公司理财原理第10版英文版第3课课后习题解答

公司理财习题答案（五篇）第一篇：公司理财习题答案公司理财习题答案篇一：公司理财习题答案第一章公司理财导论1.代理问题谁拥有公司?描述所有者控制公司管理层的过程。

代理关系在公司的组织形式中存在的主要原因是什么?在这种环境下，可能会出现什么样的问题? 解：股东拥有公司;股东选举董事会，董事会选举管理层(股东→董事会→管理层);代理关系在公司的组织形式中存在的主要原因是所有权和控制权的分离;在这种情况下，可能会产生代理问题(股东和管理层可能因为目标不一致而使管理层可能追求自身或别人的利益最大化，而不是股东的利益最大化)。

2.非营利企业的目标假设你是一家非营利企业(或许是非营利医院)的财务经理，你认为什么样的财务管理目标将会是恰当的? 解：所有者权益的市场价值的最大化。

3.公司的目标评价下面这句话：管理者不应该只关注现在的股票价值，因为这么做将会导致过分强调短期利润而牺牲长期利润。

解：错误;因为现在的股票价值已经反应了短期和长期的的风险、时间以及未来现金流量。

4.道德规范和公司目标股票价值最大化的目标可能和其他目标，比如避免不道德或者非法的行为相冲突吗?特别是，你认为顾客和员工的安全、环境和社会的总体利益是否在这个框架之内，或者他们完全被忽略了?考虑一些具体的情形来阐明你的回答。

解：有两种极端。

一种极端，所有的东西都被定价。

因此所有目标都有一个最优水平，包括避免不道德或非法的行为，股票价值最大化。

另一种极端，我们可以认为这是非经济现象,最好的处理方式是通过政治手段。

一个经典的思考问题给出了这种争论的答案：公司估计提高某种产品安全性的成本是30万美元。

然而，该公司认为提高产品的安全性只会节省20万美元。

请问公司应该怎么做呢?”5.跨国公司目标股票价值最大化的财务管理目标在外国会有不同吗?为什么? 解：财务管理的目标都是相同的，但实现目标的最好方式可能是不同的(因为不同的国家有不同的社会、政治环境和经济制度)。

CHAPTER 20INTERNATIONAL CORPORATE FINANCEAnswers to Concepts Review and Critical Thinking Questions1. a.The dollar is selling at a premium because it is more expensive in the forward market than inthe spot market (SFr 1.53 versus SFr 1.50).b.The franc is expected to depreciate relative to the dollar because it will take more francs to buyone dollar in the future than it does today.c.Inflation in Switzerland is higher than in the United States, as are nominal interest rates.2.The exchange rate will increase, as it will take progressively more pesos to purchase a dollar. This isthe relative PPP relationship.3. a.The Australian dollar is expected to weaken relative to the dollar, because it will take moreA$ in the future to buy one dollar than it does today.b.The inflation rate in Australia is higher.c.Nominal interest rates in Australia are higher; relative real rates in the two countries are thesame.4. A Yankee bond is most accurately described by d.5. No. For example, if a country’s currency strengthens, imports become cheaper (good), but its exportsbecome more expensive for others to buy (bad). The reverse is true for currency depreciation.6.Additional advantages include being closer to the final consumer and, thereby, saving ontransportation, significantly lower wages, and less exposure to exchange rate risk. Disadvantages include political risk and costs of supervising distant operations.7.One key thing to remember is that dividend payments are made in the home currency. Moregenerally, it may be that the owners of the multinational are primarily domestic and are ultimately concerned about their wealth denominated in their home currency because, unlike a multinational, they are not internationally diversified.8. a.False. If prices are rising faster in Great Britain, it will take more pounds to buy the sameamount of goods that one dollar can buy; the pound will depreciate relative to the dollar.b.False. The forward market would already reflect the projected deterioration of the euro relativeto the dollar. Only if you feel that there might be additional, unanticipated weakening of the euro that isn’t reflected in forward rates today, will the forward hedge protect you against additional declines.c.True. The market would only be correct on average, while you would be correct all the time.9. a.American exporters: their situation in general improves because a sale of the exported goods fora fixed number of euros will be worth more dollars.American importers: their situation in general worsens because the purchase of the imported goods for a fixed number of euros will cost more in dollars.b.American exporters: they would generally be better off if the British government’s intentionsresult in a strengthened pound.American importers: they would generally be worse off if the pound strengthens.c.American exporters: they would generally be much worse off, because an extreme case of fiscalexpansion like this one will make American goods prohibitively expensive to buy, or else Brazilian sales, if fixed in cruzeiros, would become worth an unacceptably low number of dollars.American importers: they would generally be much better off, because Brazilian goods will become much cheaper to purchase in dollars.10.IRP is the most likely to hold because it presents the easiest and least costly means to exploit anyarbitrage opportunities. Relative PPP is least likely to hold since it depends on the absence of market imperfections and frictions in order to hold strictly.11.It all depends on whether the forward market expects the same appreciation over the period andwhether the expectation is accurate. Assuming that the expectation is correct and that other traders do not have the same information, there will be value to hedging the currency exposure.12.One possible reason investment in the foreign subsidiary might be preferred is if this investmentprovides direct diversification that shareholders could not attain by investing on their own. Another reason could be if the political climate in the foreign country was more stable than in the home country. Increased political risk can also be a reason you might prefer the home subsidiary investment. Indonesia can serve as a great example of political risk. If it cannot be diversified away, investing in this type of foreign country will increase the systematic risk. As a result, it will raise the cost of the capital, and could actually decrease the NPV of the investment.13.Yes, the firm should undertake the foreign investment. If, after taking into consideration all risks, aproject in a foreign country has a positive NPV, the firm should undertake it. Note that in practice, the stated assumption (that the adjustment to the discount rate has taken into consideration all political and diversification issues) is a huge task. But once that has been addressed, the net present value principle holds for foreign operations, just as for domestic.14.If the foreign currency depreciates, the U.S. parent will experience an exchange rate loss when theforeign cash flow is remitted to the U.S. This problem could be overcome by selling forward contracts. Another way of overcoming this problem would be to borrow in the country where the project is located.15.False. If the financial markets are perfectly competitive, the difference between the Eurodollar rateand the U.S. rate will be due to differences in risk and government regulation. Therefore, speculating in those markets will not be beneficial.16.The difference between a Eurobond and a foreign bond is that the foreign bond is denominated in thecurrency of the country of origin of the issuing company. Eurobonds are more popular than foreign bonds because of registration differences. Eurobonds are unregistered securities.Solutions to Questions and ProblemsNOTE: All end-of-chapter problems were solved using a spreadsheet. Many problems require multiple steps. Due to space and readability constraints, when these intermediate steps are included in this solutions manual, rounding may appear to have occurred. However, the final answer for each problem is found without rounding during any step in the problem.Basicing the quotes from the table, we get:a.$50(€0.7870/$1) = €39.35b.$1.2706c.€5M($1.2706/€) = $6,353,240d.New Zealand dollare.Mexican pesof.(P11.0023/$1)($1.2186/€1) = P13.9801/€This is a cross rate.g.The most valuable is the Kuwait dinar. The least valuable is the Indonesian rupiah.2. a.You would prefer £100, since:(£100)($.5359/£1) = $53.59b.You would still prefer £100. Using the $/£ exchange rate and the SF/£ exchange rate to find theamount of Swiss francs £100 will buy, we get:(£100)($1.8660/£1)(SF .8233) = SF 226.6489ing the quotes in the book to find the SF/£ cross rate, we find:(SF 1.2146/$1)($0.5359/£1) = SF 2.2665/£1The £/SF exchange rate is the inverse of the SF/£ exchange rate, so:£1/SF .4412 = £0.4412/SF 13. a.F180= ¥104.93 (per $). The yen is selling at a premium because it is more expensive in theforward market than in the spot market ($0.0093659 versus $0.009530).b.F90 = $1.8587/£. The pound is selling at a discount because it is less expensive in the forwardmarket than in the spot market ($0.5380 versus $0.5359).c.The value of the dollar will fall relative to the yen, since it takes more dollars to buy one yen inthe future than it does today. The value of the dollar will rise relative to the pound, because it will take fewer dollars to buy one pound in the future than it does today.4. a.The U.S. dollar, since one Canadian dollar will buy:(Can$1)/(Can$1.26/$1) = $0.7937b.The cost in U.S. dollars is:(Can$2.19)/(Can$1.26/$1) = $1.74Among the reasons that absolute PPP doe sn’t hold are tariffs and other barriers to trade, transactions costs, taxes, and different tastes.c.The U.S. dollar is selling at a discount, because it is less expensive in the forward market thanin the spot market (Can$1.22 versus Can$1.26).d.The Canadian dollar is expected to appreciate in value relative to the dollar, because it takesfewer Canadian dollars to buy one U.S. dollar in the future than it does today.e.Interest rates in the United States are probably higher than they are in Canada.5. a.The cross rate in ¥/£ terms is:(¥115/$1)($1.70/£1) = ¥195.5/£1b.The yen is quoted too low relative to the pound. Take out a loan for $1 and buy ¥115. Use the¥115 to purchase pounds at the cross-rate, which will give you:¥115(£1/¥185) = £0.6216Use the pounds to buy back dollars and repay the loan. The cost to repay the loan will be:£0.6216($1.70/£1) = $1.0568You arbitrage profit is $0.0568 per dollar used.6.We can rearrange the interest rate parity condition to answer this question. The equation we will useis:R FC = (F T– S0)/S0 + R USUsing this relationship, we find:Great Britain: R FC = (£0.5394 – £0.5359)/£0.5359 + .038 = 4.45%Japan: R FC = (¥104.93 – ¥106.77)/¥106.77 + .038 = 2.08%Switzerland: R FC = (SFr 1.1980 – SFr 1.2146)/SFr 1.2146 + .038 = 2.43%7.If we invest in the U.S. for the next three months, we will have:$30M(1.0045)3 = $30,406,825.23If we invest in Great Britain, we must exchange the dollars today for pounds, and exchange the pounds for dollars in three months. After making these transactions, the dollar amount we would have in three months would be:($30M)(£0.56/$1)(1.0060)3/(£0.59/$1) = $28,990,200.05We should invest in U.S.ing the relative purchasing power parity equation:F t = S0 × [1 + (h FC– h US)]tWe find:Z3.92 = Z3.84[1 + (h FC– h US)]3h FC– h US = (Z3.92/Z3.84)1/3– 1h FC– h US = .0069Inflation in Poland is expected to exceed that in the U.S. by 0.69% over this period.9.The profit will be the quantity sold, times the sales price minus the cost of production. Theproduction cost is in Singapore dollars, so we must convert this to U.S. dollars. Doing so, we find that if the exchange rates stay the same, the profit will be:Profit = 30,000[$145 – {(S$168.50)/(S$1.6548/$1)}]Profit = $1,295,250.18If the exchange rate rises, we must adjust the cost by the increased exchange rate, so:Profit = 30,000[$145 – {(S$168.50)/1.1(S$1.6548/$1)}]Profit = $1,572,954.71If the exchange rate falls, we must adjust the cost by the decreased exchange rate, so:Profit = 30,000[$145 – {(S$168.50)/0.9(S$1.6548/$1)}]Profit = $955,833.53To calculate the breakeven change in the exchange rate, we need to find the exchange rate that make the cost in Singapore dollars equal to the selling price in U.S. dollars, so:$145 = S$168.50/S TS T = S$1.1621/$1S T = –.2978 or –29.78% decline10. a.If IRP holds, then:F180 = (Kr 6.43)[1 + (.08 – .05)]1/2F180 = Kr 6.5257Since given F180 is Kr6.56, an arbitrage opportunity exists; the forward premium is too high.Borrow Kr1 today at 8% interest. Agree to a 180-day forward contract at Kr 6.56. Convert the loan proceeds into dollars:Kr 1 ($1/Kr 6.43) = $0.15552Invest these dollars at 5%, ending up with $0.15931. Convert the dollars back into krone as$0.15931(Kr 6.56/$1) = Kr 1.04506Repay the Kr 1 loan, ending with a profit of:Kr1.04506 – Kr1.03868 = Kr 0.00638b.To find the forward rate that eliminates arbitrage, we use the interest rate parity condition, so:F180 = (Kr 6.43)[1 + (.08 – .05)]1/2F180 = Kr 6.525711.The international Fisher effect states that the real interest rate across countries is equal. We canrearrange the international Fisher effect as follows to answer this question:R US– h US = R FC– h FCh FC = R FC + h US– R USa.h AUS = .05 + .035 – .039h AUS = .046 or 4.6%b.h CAN = .07 + .035 – .039h CAN = .066 or 6.6%c.h TAI = .10 + .035 – .039h TAI = .096 or 9.6%12. a.The yen is expected to get stronger, since it will take fewer yen to buy one dollar in the futurethan it does today.b.h US– h JAP (¥129.76 – ¥131.30)/¥131.30h US– h JAP = – .0117 or –1.17%(1 – .0117)4– 1 = –.0461 or –4.61%The approximate inflation differential between the U.S. and Japan is – 4.61% annually.13. We need to find the change in the exchange rate over time, so we need to use the relative purchasingpower parity relationship:F t = S0 × [1 + (h FC– h US)]TUsing this relationship, we find the exchange rate in one year should be:F1 = 215[1 + (.086 – .035)]1F1 = HUF 225.97The exchange rate in two years should be:F2 = 215[1 + (.086 – .035)]2F2 = HUF 237.49And the exchange rate in five years should be:F5 = 215[1 + (.086 – .035)]5F5 = HUF 275.71ing the interest-rate parity theorem:(1 + R US) / (1 + R FC) = F(0,1) / S0We can find the forward rate as:F(0,1) = [(1 + R US) / (1 + R FC)] S0F(0,1) = (1.13 / 1.08)$1.50/£F(0,1) = $1.57/£Intermediate15.First, we need to forecast the future spot rate for each of the next three years. From interest rate andpurchasing power parity, the expected exchange rate is:E(S T) = [(1 + R US) / (1 + R FC)]T S0So:E(S1) = (1.0480 / 1.0410)1 $1.22/€ = $1.2282/€E(S2) = (1.0480 / 1.0410)2 $1.22/€ = $1.2365/€E(S3) = (1.0480 / 1.0410)3 $1.22/€ = $1.2448/€Now we can use these future spot rates to find the dollar cash flows. The dollar cash flow each year will be:Year 0 cash flow = –€$12,000,000($1.22/€) = –$14,640,000.00Year 1 cash flow = €$2,700,000($1.2282/€) = $3,316,149.86Year 2 cash flow = €$3,500,000($1.2365/€) = $4,327,618.63Year 3 cash flow = (€3,300,000 + 7,400,000)($1.2448/€) = $13,319,111.90And the NPV of the project will be:NPV = –$14,640,000 + $3,316,149.86/1.13 + $4,4327,618.63/1.132 + $13,319,111.90/1.133NPV = $914,618.7316. a.Implicitly, it is assumed that interest rates won’t change over the life of the project, but theexchange rate is projected to decline because the Euroswiss rate is lower than the Eurodollar rate.b.We can use relative purchasing power parity to calculate the dollar cash flows at each time. Theequation is:E[S T] = (SFr 1.72)[1 + (.07 – .08)]TE[S T] = 1.72(.99)TSo, the cash flows each year in U.S. dollar terms will be:t SFr E[S T] US$0 –27.0M –$15,697,674.421 +7.5M 1.7028 $4,404,510.222 +7.5M 1.6858 $4,449,000.223 +7.5M 1.6689 $4,493,939.624 +7.5M 1.6522 $4,539,332.955 +7.5M 1.6357 $4,585,184.79And the NPV is:NPV = –$15,697,674.42 + $4,404,510.22/1.13 + $4,449,000.22/1.132 + $4,493,939.62/1.133 + $4,539,332.95/1.134 + $4,585,184.79/1.135NPV = $71,580.10c.Rearranging the relative purchasing power parity equation to find the required return in Swissfrancs, we get:R SFr = 1.13[1 + (.07 – .08)] – 1R SFr = 11.87%So, the NPV in Swiss francs is:NPV = –SFr 27.0M + SFr 7.5M(PVIFA11.87%,5)NPV = SFr 123,117.76Converting the NPV to dollars at the spot rate, we get the NPV in U.S. dollars as:NPV = (SFr 123,117.76)($1/SFr 1.72)NPV = $71,580.10Challenge17. a.The domestic Fisher effect is:1 + R US = (1 + r US)(1 + h US)1 + r US = (1 + R US)/(1 + h US)This relationship must hold for any country, that is:1 + r FC = (1 + R FC)/(1 + h FC)The international Fisher effect states that real rates are equal across countries, so:1 + r US = (1 + R US)/(1 + h US) = (1 + R FC)/(1 + h FC) = 1 + r FCb.The exact form of unbiased interest rate parity is:E[S t] = F t = S0 [(1 + R FC)/(1 + R US)]tc.The exact form for relative PPP is:E[S t] = S0 [(1 + h FC)/(1 + h US)]td.For the home currency approach, we calculate the expected currency spot rate at time t as:E[S t] = (€0.5)[1.07/1.05]t= (€0.5)(1.019)tWe then convert the euro cash flows using this equation at every time, and find the present value. Doing so, we find:NPV = –[€2M/(€0.5)] + {€0.9M/[1.019(€0.5)]}/1.1 + {€0.9M/[1.0192(€0.5)]}/1.12 + {€0.9M/[1.0193(€0.5/$1)]}/1.13NPV = $316,230.72For the foreign currency approach, we first find the return in the euros as:R FC = 1.10(1.07/1.05) – 1 = 0.121Next, we find the NPV in euros as:NPV = –€2M + (€0.9M)/1.121 + (€0.9M)/1.1212+ (€0.9M)/1.1213= €158,115.36And finally, we convert the euros to dollars at the current exchange rate, which is:NPV ($) = €158,115.36 /(€0.5/$1) = $316,230.72。

r i p l e o f o r r F i n c e英文第十版习题解答C h a pThe pony was revised in January 2021CHAPTER 1Goals and Governance of the FirmAnswers to Problem Sets1. a. realb. executive airplanesc. brand namesd. financiale. bondsf. investmentg. capital budgetingh. financing2. c, d, e, and g are real assets. Others are financial.3. a. Financial assets, such as stocks or bank loans, are claims held byinvestors. Corporations sell financial assets to raise the cash toinvest in real assets such as plant and equipment. Some real assetsare intangible.b.Capital budgeting means investment in real assets. Financing meansraising the cash for this investment.c.The shares of public corporations are traded on stock exchanges andcanbe purchased by a wide range of investors. The shares of closely heldcorporations are not traded and are not generally available toinvestors.d. Unlimited liability: investors are respons ible for all the firm’s debts. A soleproprietor has unlimited liability. Investors in corporations havelimited liability. They can lose their investment, but no more.e. A corporation is a separate legal “person” with unlimited life. Itsowners hold shares in the business. A partnership is a limited-lifeagreement to establish and run a business.4. c, d.5. b, c.6. Separation of ownership and management typically leads to agency problems,where managers prefer to consume private perks or make other decisions for their private benefit -- rather than maximize shareholder wealth.7. a. Assuming that the encabulator market is risky, an 8% expected returnonthe F&H encabulator investments may be inferior to a 4% return on .government securities.b. Unless their financial assets are as safe as . government securities,their cost of capital would be higher. The CFO could consider whatthe expected return is on assets with similar risk.8. Shareholders will only vote for (a) maximize shareholder wealth.Shareholders can modify their pattern of consumption through borrowing and lending, match risk preferences, and hopefully balance their own checkbooks (or hire a qualified professional to help them with these tasks).9. If the investment increases the firm’s wealth, it will increase the valueof the firm’s shares. Ms. Espinoza could then sell some or all of these more valuable shares in order to provide for her retirement income.10. As the Putnam example illustrates, the firm’s value typ ically falls bysignificantly more than the amount of any fines and settlements. Thefirm’s reputation suffers in a financial scandal, and this can have a much larger effect than the fines levied. Investors may also wonder whether all of the misdeeds have been contained.11. Managers would act in shareholders’ interests because they have a legalduty to act in their interests. Managers may also receive compensation,either bonuses or stock and option payouts whose value is tied (roughly) to firm performance. Managers may fear personal reputational damage thatwould result from not acting in shareholders’ interests. And managers can be fired by the board of directors, which in turn is elected byshareholders. If managers still fail to act in shareholders’ interests, shareholders may sell their shares, lowering the stockprice, and potentially creating the possibility of a takeover, which can again lead to changes in the board of directors and senior management.12. Managers that are insulated from takeovers may be more prone to agencyproblems and therefore more likely to act in their own interests ratherthan in shareholders’. If a firm instituted a new takeover defense, wemight expect to see the value of its shares decline as agency problemsincrease and less shareholder value maximization occurs. Thecounterargument is that defensive measures allow managers to negotiate fora higher purchase price in the face of a takeover bid – to the benefit ofshareholder value.Appendix Questions:1.Both would still invest in their frie nd’s business. A invests andreceives $121,000 for his investment at the end of the year (which isgreater than the $120,000 it would receive from lending at 20%). G alsoinvests, but borrows against the $121,000 payment, and thus receives$100,833 today.2. a. He could consume up to $200,000 now (foregoing all future consumption)or up to $216,000 next year (200,000*, foregoing all consumption this year).To choose the same consumption (C) in both years, C = (200,000 – C) x orC = $103,846.b. He should invest all of his wealth to earn $220,000 next year. If he consumes all this year, he can now have a total of $203, (200,000 x this year or $220,000 next year. If he consumes C this year, the amount available for next year’s consumption is (203, – C) x . To get equal consumption in both years, set the amount consumed today equal to the amount next year:C = (203, – C) xC = $105,CHAPTER 1第一章Goals and Governance of the Firm目标和公司的治理Answers to Problem Sets习题的答案1. a. real1。

Corporate Finance, 3e (Berk/DeMarzo)Chapter 12 Estimating the Cost of CapitalThe Equity Cost of CapitalUse the following information to answer the question(s) below.Assume that the risk-free rate of interest is 3% and you estimate the market's expected return to be 9%.1) Which firm has the most total riskA) EenieB) MeenieC) MineyD) MoeAnswer: CExplanation: C) Total risk is measured using volatility and Miney has the highest volatility, hence the most total risk.Diff: 1Section: The Equity Cost of CapitalSkill: Analytical2) Which firm has the least market riskA) EenieB) MeenieC) MineyD) MoeAnswer: AExplanation: A) Market risk is measured using beta and Eenie has the lowest beta, hence the lowest market risk.Diff: 1Section: The Equity Cost of CapitalSkill: Analytical3) Which firm has the highest cost of equity capitalA) EenieB) MeenieC) MineyD) MoeAnswer: DExplanation: D) Cost of capital is measured using the CAPM and is a linear function of beta. Therefore the firm with the highest beta (Moe) has the highest cost of equity capital.Diff: 1Section: The Equity Cost of CapitalSkill: Analytical4) The equity cost of capital for "Miney" is closest to:A) %B) %C) %D) %Answer: CExplanation: C) r Miney = 3% + (9% - 3%) = %Diff: 1Section: The Equity Cost of CapitalSkill: Analytical5) The equity cost of capital for "Meenie" is closest to:A) %B) %C) %D) %Answer: BExplanation: B) r Meenie = 3% + (9% - 3%) = %Diff: 1Section: The Equity Cost of CapitalSkill: Analytical6) The risk premium for "Meenie" is closest to:A) %B) %C) %D) %Answer: AExplanation: A) risk premium Meenie = (9% - 3%) = % Diff: 2Section: The Equity Cost of CapitalSkill: AnalyticalThe Market PortfolioUse the following information to answer the question(s) below.Suppose all possible investment opportunities in the world are limited to the four stocks list in the table below:1) The weight on Taggart Transcontinental stock in the market portfolio is closest to:A) 15%B) 20%C) 25%D) 30%Answer: BExplanation: B)Section: The Market Portfolio Skill: Analytical2) The weight on Wyatt Oil stock in the market portfolio is closest to:A) 15%B) 20%C) 25%D) 30%Answer: AExplanation: A)Section: The Market PortfolioSkill: Analytical3) Suppose that you are holding a market portfolio and you have invested $9,000 in Rearden Metal. The amount that you have invested in Nielson Motors is closest to:A) $6,000B) $7,715C) $9,000D) $10,500Answer: DExplanation: D)Calculations B × C D/1950Stock Price perShareNumber of SharesOutstanding(Millions)MarketCap WeightTaggart Transcontinental$25$Rearden Metal$45$Wyatt Oil$10$Nielson Motors$26$Total$Amount Nielson = × Amount Rearden = × $9,000 = $10,500 Diff: 2Section: The Market PortfolioSkill: Analytical4) Suppose that you are holding a market portfolio and you have invested $9,000 in Rearden Metal. The amount that you have invested in Taggart Transcontinental is closest to:A) $4,500B) $6,000C) $7,715D) $9,000Answer: BExplanation: B)Calculations B × C D/1950Stock Price perShareNumber of SharesOutstanding(Millions)MarketCap WeightTaggart Transcontinental$25$Rearden Metal$45$Wyatt Oil$10$Nielson Motors$26$Total$Amount Nielson = × Amount Rearden = × $9,000 = $6,000Diff: 2Section: The Market PortfolioSkill: Analytical5) Suppose that you have invested $30,000 invested in the market portfolio. Then the amount that you have invested in Wyatt Oil is closest to:A) $4,500B) $6,000C) $7,715D) $9,000Answer: AExplanation: A)Amount WO = Weight WO × Amount Market= .15 × $30,000 = $4,500Diff: 2Section: The Market PortfolioSkill: Analytical6) Suppose that you have invested $30,000 in the market portfolio. Then the number of shares of Rearden Metal that you hold is closest to:A) 450 sharesB) 700 sharesC) 1,400 sharesD) 2,300 sharesAnswer: BExplanation: B)Calculations B × C D/1950Stock Price perShareNumber of SharesOutstanding(Millions)MarketCap WeightTaggart Transcontinental$25$ Rearden Metal$45$ Wyatt Oil$10$ Nielson Motors$26$Total$ Shares RM = = = sharesDiff: 2Section: The Market PortfolioSkill: Analytical7) Suppose that you have invested $30,000 in the market portfolio. Then the number of shares of Wyatt Oil that you hold is closest to:A) 150 sharesB) 300 sharesC) 350 sharesD) 450 sharesAnswer: AExplanation: A)Calculations B × C D/1950Stock Price perShareNumber of SharesOutstanding(Millions)MarketCap WeightTaggart Transcontinental$25$ Rearden Metal$45$ Wyatt Oil$10$ Nielson Motors$26$Total$ Shares WO = = = sharesDiff: 2Section: The Market PortfolioSkill: Analyticalin Taggart Transcontinental. The number of shares of Wyatt Oil that you hold is closest to:A) 90 sharesB) 460 sharesC) 615 sharesD) 770 sharesAnswer: BExplanation: B)Calculations B × C D/1950Stock Price perShareNumber of SharesOutstanding(Millions)MarketCap WeightTaggart Transcontinental$25$ Rearden Metal$45$ Wyatt Oil$10$ Nielson Motors$26$Total$= = sharesDiff: 2Section: The Market PortfolioSkill: Analyticalin Taggart Transcontinental. The number of shares of Rearden Metal that you hold is closest to:A) 780 sharesB) 925 sharesC) 1,730 sharesD) 2,075 sharesAnswer: BExplanation: B)Calculations B × C D/1950Stock Price perShareNumber of SharesOutstanding(Millions)MarketCap WeightTaggart Transcontinental$25$Rearden Metal$45$Wyatt Oil$10$Nielson Motors$26$Total$= = 2, sharesDiff: 2Section: The Market PortfolioSkill: Analytical10) Suppose that you have invested $100,000 invested in the market portfolio and that the stock price of Taggart Transcontinental suddenly drops to $ per share.Which of the following trades would you need to make in order to maintain your investment in the market portfolio:1. Buy approximately 1,140 shares of Taggart Transcontinental2. Sell approximately 256 shares of Rearden Metal3. Sell approximately 57 shares of Wyatt Oil4. Sell approximately 148 shares of Nielson MotorsA) 1 onlyB) 2 onlyC) 2, 3, and 4 onlyD) 1, 2, 3, and 4E) None of the aboveAnswer: EExplanation: E) There is no need to rebalance your portfolio. As an investor, you still hold the market portfolio and therefore there are no trades needed. Diff: 3Section: The Market PortfolioSkill: AnalyticalUse the following information to answer the question(s) below.Suppose that Merck (MRK) stock is trading for $ per share with billion shares outstanding while Boeing (BA) has million shares outstanding and a market capitalization of $ billion. Assume that you hold the market portfolio.11) Boeing's stock price is closest to:A) $B) $C) $D) $Answer: CExplanation: C) Price BA = = = $Diff: 1Section: The Market PortfolioSkill: Analytical12) Merck's market capitalization is closest to:A) $ billionB) $ billionC) $ billionD) $ billionAnswer: BExplanation: B) Market Cap = Price × shares outstanding = $ × 2,110 = $77,437 millionDiff: 1Section: The Market PortfolioSkill: Analytical13) If you hold 1,000 shares of Merck, then the number of shares of Boeing that you hold is closest to:A) 240 sharesB) 330 sharesC) 510 sharesD) 780 sharesAnswer: BExplanation: B) Shares BA== = sharesDiff: 3Section: The Market PortfolioSkill: Analytical14) Which of the following statements is FALSEA) All investors should demand the same efficient portfolio of securities in the same proportions.B) The Capital Asset Pricing Model (CAPM) allows corporate executives to identify the efficient portfolio (of risky assets) by using knowledge of the expected return of each security.C) If investors hold the efficient portfolio, then the cost of capital for any investment project is equal to its required return calculated using its beta with the efficient portfolio.D) The CAPM identifies the market portfolio as the efficient portfolio. Answer: BDiff: 1Section: The Market PortfolioSkill: Conceptual15) Which of the following statements is FALSEA) If investors have homogeneous expectations, then each investor will identify the same portfolio as having the highest Sharpe ratio in the economy.B) Homogeneous expectations are when all investors have the same estimates concerning future investments and returns.C) There are many investors in the world, and each must have identical estimates of the volatilities, correlations, and expected returns of the available securities.D) The combined portfolio of risky securities of all investors must equal the efficient portfolio.Answer: CDiff: 1Section: The Market PortfolioSkill: Conceptual16) Which of the following statements is FALSEA) If some security were not part of the efficient portfolio, then every investor would want to own it, and demand for this security would increase causing its expected return to fall until it is no longer an attractive investment.B) The efficient portfolio, the portfolio that all investors should hold, must be the same portfolio as the market portfolio of all risky securities.C) Because every security is owned by someone, the sum of all investors' portfolios must equal the portfolio of all risky securities available in the market.D) If all investors demand the efficient portfolio, and since the supply of securities is the market portfolio, then two portfolios must coincide. Answer: ADiff: 2Section: The Market PortfolioSkill: Conceptual17) Which of the following statements is FALSEA) The market portfolio contains more of the smallest stocks and less of the larger stocks.B) For the market portfolio, the investment in each security is proportional to its market capitalization.C) Because the market portfolio is defined as the total supply of securities, the proportions should correspond exactly to the proportion of the total market that each security represents.D) Market capitalization is the total market value of the outstanding shares of a firm.Answer: ADiff: 1Section: The Market PortfolioSkill: Conceptual18) Which of the following statements is FALSEA) A value-weighted portfolio is an equal-ownership portfolio: We hold an equal fraction of the total number of shares outstanding of each security in the portfolio.B) When buying a value-weighted portfolio, we end up purchasing the same percentage of shares of each firm.C) To maintain a value-weighted portfolio, we do not need to trade securities and rebalance the portfolio unless the number of shares outstanding of some security changes.D) In a value weighted portfolio the fraction of money invested in any security corresponds to its share of the total number of shares outstanding of all securitiesin the portfolio.Answer: DDiff: 1Section: The Market PortfolioSkill: Conceptual19) Which of the following statements is FALSEA) The most familiar stock index in the United States is the Dow Jones Industrial Average (DJIA).B) A portfolio in which each security is held in proportion to its market capitalization is called a price-weighted portfolio.C) The Dow Jones Industrial Average (DJIA) consists of a portfolio of 30 large industrial stocks.D) The Dow Jones Industrial Average (DJIA) is a price-weighted portfolio. Answer: BExplanation: B) A portfolio in which each security is held in proportion to its market capitalization is called a value-weighted portfolio.Diff: 2Section: The Market PortfolioSkill: Conceptual20) Which of the following statements is FALSEA) Because very little trading is required to maintain it, an equal-weighted portfolio is called a passive portfolio.B) If the number of shares in a value weighted portfolio does not change, but only the prices change, the portfolio will remain value weighted.C) The CAPM says that individual investors should hold the market portfolio, a value-weighted portfolio of all risky securities in the market.D) A price weighted portfolio holds an equal number of shares of each stock, independent of their size.Answer: AExplanation: A) Because very little trading is required to maintain it, a value-weighted portfolio is called a passive portfolio.Diff: 3Section: The Market PortfolioSkill: Conceptual21) Which of the following statements is FALSEA) A market index reports the value of a particular portfolio of securities.B) The S&P 500 is the standard portfolio used to represent "the market" when using the CAPM in practice.C) Even though the S&P 500 includes only 500 of the more than 7,000 individual . Stocks in existence, it represents more than 70% of the . stock market in terms of market capitalization.D) The S&P 500 is an equal-weighted portfolio of 500 of the largest . stocks. Answer: DExplanation: D) The S&P 500 is a value-weighted portfolio of 500 of the largest .stocks.Diff: 2Section: The Market PortfolioSkill: Conceptual22) Which of the following statements is FALSEA) The S&P 500 and the Wilshire 5000 indexes are both well-diversified indexes that roughly correspond to the market of . stocks.B) Practitioners commonly use the S&P 500 as the market portfolio in the CAPM with the belief that this index is the market portfolio.C) Standard & Poor's Depository Receipts (SPDR, nicknamed "spider") trade on the American Stock Exchange and represent ownership in the S&P 500.D) The S&P 500 was the first widely publicized value weighted index and it has become a benchmark for professional investors.Answer: BDiff: 2Section: The Market PortfolioSkill: Conceptual23) In practice which market index is most widely used as a proxy for the market portfolio in the CAPMA) Dow Jones Industrial AverageB) Wilshire 5000C) S&P 500D) . Treasury BillAnswer: CDiff: 1Section: The Market PortfolioSkill: Conceptual24) In practice which market index would best be used as a proxy for the market portfolio in the CAPMA) S&P 500B) Dow Jones Industrial AverageC) . Treasury BillD) Wilshire 5000Answer: DDiff: 1Section: The Market PortfolioSkill: ConceptualUse the table for the question(s) below.Consider the following stock price and shares outstanding data:25) The market capitalization for Wal-Mart is closest to:A) $415 BillionB) $276 BillionC) $479 BillionD) $200 BillionAnswer: DExplanation: D)Diff: 1Section: The Market Portfolio Skill: Analytical26) The total market capitalization for all four stocks is closest to:A) $479 BillionB) $415 BillionC) $2,100 BillionD) $200 BillionAnswer: BExplanation: B)Section: The Market PortfolioSkill: Analytical27) If you are interested in creating a value-weighted portfolio of these four stocks, then the percentage amount that you would invest in Lowes is closest to:A) 25%B) 11%C) %D) 12%Answer: BExplanation: B)Section: The Market Portfolio Skill: Analyticalvalue-weighted portfolio of these four stocks. The number of shares of Wal-Mart that you would hold in your portfolio is closest to: A) 710 B) 1390 C) 1000 D) 870 Answer: C Explanation: C)Stock Name Price per Share SharesOutstanding (Billions)MarketCapitalization (Billions)Percent of Total Number ofSharesLowes $ $ % 368 Wal-Mart $ $ % 1,002 Intel $ $ % 1,387 Boeing $ $ %190Total$Number of shares =Diff: 2Section: The Market Portfolio Skill: Analyticalvalue-weighted portfolio of these four stocks. The percentage of the shares outstanding of Boeing that you would hold in your portfolio is closest to: A) .000018% B) .000020% C) .000024% D) .000031% Answer: C Explanation: C)Stock Name Price per Share SharesOutstanding (Billions)MarketCapitalization (Billions)Percent of Total Number ofSharesLowes $ $ % 368 Wal-Mart $ $ % 1,002 Intel $ $ % 1,387 Boeing $ $ %190Total$Number of shares =percentage shares outstanding = 190/0 = .000024% Diff: 2Section: The Market Portfolio Skill: Analytical30) Assume that you have $250,000 to invest and you are interested in creating a value-weighted portfolio of these four stocks. How many shares of each of the fourstocks will you hold What percentage of the shares outstanding of each stock will you holdAnswer:Stock Name Price perShareSharesOutstanding(Billions)MarketCapitalization(Billions)Percentof TotalNumber ofSharesLowes$ $ %368Wal-Mart$ $ %1,002Intel$ $ %1,387Boeing$ $ %190Total$% of Shares%Number of shares =In a value weighted portfolio, the percentage of shares of every stock will be the same.Diff: 3Section: The Market PortfolioSkill: AnalyticalBeta EstimationUse the following information to answer the question(s) below.Year Risk-freeReturnMarketReturnWyatt OilReturnMarketExcessReturnWyatt OilExcessReturn Beta2007%%%%% 2008%%%.40%% 2009%%%%%1) Wyatt Oil's average historical return is closest to:A) %B) %C) %D) %Answer: AExplanation: A) r average =Year Risk-freeReturnMarketReturnWyatt OilReturnMarketExcessReturnWyatt OilExcessReturn2007%%%%% 2008%%%%% 2009%%%%% Average%%%%%Section: Beta EstimationSkill: Analytical2) The Market's average historical return is closest to:A) %B) %C) %D) %Answer: BExplanation: B) r average =Year Risk-freeReturnMarketReturnWyatt OilReturnMarketExcessReturnWyattOilExcessReturn2007%%%%% 2008%%%%% 2009%%%%% Average%%%%%Section: Beta EstimationSkill: Analytical3) Wyatt Oil's average historical excess return is closest to:A) %B) %C) %D) %Answer: CExplanation: C) excess return average =Year Risk-freeReturnMarketReturnWyatt OilReturnMarketExcessReturnWyattOilExcessReturn2007%%%%% 2008%%%%% 2009%%%%% Average%%%%%Section: Beta EstimationSkill: Analytical4) The Market's average historical excess return is closest to:A) %B) %C) %D) %Answer: DExplanation: D) excess return average =Year Risk-freeReturnMarketReturnWyatt OilReturnMarketExcessReturnWyattOilExcessReturn2007%%%%% 2008%%%%% 2009%%%%% Average%%%%%Section: Beta EstimationSkill: Analytical5) Wyatt Oil's excess return for 2009 is closest to:A) %B) %C) %D) %Answer: AExplanation: A) excess return e = (r WO - r rf)2009Section: Beta Estimation Skill: Analytical6) The Market's excess return for 2008 is closest to:A) %B) %C) %D) %Answer: AExplanation: A) excess return e = (r WO - r rf)2009Section: Beta EstimationSkill: Analytical7) Using the average historical excess returns for both Wyatt Oil and the Market portfolio, your estimate of Wyatt Oil's Beta is closest to:A)B)C)D)Answer: BExplanation: B) excess return average = excess return average =Year Risk-freeReturnMarketReturnWyatt OilReturnMarketExcessReturnWyattOilExcessReturn2007%%%%% 2008%%%%% 2009%%%%% Average%%%%%βWO= = = .8375Diff: 3Section: Beta EstimationSkill: Analytical8) Using the average historical excess returns for both Wyatt Oil and the Market portfolio estimate of Wyatt Oil's Beta. When using this beta, the alpha for Wyatt oil in 2007 is closest to:A) %B) %C) %D) +%Answer: CExplanation: C) excess return average =excess return average =Year Risk-freeReturnMarketReturnWyatt OilReturnMarketExcessReturnWyattOilExcessReturn2007%%%%% 2008%%%%% 2009%%%%% Average%%%%%βWO = = = .8375α = actual return - expected return for CAPM = % - [3% + .8375(6% - 3%)] = %Diff: 3Section: Beta EstimationSkill: Analytical9) Using just the return data for 2009, your estimate of Wyatt Oil's Beta is closest to:A)B)C)D)Answer: BExplanation: B)Year Risk-freeReturnMarketReturnWyatt OilReturnMarketExcessReturnWyattOilExcessReturn2007%%%%%2008%%%%%2009%%%%% Average%%%%%βWO = = = .8651Diff: 2Section: Beta EstimationSkill: Analytical10) Using just the return data for 2008, your estimate of Wyatt Oil's Beta is closest to:A)B)C)D)Answer: A Explanation: A)Year Risk-freeReturnMarketReturnWyatt OilReturnMarketExcessReturnWyattOilExcessReturn2007%%%%% 2008%%%%% 2009%%%%% Average%%%%%βWO = - = .8525Diff: 2Section: Beta EstimationSkill: Analytical11) Which of the following statements is FALSEA) Beta is the expected percent change in the excess return of the security for a 1% change in the excess return of the market portfolio.B) Beta represents the amount by which risks that affect the overall market are amplified for a given stock or investment.C) It is common practice to estimate beta based on the historical correlation and volatilities.D) Beta measures the diversifiable risk of a security, as opposed to its market risk, and is the appropriate measure of the risk of a security for an investor holding the market portfolio.Answer: DExplanation: D) Beta measures the nondiversifiable risk of a security.Diff: 1Section: Beta EstimationSkill: Conceptual12) Which of the following statements is FALSEA) One difficulty when trying to estimate beta for a security is that beta depends on the correlation and volatilities of the security's and market's returns in the future.B) It is common practice to estimate beta based on the expectations of future correlations and volatilities.C) One difficulty when trying to estimate beta for a security is that beta depends on investors expectations of the correlation and volatilities of the security's and market's returns.D) Securities that tend to move less than the market have betas below 1.Answer: BExplanation: B) Beta is measured using past information.Diff: 1Section: Beta EstimationSkill: Conceptual13) Which of the following statements is FALSEA) Securities that tend to move more than the market have betas higher than 0.B) Securities whose returns tend to move in tandem with the market on average have a beta of 1.C) Beta corresponds to the slope of the best fitting line in the plot of the securities excess returns versus the market excess return.D) The statistical technique that identifies the bets-fitting line through a set of points is called linear regression.Answer: ADiff: 2Section: Beta EstimationSkill: ConceptualUse the equation for the question(s) below.Consider the following linear regression model:(R i - r f) = a i + b i(R Mkt - r f) + e i14) The b i in the regressionA) measures the sensitivity of the security to market risk.B) measures the historical performance of the security relative to the expected return predicted by the SML.C) measures the deviation from the best fitting line and is zero on average.D) measures the diversifiable risk in returns.Answer: ADiff: 2Section: Beta EstimationSkill: Conceptual15) The a i in the regressionA) measures the sensitivity of the security to market risk.B) measures the deviation from the best fitting line and is zero on average.C) measures the diversifiable risk in returns.D) measures the historical performance of the security relative to the expected return predicted by the SML.Answer: DDiff: 2Section: Beta EstimationSkill: Conceptual16) The e i in the regressionA) measures the market risk in returns.B) measures the deviation from the best fitting line and is zero on average.C) measures the sensitivity of the security to market risk.D) measures the historical performance of the security relative to the expected return predicted by the SML.Answer: BDiff: 2Section: Beta EstimationSkill: ConceptualThe Debt Cost of CapitalUse the following information to answer the question(s) below.Consider the following information regarding corporate bonds:1) Wyatt Oil has a bond issue outstanding with seven years to maturity, a yield to maturity of %, and a BBB rating. The corresponding risk-free rate is 3% and the market risk premium is 5%. Assuming a normal economy, the expected return on Wyatt Oil's debt is closest to:A) %B) %C) %D) %Answer: BExplanation: B) r d = r rf + β(r m - r rf) = 3% + (5%) = %Diff: 1Section: The Debt Cost of CapitalSkill: Analytical2) Wyatt Oil has a bond issue outstanding with seven years to maturity, a yield to maturity of %, and a BBB rating. The bondholders' expected loss rate in the event of default is 70%. Assuming a normal economy the expected return on Wyatt Oil'sdebt is closest to:A) %B) %C) %D) %Answer: DExplanation: D) r d = ytm - prob(default) × loss rate = 7% - %(70%) = % Diff: 2Section: The Debt Cost of CapitalSkill: Analytical3) Wyatt Oil has a bond issue outstanding with seven years to maturity, a yield to maturity of %, and a BBB rating. The bondholders' expected loss rate in the event of default is 70%. Assuming the economy is in recession, then the expected return on Wyatt Oil's debt is closest to:A) %B) %C) %D) %Answer: BExplanation: B) r d = ytm - prob(default) × loss rate = 7% - %(70%) = %Diff: 2Section: The Debt Cost of CapitalSkill: Analytical4) Rearden Metal has a bond issue outstanding with ten years to maturity, a yield to maturity of %, and a B rating. The corresponding risk-free rate is 3% and the market risk premium is 6%. Assuming a normal economy, the expected return on Rearden Metal's debt is closest to:A) %B) %C) %D) %Answer: CExplanation: C) r d = r rf + β(r m - r rf) = 3% + (6%) = %Diff: 1Section: The Debt Cost of Capital。

Chapter 01 - Introduction to Corporate FinanceSolutions ManualCorporate FinanceRoss, Westerfield, and Jaffe10th editionXX/XX/2013Prepared by:Joe SmoliraBelmont UniversityCHAPTER 1INTRODUCTION TO CORPORATE FINANCEAnswers to Concept Questions1. In the corporate form of ownership, the shareholders are the owners of the firm. The shareholderselect the directors of the corporation, who in turn appoint the firm’s management. This separation of ownership from control in the corporate form of organization is what causes agency problems to exist. Management may act in its own or someone else’s best interests, rather than those of the shareholders. If such events occur, they may contradict the goal of maximizing the share price of the equity of the firm.2.Such organizations frequently pursue social or political missions, so many different goals areconceivable. One goal that is often cited is revenue minimization; i.e., provide whatever goods and services are offered at the lowest possible cost to society. A better approach might be to observe that even a not-for-profit business has equity. Thus, one answer is that the appropriate goal is to maximize the value of the equity.3.Presumably, the current stock value reflects the risk, timing, and magnitude of all future cash flows,both short-term and long-term. If this is correct, then the statement is false.4.An argument can be made either way. At the one extreme, we could argue that in a market economy,all of these things are priced. There is thus an optimal level of, for example, ethical and/or illegal behavior, and the framework of stock valuation explicitly includes these. At the other extreme, we could argue that these are non-economic phenomena and are best handled through the political process. A classic (and highly relevant) thought question that illustrates this debate goes something like this: “A firm has estimated that the cost of improving the safety of one of its pr oducts is $30 million. However, the firm believes that improving the safety of the product will only save $20 million in product liability claims. What should the firm do?”5.The goal will be the same, but the best course of action toward that goal may be different because ofdiffering social, political, and economic institutions.6.The goal of management should be to maximize the share price for the current shareholders. Ifmanagement believes that it can improve the profitability of the firm so that the share price will exceed $35, then they should fight the offer from the outside company. If management believes that this bidder or other unidentified bidders will actually pay more than $35 per share to acquire the company, then they should still fight the offer. However, if the current management cannot increase the value of the firm beyond the bid price, and no other higher bids come in, then management is not acting in the interests of the shareholders by fighting the offer. Since current managers often lose their jobs when the corporation is acquired, poorly monitored managers have an incentive to fight corporate takeovers in situations such as this.7.We would expect agency problems to be less severe in other countries, primarily due to the relativelysmall percentage of individual ownership. Fewer individual owners should reduce the number of diverse opinions concerning corporate goals. The high percentage of institutional ownership might lead to a higher degree of agreement between owners and managers on decisions concerning risky projects. In addition, institutions may be better able to implement effective monitoring mechanisms on managers than can individual owners, based on the institutions’ deeper resources and experiences with their own management.8.The increase in institutional ownership of stock in the United States and the growing activism ofthese large shareholder groups may lead to a reduction in agency problems for U.S. corporations anda more efficient market for corporate control. However, this may not always be the case. If themanagers of the mutual fund or pension plan are not concerned with the interests of the investors, the agency problem could potentially remain the same, or even increase since there is the possibility of agency problems between the fund and its investors.9. How much is too much? Who is worth more, Larry Ellsion or Tiger Woods? The simplest answer isthat there is a market for executives just as there is for all types of labor. Executive compensation is the price that clears the market. The same is true for athletes and performers. Having said that, one aspect of executive compensation deserves comment. A primary reason executive compensation has grown so dramatically is that companies have increasingly moved to stock-based compensation.Such movement is obviously consistent with the attempt to better align stockholder and management interests. In recent years, stock prices have soared, so management has cleaned up. It is sometimes argued that much of this reward is simply due to rising stock prices in general, not managerial performance. Perhaps in the future, executive compensation will be designed to reward only differential performance, i.e., stock price increases in excess of general market increases.10. Maximizing the current share price is the same as maximizing the future share price at any futureperiod. The value of a share of stock depends on all of the future cash flows of company. Another way to look at this is that, barring large cash payments to shareholders, the expected price of the stock must be higher in the future than it is today. Who would buy a stock for $100 today when the share price in one year is expected to be $80?。

第一章1.在所有权形式的公司中,股东是公司的所有者。

股东选举公司的董事会,董事会任命该公司的管理层。

企业的所有权和控制权分离的组织形式是导致的代理关系存在的主要原因。

管理者可能追求自身或别人的利益最大化,而不是股东的利益最大化。

在这种环境下,他们可能因为目标不一致而存在代理问题。

2.非营利公司经常追求社会或政治任务等各种目标。

非营利公司财务管理的目标是获取并有效使用资金以最大限度地实现组织的社会使命。

3.这句话是不正确的。

管理者实施财务管理的目标就是最大化现有股票的每股价值，当前的股票价值反映了短期和长期的风险、时间以及未来现金流量。

4.有两种结论。

一种极端,在市场经济中所有的东西都被定价。

因此所有目标都有一个最优水平，包括避免不道德或非法的行为，股票价值最大化。

另一种极端,我们可以认为这是非经济现象,最好的处理方式是通过政治手段。

一个经典的思考问题给出了这种争论的答案:公司估计提高某种产品安全性的成本是30美元万。

然而,该公司认为提高产品的安全性只会节省20美元万。

请问公司应该怎么做呢?”5.财务管理的目标都是相同的,但实现目标的最好方式可能是不同的,因为不同的国家有不同的社会、政治环境和经济制度。

6.管理层的目标是最大化股东现有股票的每股价值。

如果管理层认为能提高公司利润，使股价超过35美元,那么他们应该展开对恶意收购的斗争。

如果管理层认为该投标人或其它未知的投标人将支付超过每股35美元的价格收购公司,那么他们也应该展开斗争。

然而,如果管理层不能增加企业的价值,并且没有其他更高的投标价格,那么管理层不是在为股东的最大化权益行事。

现在的管理层经常在公司面临这些恶意收购的情况时迷失自己的方向。

7.其他国家的代理问题并不严重,主要取决于其他国家的私人投资者占比重较小。

较少的私人投资者能减少不同的企业目标。

高比重的机构所有权导致高学历的股东和管理层讨论决策风险项目。

此外,机构投资者比私人投资者可以根据自己的资源和经验更好地对管理层实施有效的监督机制。

投资学第10版课后习题答案CHAPTER 2: ASSET CLASSES AND FINANCIALINSTRUMENTSPROBLEM SETS1. Preferred stock is like long-term debt in that it typicallypromises a fixed payment each year. In this way, it is aperpetuity. Preferred stock is also like long-term debt in that itdoes not give the holder voting rights in the firm.Preferred stock is like equity in that the firm is under nocontractual obligation to make the preferred stock dividend payments.Failure to make payments does not set off corporate bankruptcy. With respect to the priority of claims to the assets of the firm in theevent of corporate bankruptcy, preferred stock has a higher priority than common equity but a lower priority than bonds.2. Money market securities are called cash equivalents because oftheir high level of liquidity. The prices of money marketsecurities are very stable, and they can be converted to cash .,sold) on very short notice and with very low transaction costs.Examples of money market securities include Treasury bills,commercial paper, and banker's acceptances, each of which ishighly marketable and traded in the secondary market.3. (a) A repurchase agreement is an agreement whereby the seller ofa security agrees to “repurchase” it from the buyer on anagreed upon date at an agreed upon price. Repos are typicallyused by securities dealers as a means for obtaining funds topurchase securities.4. Spreads between risky commercial paper and risk-free governmentsecurities will widen. Deterioration of the economy increases thelikelihood of default on commercial paper, making them more risky.Investors will demand a greater premium on all risky debtsecurities, not just commercial paper.5.6. Municipal bond interest is tax-exempt at the federal level and possibly at the state level as well. When facing higher marginaltax rates, a high-income investor would be more inclined toinvest in tax-exempt securities.7. a. You would have to pay the ask price of:% of par value of $1,000 = $b. The coupon rate is % implying coupon payments of $ annually or, more precisely, $ semiannually.c. The yield to maturity on a fixed income security is also knownas its required return and is reported by The Wall StreetJournal and others in the financial press as the ask yield. Inthis case, the yield to maturity is %. An investor buying this security today and holding it until it matures will earn anannual return of %. Students will learn in a later chapter howto compute both the price and the yield to maturity with afinancial calculator.8. Treasury bills are discount securities that mature for $10,000. Therefore, a specific T-bill price is simply the maturity value divided by one plus the semi-annual return:P = $10,000/ = $9,9. The total before-tax income is $4. After the 70% exclusion for preferred stock dividends, the taxable income is: $4 = $ Therefore, taxes are: $ = $After-tax income is: $ – $ = $Rate of return is: $$ = %10. a. You could buy: $5,000/$ = shares. Since it is not possible to trade in fractions of shares, you could buy 77 shares of GD.b. Your annual dividend income would be: 77 $ = $c. The price-to-earnings ratio is and the price is $. Therefore: $Earnings per share = Earnings per share = $d. General Dynamics closed today at $, which was $ higher than yesterday’s price of $11. a. At t = 0, the value of the index is: (90 + 50 + 100)/3 = 80At t = 1, the value of the index is: (95 + 45 + 110)/3 =The rate of return is: 80) 1 = %b. In the absence of a split, Stock C would sell for 110, sothe value of the index would be: 250/3 = with a divisor of3.After the split, stock C sells for 55. Therefore, we needto find the divisor (d) such that: = (95 + 45 + 55)/dd = . The divisor fell, which is always the case after oneof the firms in an index splits its shares.c. The return is zero. The index remains unchanged because the return for each stock separately equals zero.12. a. Total market value at t = 0 is: ($9,000 + $10,000 + $20,000) = $39,000Total market value at t = 1 is: ($9,500 + $9,000 + $22,000) = $40,500 Rate of return = ($40,500/$39,000) – 1 = %b.The return on each stock is as follows:r= (95/90) – 1 =Ar= (45/50) – 1 = –Br= (110/100) – 1 =CThe equally weighted average is:[ + + ]/3 = = %13. The after-tax yield on the corporate bonds is: (1 – = = % Therefore, municipals must offer a yield to maturity of at least %.14. Equation shows that the equivalent taxable yield is: r = r m/(1 –t),so simply substitute each tax rate in the denominator to obtain thefollowing:a. %b. %c. %d. %15. In an equally weighted index fund, each stock is given equal weightregardless of its market capitalization. Smaller cap stocks will have the same weight as larger cap stocks. The challenges are as follows:Given equal weights placed to smaller cap and larger cap,equal-weighted indices (EWI) will tend to be more volatilethan their market-capitalization counterparts;It follows that EWIs are not good reflectors of the broadmarket that they represent; EWIs underplay the economicimportance of larger companies.Turnover rates will tend to be higher, as an EWI must berebalanced back to its original target. By design, many ofthe transactions would be among the smaller, less-liquidstocks.16. a. The ten-year Treasury bond with the higher coupon rate will sellfor a higher price because its bondholder receives higherinterest payments.b. The call option with the lower exercise price has more valuethan one with a higher exercise price.c. The put option written on the lower priced stock has more valuethan one written on a higher priced stock.17. a. You bought the contract when the futures price was $ (see Figureand remember that the number to the right of the apostropherepresents an eighth of a cent). The contract closes at a priceof $, which is $ more than the original futures price. Thecontract multiplier is 5000. Therefore, the gain will be: $5000 = $b. Open interest is 135,778 contracts.18. a. Owning the call option gives you the right, but not theobligation, to buy at $180, while the stock is trading in thesecondary market at $193. Since the stock price exceeds theexercise price, you exercise the call.The payoff on the option will be: $193 - $180 = $13The cost was originally $, so the profit is: $13 - $ = $b. Since the stock price is greater than the exercise price, youwill exercise the call. The payoff on the option will be: $193 -$185 = $8The option originally cost $, so the profit is $8 - $ = -$c. Owning the put option gives you the right, but not theobligation, to sell at $185, but you could sell in the secondarymarket for $193, so there is no value in exercising the option.Since the stock price is greater than the exercise price, youwill not exercise the put. The loss on the put will be theinitial cost of $.19. There is always a possibility that the option will be in-the-money atsome time prior to expiration. Investors will pay something for this possibility of a positive payoff.20.Value of Call atInitial Cost ProfitExpirationa.04-4b.04-4c.04-4d.541e.1046Value of Put atInitial Cost ProfitExpirationa.1064b.56-1c.06-6d.06-6e.06-621. A put option conveys the right to sell the underlying asset at theexercise price. A short position in a futures contract carries anobligation to sell the underlying asset at the futures price. Both positions, however, benefit if the price of the underlying asset falls.22. A call option conveys the right to buy the underlying asset at the exercise price. A long position in a futures contract carries an obligation to buy the underlying asset at the futures price. Both positions, however, benefit if the price of the underlying asset rises.CFA PROBLEMS1.(d) There are tax advantages for corporations that own preferred shares.2. The equivalent taxable yield is: %/(1 = %3. (a) Writing a call entails unlimited potential losses as the stock price rises.4. a. The taxable bond. With a zero tax bracket, the after-tax yield for thetaxable bond is the same as the before-tax yield (5%), which is greater than the yield on the municipal bond.b. The taxable bond. The after-tax yield for the taxable bond is:0.05 (1 – = %c. You are indifferent. The after-tax yield for the taxable bond is:(1 – = %The after-tax yield is the same as that of the municipal bond.d. The municipal bond offers the higher after-tax yield for investors in tax brackets above 20%.5.If the after-tax yields are equal, then: = × (1 –t)This implies that t = =30%.。

PrinciplesofCorporateFinance英⽂第⼗版习题解答Chap005CHAPTER 5Net Present Value and Other Investment CriteriaAnswers to Problem Sets1. a. A = 3 years, B = 2 years, C = 3 yearsb. Bc. A, B, and Cd. B and C (NPV B = $3,378; NPV C = $2,405)e. Truef. It will accept no negative-NPV projects but will turn down some withpositive NPVs. A project can have positive NPV if all future cash flows areconsidered but still do not meet the stated cutoff period.2. Given the cash flows C0, C1, . . . , C T, IRR is defined by:It is calculated by trial and error, by financial calculators, or by spreadsheetprograms.3. a. $15,750; $4,250; $0b. 100%.4. No (you are effectively “borrowing” at a rate of interest highe r than theopportunity cost of capital).5. a. Twob. -50% and +50%c. Yes, NPV = +14.6.6. The incremental flows from investing in Alpha rather than Beta are -200,000;+110,000; and 121,000. The IRR on the incremental cash flow is 10% (i.e., -200 + 110/1.10 + 121/1.102 = 0). The IRR on Beta exceeds the cost of capital and so does the IRR on the incremental investment in Alpha. Choose Alpha.7. 1, 2, 4, and 68. a. $90.91.10)(1$10001000NP V A -=+-=$$4,044.7310)(1.$1000(1.10)$1000(1.10)$4000(1.10)$1000(1.10)$10002000NP V 5432B +=+++++-=$$39.4710)(1.$1000.10)(1$1000(1.10)$1000(1.10)$10003000NP V 542C +=++++-=$ b.Payback A = 1 year Payback B = 2 years Payback C = 4 years c. A and Bd.$909.09.10)(1$1000P V 1A ==The present value of the cash inflows for Project A never recovers the initial outlay for the project, which is always the case for a negative NPV project. The present values of the cash inflows for Project B are shown in the third row of the table below, and the cumulative net present values are shown in the fourth row:C 0 C 1C 2C 3C 4C 5-2,000.00 +1,000.00 +1,000.00 +4,000.00 +1,000.00 +1,000.00-2,000.00909.09 826.45 3,005.26 683.01 620.92-1,090.91 -264.46 2,740.803,423.81 4,044.73Since the cumulative NPV turns positive between year two and year three,the discounted payback period is:years 2.093,005.26264.462=+The present values of the cash inflows for Project C are shown in the third row of the table below, and the cumulative net present values are shown in the fourth row:C 0C 1C 2C 3 C 4C 5-3,000.00 +1,000.00 +1,000.00 0.00 +1,000.00 +1,000.00-3,000.00 909.09 826.450.00 683.01 620.92 -2,090.91 -1,264.46-1,264.46-581.45 39.47Since the cumulative NPV turns positive between year four and year five,the discounted payback period is:years 4.94620.92581.454=+e. Using the discounted payback period rule with a cutoff of three years, the firm would accept only Project B.9. a.When using the IRR rule, the firm must still compare the IRR with the opportunity cost of capital. Thus, even with the IRR method, one must specify the appropriate discount rate.b.Risky cash flows should be discounted at a higher rate than the rate used to discount less risky cash flows. Using the payback rule is equivalent to using the NPV rule with a zero discount rate for cash flows before the payback period and an infinite discount rate for cash flows thereafter. 10.The two IRRs for this project are (approximately): –17.44% and 45.27% Between these two discount rates, the NPV is positive. 11.a.The figure on the next page was drawn from the following points: Discount Rate0% 10% 20%NPV A +20.00 +4.13 -8.33 NPV B +40.00 +5.18 -18.98b.From the graph, we can estimate the IRR of each project from the point where its line crosses the horizontal axis:IRR A = 13.1% and IRR B = 11.9%c. The company should accept Project A if its NPV is positive and higherthan that of Project B; that is, the company should accept Project A if thediscount rate is greater than 10.7% (the intersection of NPV A and NPV B on the graph below) and less than 13.1%.d. The cash flows for (B – A) are:C0 = $ 0C1 = –$60C2 = –$60C3 = +$140Therefore:Discount Rate0% 10% 20%NPV B-A +20.00 +1.05 -10.65IRR B-A = 10.7%The company should accept Project A if the discount rate is greater than10.7% and less than 13.1%. As shown in the graph, for these discountrates, the IRR for the incremental investment is less than the opportunitycost of capital.12. a.Because Project A requires a larger capital outlay, it is possible that Project A has both a lower IRR and a higher NPV than Project B. (In fact, NPV A is greater than NPV B for all discount rates less than 10 percent.) Because the goal is to maximize shareholder wealth, NPV is the correct criterion.b.To use the IRR criterion for mutually exclusive projects, calculate the IRR for the incremental cash flows:C 0C 1C 2IRRA -B -200 +110 +121 10%Because the IRR for the incremental cash flows exceeds the cost of capital, the additional investment in A is worthwhile. c.81.86$(1.09)$3001.09$250400NPV 2A =++-=$ $79.10(1.09)$1791.09$140200NPV 2B =++-=$ 13.Use incremental analysis:C 1C 2 C 3Current arrangement -250,000 -250,000 +650,000 Extra shift -550,000 +650,000 0 Incremental flows -300,000+900,000 -650,000The IRRs for the incremental flows are (approximately): 21.13% and 78.87% If the cost of capital is between these rates, Titanic should work the extra shift.14. a..82010,0008,18210,000)( 1.1020,00010,000PI D ==--+-=.59020,00011,81820,000)( 1.1035,00020,000PI E ==--+-=b.Each project has a Profitability Index greater than zero, and so both areacceptable projects. In order to choose between these projects, we must use incremental analysis. For the incremental cash flows:0.3610,0003,63610,000)( 1.1015,00010,000PI D E ==--+-=-The increment is thus an acceptable project, and so the larger project should be accepted, i.e., accept Project E. (Note that, in this case, the better project has the lower profitability index.)15.Using the fact that Profitability Index = (Net Present Value/Investment), we find:Project Profitability Index 1 0.22 2 -0.02 3 0.17 4 0.14 5 0.07 6 0.18 70.12Thus, given the budget of $1 million, the best the company can do is to acceptProjects 1, 3, 4, and 6.If the company accepted all positive NPV projects, the market value (compared to the market value under the budget limitation) would increase by the NPV of Project 5 plus the NPV of Project 7: $7,000 + $48,000 = $55,000Thus, the budget limit costs the company $55,000 in terms of its market value. 16.The IRR is the discount rate which, when applied to a project’s cash flows, yields NPV = 0. Thus, it does not represent an opportunity cost. However, if eachproject’s cash flows could be invested at that project’s IRR, then the NPV of each project would be zero because the IRR would then be the opportunity cost of capital for each project. The discount rate used in an NPV calculation is the opportunity cost of capital. Therefore, it is true that the NPV rule does assume that cash flows are reinvested at the opportunity cost of capital.17.a.C 0 = –3,000 C 0 = –3,000 C 1 = +3,500 C 1 = +3,500 C 2 = +4,000 C 2 + PV(C 3) = +4,000 – 3,571.43 = 428.57 C 3 = –4,000 MIRR = 27.84%b.2321 1.12C 1.12xC xC -=+(1.122)(xC 1) + (1.12)(xC 2) = –C 3 (x)[(1.122)(C 1) + (1.12C 2)] = –C 3)()21231.12C )(C (1.12C -x +=0.4501.12)(4,00)(3,500(1.124,000x 2=+=)()0IRR)(1x)C -(1IRR)(1x)C -(1C 2210=++++0IRR)(10)0.45)(4,00-(1IRR)(10)0.45)(3,50-(13,0002=++++- Now, find MIRR using either trial and error or the IRR function (on afinancial calculator or Excel). We find that MIRR = 23.53%.It is not clear that either of these modified IRRs is at all meaningful.Rather, these calculations seem to highlight the fact that MIRR really has no economic meaning.18.Maximize: NPV = 6,700x W + 9,000x X + 0X Y – 1,500x Z subject to:10,000x W + 0x X + 10,000x Y + 15,000x Z ≤ 20,000 10,000x W + 20,000x X – 5,000x Y – 5,000x Z ≤ 20,000 0x W - 5,000x X– 5,000x Y – 4,000x Z ≤ 20,000 0 ≤ x W ≤ 1 0 ≤ x X ≤ 1 0 ≤ x Z ≤ 1Using Excel Spreadsheet Add-in Linear Programming Module:Optimized NPV = $13,450with x W = 1; x X = 0.75; x Y = 1 and x Z = 0If financing available at t = 0 is $21,000:Optimized NPV = $13,500with x W = 1; x X = (23/30); x Y = 1 and x Z = (2/30)Here, the shadow price for the constraint at t = 0 is $50, the increase in NPV for a $1,000 increase in financing available at t = 0.In this case, the program viewed x Z as a viable choice even though the NPV of Project Z is negative. The reason for this result is that Project Z provides a positive cash flow in periods 1 and 2.If the financing available at t = 1 is $21,000:Optimized NPV = $13,900with x W = 1; x X = 0.8; x Y = 1 and x Z = 0Hence, the shadow price of an additional $1,000 in t =1 financing is $450.。

CHAPTER 18How Much Should a Corporation Borrow?Answers to Problem Sets1. The calculation assumes that the tax rate is fixed, that debt is fixed and perpetual,and that investors’ personal tax rates on interest and equity income are the same. 2. a. PV tax shield = T c D = $16. b. T c X 20 = $8. 3.Relative advantage of debt =()()c pE pT T T ---111=()()00.165.165.=Relative advantage=()()18.165.85.65.=4. A firm with no taxable income saves no taxes by borrowing and paying interest. The interest payments would simply add to its tax-loss carry-forwards. Such a firm would have little tax incentive to borrow.5. a. Direct costs of financial distress are the legal and administrative costs ofbankruptcy. Indirect costs include possible delays in liquidation (EasternAirlines) or poor investment or operating decisions while bankruptcy is being resolved. Also the threat of bankruptcy can lead to costs.b. If financial distress in creases odds of default, managers’ andshareholders’ incentives change. This can lead to poor inves tment orfinancing decisions.c. See the answer to 5(b ). Examples are the “games 〞 described in Section 18-3.6. Not necessarily. Announcement of bankruptcy can send a message of poorprofits and prospects. Part of the share price drop can be attributed to anticipatedbankruptcy costs, however. 7. More profitable firms have more taxable income to shield and are less likely to incur the costs of distress. Therefore the trade-off theory predicts high (book) debt ratios. In practice the more profitable companies borrow least.8. D ebt ratios tend to be higher for larger firms with more tangible assets. Debtratios tend to be lower for more profitable firms with higher market-to-book ratios.9. W hen a company issues securities, outside investors worry that managementmay have unfavorable information. If so the securities can be overpriced. This worry is much less with debt than equity. Debt securities are safer than equity, and their price is less affected if unfavorable news comes out later.A company that can borrow (without incurring substantial costs of financial distress) usually does so. An issue of equity would be read as “bad news 〞 by investors, and the new stock could be sold only at a discount to the previous market price.10. a. The cumulative requirement for external financing. b. More profitable firms can rely more on internal cash flow and need less external financing.11. Financial slack is most valuable to growth companies with good but uncertaininvestment opportunities. Slack means that financing can be raised quickly for positive-NPV investments. But too much financial slack can tempt -mature companies to overinvest. Increased borrowing can force such firms to pay out cash to investors.12. a. $25.931.08$1,000)0.35(0.08r 1D)(r T shield)PV(tax D D C =⨯=+=b. $111.80shield)PV(tax =⨯=∑=51)08.1()000,1$08.0(35.0t tc. PV(tax shield) = T C D = $35013.For $1 of debt income:Corporate tax = $0Personal tax = 0.35 ⨯ $1 = $0.350 Total = $0.350For $1 of equity income, with all capital gains realized immediately:Corporate tax = 0.35 ⨯ $1 = $0.350Personal tax = 0.35 ⨯ 0.5 ⨯ [$1 – (0.35⨯$1)] + 0.15 ⨯ 0.5 ⨯ [$1 – (0.35⨯$1)] =$0.163Total = $0.513For $1 of equity income, with all capital gains deferred forever:Corporate tax = 0.35 ⨯ $1 = $0.350Personal tax = 0.35 ⨯ 0.5 ⨯ [$1 – (0.35⨯$1)] = $0.114 Total = $0.46414.Consider a firm that is levered, has perpetual expected cash flow X, and has an interest rate for debt of r D . The personal and corporate tax rates are T p and T c , respectively. The cash flow to stockholders each year is:(X - r D D)(1 - T c )(1 - T p )Therefore, the value of the stockholders’ position is:where r is the opportunity cost of capital for an all-equity-financed firm. If the stockholders borrow D at the same rate r D , and invest in the unlevered firm, their cash flow each year is:The value of the stockholders’ position is then:The difference in stockholder wealth, for investment in the same assets, is:V L – V U = DT c)T (1)(r )T (1)T (1D)()(r )T (1(r))T (1)T (1(X)V p D p c D p p c L -------=)]T (1D)()T (1(r))T (1)T (1(X)V c p p c L -----=[)]T (1D)()r ()]T (1)T (1[(X )p D p c ----[)T (1)(r )T (1D)()(r )T (1(r))T (1)T (1(X)V p D p D p p c U ------=D)T (1(r))T (1)T (1(X)V p p c U ----=This is the change in stockholder wealth predicted by MM.If individuals could not deduct interest for personal tax purposes, then:Then: So the value of the shareholders’ posit ion in the levered firm is relatively greater when no personal interest deduction is allowed.15.Long-term debt increases by: $10,000 − $4,943 = $5,057 million The corporate tax rate is 35%, so firm value increases by:0.35 ⨯ $3,874 = $1,770 millionThe market value of the firm is now: $79,397 + $1,770 = $81,167 million The market value balance sheet is:16.Assume the following facts for Circular File:Book Values Net working capital $20 $50 Bonds outstandingFixed assets 80 50 Common stock Total assets $100 $100 Total valueMarket Values Net working capital $20 $25 Bonds outstanding Fixed assets 10 5 Common stock Total assets$30 $30Total valuea.Playing for TimeSuppose Circular File foregoes replacement of $10 of capital equipment, so that the new balance sheet may appear as follows:)T (1)(r D))((r )T (1(r))T (1)T (1(X)V p D D p p c U -----=)T (1)(r )]T (1)T (1D))(r ([D)()(r V V p D p c D D U L ----=-⎪⎪⎭⎫⎝⎛-+=-)T (1T D)T D (V V p p c U LMarket ValuesNet working capital $30 $29 Bonds outstandingFixed assets 8 9 Common stockTotal assets $38 $38 Total valueHere the shareholder is better off but has obviously diminished the firm’scompetitive ability.b. Cash In and RunSuppose the firm pays a $5 dividend:Market ValuesNet working capital $15 $23 Bonds outstandingFixed assets 10 2 Common stockTotal assets $25 $25 Total valueHere the value of common stock should have fallen to zero, but thebondholders bear part of the burden.c. Bait and SwitchMarket ValuesNet working capital $30 $20 New Bonds outstanding20 Old Bonds outstandingFixed assets 20 10 Common stockTotal assets $50 $50 Total value17. Answers here will vary according to the companies chosen; however, theimportant considerations are given in the text, Section 19.3.18. a. Stockholders win. Bond value falls since the value of assets securingthe bond has fallen.b. Bondholder wins if we assume the cash is left invested in Treasury bills.The bondholder is sure to get $26 plus interest. Stock value is zerobecause there is no chance that the firm value can rise above $50.c. The bondholders lose. The firm adds assets worth $10 and debtworth $10. This would increase Circular’s debt ratio, l eaving the oldbondholders more exposed. The old bondholders’ loss is thestockholders’ gain.d. Both bondholders and stockholders win. They share the (net) increasein firm value. The bondholders’ position is not eroded by the issue of ajunior security. (We assume that the preferred does not lead to stillmore game playing and that the new investment does not make the firm’s assets safer or riskier.)e. Bondholders lose because they are at risk for a longer time.Stockholders win.19. a. SOS stockholders could lose if they invest in the positive NPV project andthen SOS becomes bankrupt. Under these conditions, the benefits of theproject accrue to the bondholders.b. If the new project is sufficiently risky, then, even though it has a negativeNPV, it might increase stockholder wealth by more than the moneyinvested. This is a result of the fact that, for a very risky investment,undertaken by a firm with a significant risk of default, stockholders benefitif a more favorable outcome is actually realized, while the cost ofunfavorable outcomes is borne by bondholders.c. Again, think of the extreme case: Suppose SOS pays out all of its assetsas one lump-sum dividend. Stockholders get all of the assets, and thebondholders are left with nothing. (Note: fraudulent conveyance laws mayprevent this outcome)20. a. The bondholders may benefit. The fine print limits actions that transferwealth from the bondholders to the stockholders.b. The stockholders may benefit. In the absence of fine print, bondholderscharge a higher rate of interest to ensure that they receive a fair deal. Thefirm would probably issue the bond with standard restrictions. It is likelythat the restrictions would be less costly than the higher interest rate. 21. Other things equal, the announcement of a new stock issue to fund aninvestment project with an NPV of $40 million should increase equity value by$40 million (less issue costs). But, based on past evidence, managementexpects equity value to fall by $30 million. There may be several reasons forthe discrepancy:(i) Investors may have already discounted the proposed investment. (However,this alone would not explain a fall in equity value.)(ii) Investors may not be aware of the project at all, but they may believe instead that cash is required because of, say, low levels of operating cash flow.(iii) Investors may believe that the firm’s decision to issue equity rather than debt signals management’s belief that the stock is overvalued.If the stock is indeed overvalued, the stock issue merely brings forward a stockprice decline that will occur eventually anyway. Therefore, the fall in value is notan issue cost in the same sense as the underwriter’s spread. If the stock is not overvalued, management needs to consider whether it could release someinformation to convince investors that its stock is correctly valued, or whether it could finance the project by an issue of debt.22. a. Masulis’ results are consistent with the view that debt is always preferablebecause of its tax advantage, but are not consistent with the ‘tradeoff’theory, which holds that management strikes a balance between the taxadvantage of debt and the costs of possible financial distress. In thetradeoff theory, exchange offers would be undertaken to move the firm’sdebt level toward the optimum. That ought to be good news, if anything,regardless of whether leverage is increased or decreased.b. The results are consistent with the evidence regarding the announcementeffects on security issues and repurchases.c. One explanation is that the exchange offers signal management’sassessment of the firm’s prospects. Management would only be willing totake on more debt if they were quite confident about future cash flow, forexample, and would want to decrease debt if they were concerned aboutthe firm’s ability to meet debt payments in the future.23. a.Expected Payoff to Bank Expected Payoff to Ms. Ketchup Project 1 +10.0 +5Project 2 (0.4⨯10) + (0.6⨯0) = +4.0 (0.4⨯14) + (0.6⨯0)=+5.6Ms. Ketchup would undertake Project 2.b. Break even will occur when Ms. Ketchup’s expected payoff from Project 2is equal to her expected payoff from Project 1. If X is Ms. Ketchup’spayment on the loan, then her payoff from Project 2 is:0.4 (24 – X)Setting this expression equal to 5 (Ms. Ketchup’s payoff from Project 1),and solving, we find that: X = 11.5Therefore, Ms. Ketchup will borrow less than the present value of thispayment.24. One advantage of setting debt-equity targets based on bond ratings is that firmsmay minimize borrowing costs. This is especially true of bond covenantsestablish lower ratings as a condition of default. One disadvantage is that firms may not take full advantage of tax benefits from debt financing if they refuse toborrow amounts they could finance with relative safety.25. The right measure in principle is the ratio derived from market-value balancesheets. Book balance sheets represent historical values for debt and equitywhich can be significantly different from market values. Any changes in capitalstructure are made at current market values.The trade-off theory proposes to explain market leverage. Increases ordecreases in debt levels take place at market values. For example, a decision to reduce the likelihood of financial distress by retirement of debt means thatexisting debt is acquired at market value, and that the resulting decrease ininterest tax shields is based on the market value of the retired debt. Similarly, a decision to increase interest tax shields by increasing debt requires that new debt be issued at current market prices.Similarly, the pecking-order theory is based on market values of debt and equity.Internal financing from reinvested earnings is equity financing based on currentmarket values; the alternative to increased internal financing is a distribution ofearnings to shareholders. Debt capacity is measured by the current marketvalue of debt because the financial markets view the amount of existing debt as the payment required to pay off that debt.26. If it was always possible to issue stock quickly and use the additional proceeds torepurchase debt, then firms may indeed avoid financial distress. But potentialequity investors may be reluctant to buy stock in a firm if adverse market events are likely to place the bonds in default: they would effectively be putting moneyinto a sinking ship, and those proceeds would go to repay the senior bond claims in bankruptcy. This is especially true if the bonds quickly move into default (or ifthere are cross-default provisions where one bond series default triggers otherdefaults).In some cases, bondholders may recognize that the firm has greater value as agoing concern and agree to take a haircut on interest payments in exchange for an equity infusion. Under these circumstances, a firm may indeed be able toraise additional equity—but the negotiations and gamesmanship of theseworkout situations can get tricky.。