CHAPTER 1 Introduction to Corporate Finance The values shown in the solutions may be rounded for display purposes. However, the answers were derived using a spreadsheet without any intermediate rounding. Answers to Problem Sets 1. a. real b. executive airplanes c. brand names d. financial e. bonds *f. investment or capital budgeting *g. capital budgeting or investment h. financing *Note that f and g are interchangeable in the question. Est time: 01-05 2. A trademark, a factory, undeveloped land, and your work force (c, d, e, and g) are all real assets. Real assets are identifiable as items with intrinsic value. The others in the list are financial assets, that is, these assets derive value because of a contractual claim. Est time: 01-05 3. a. Financial assets, such as stocks or bank loans, are claims held by investors. Corporations sell financial assets to raise the cash to invest in real assets such as plant and equipment. Some real assets are intangible. b. Capital budgeting means investment in real assets. Financing means raising the cash for this investment. b. The shares of public corporations are traded on stock exchanges and can be purchased by a wide range of investors. The shares of closely held corporations are not publicly traded and are held by a small group of private investors. d. Unlimited liability: Investors are responsible for all the firm’s debts. A sole proprietor has unlimited liability. Investors in corporations have limited liability. They can lose their investment, but no more. Est time: 01-05 Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 4. Items c and d apply to corporations. Because corporations have perpetual life, ownership can be transferred without affecting operations, and managers can be fired with no effect on ownership. Other forms of business may have unlimited liability and limited life. Est time: 01-05 5. 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. Est time: 01-05 6. a. Assuming that the encabulator market is risky, an 8% expected return on the F&H encabulator investments may be inferior to a 4% return on U.S. government securities. b. Unless their financial assets are as safe as U.S. government securities, their cost of capital would be higher. The CFO could consider what the expected return is on assets with similar risk. Est time: 01-05 7. Shareholders will only vote to 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). Est time: 01-05 8. If the investment increases the firm’s wealth, it will increase the value of 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. Est time: 06-10 9. As the Goldman Sachs example illustrates, the firm’s value typically falls by significantly more than the amount of any fines and settlements. The firm’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. Est time: 01-05 10. Managers would act in shareholders’ interests because they have a legal duty 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 that would result from not acting in shareholders’ interests. And managers can be fired by the board of directors, which in turn is elected by shareholders. If managers still fail to act in shareholders’ interests, shareholders may sell their shares, lowering the stock price and potentially creating the possibility of a takeover, which can again lead to changes in the board of directors and senior management. Est time: 01-05 11. Managers that are insulated from takeovers may be more prone to agency problems and therefore more likely to act in their own interests rather than in shareholders’. If a firm instituted a Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 本文来源：https://www.wddqw.com/doc/77e0cc55eb7101f69e3143323968011ca300f7a9.html