedY(roughly)YtoYfirmYperformance.YManagersYma

yYfearYpersonalYreputationalYdamageYfromYnotYactingYinYshareholders‘Yinterests.YAndYmanagersYc
Y

, anYbeYfiredYbyYtheYboardYofYdirectorsY(electedYbyYshareholders).Y IfYmanagersY stillYfailYtoY actYinYsh
areholders‘Yinterests,Y shareholdersYmayYsellYtheirYshares,YloweringYtheYstockYpriceYandYpotentially
YcreatingYtheYpossibilityYofYaYtakeover,YwhichYcanYagainY leadYtoYchangesY inYtheYboardYofY directors

YandY seniorYmanagement.Y

EstYtime:Y01-05




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