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This is completed downloadable of Solutions manual for Fundamentals of Corporate Finance 3e by Berk 9780133576870

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ISBN-10 ‏ : ‎ 1269945645
ISBN-13 ‏ : ‎ 978-0133507911
Author: Jonathan Berk (Author), Peter DeMarzo (Author), Jarrad Harford (Author)

Fundamentals of Corporate Finance ’s applied perspective cements your understanding of modern-day core principles, focusing on problem solving and real-life financial management practices—all within a clear valuation framework.

Table of Content:

Part 1 Introduction
Chapter 1 Corporate Finance and the Financial Manager
Learning Objectives
1.1 Why study finance?
1.2 The three types of firms
Sole traders
Partnerships
Corporations
Tax implications for corporate entities
1.3 The financial manager
Making investment decisions
Making financing decisions
Managing short-term cash needs
The goal of the financial manager
1.4 The financial manager’s place in the corporation
The corporate management team
Ethics and incentives in corporations
1.5 The stock market
The largest stock markets
Traditional trading venues
Dark pools
1.6 Financial institutions
The financial cycle
Types of financial institutions
Roles of financial institutions
Mylab Finance
Problems
The three types of firms
The financial manager
The financial manager’s place in the corporation
The stock market
Financial institutions
Notes
Chapter 2 Introduction to financial statement analysis
Learning Objectives
2.1 Firms’ disclosure of financial information
International financial reporting standards
Preparation of financial statements
Types of financial statements
2.2 The balance sheet
Assets
Liabilities
Shareholders’ equity
2.3 Balance sheet analysis
Market-to-book ratio
Debt–equity ratio
Enterprise value
Other balance sheet information
2.4 The income statement
Earnings calculations
2.5 Income statement analysis
Profitability ratios
Asset efficiency
Working capital ratios
EBITDA
Leverage ratios
Investment returns
The DuPont Identity
Valuation ratios
2.6 The statement of cash flows
Operating activity
Investment activity
Financing activity
2.7 Other financial statement information
Management discussion and analysis
Statement of changes in equity
Notes to the financial statements
2.8 Financial reporting in practice
Enron
HIH insurance
Centro
CLERP 9 and the ASX Good Corporate Governance Principles
The financial statements: A useful starting point
Mylab finance
Review Questions
Problems
Firms’ disclosure of financial information
The balance sheet
Balance sheet analysis
The income statement and income statement analysis
The statement of cash flows
Accounting manipulation
Data Case
Notes
Part 2 Interest rates and valuing cash flows
Chapter 3 Time value of money: an introduction
Learning Objectives
3.1 Cost–benefit analysis
Role of the financial manager
Quantifying costs and benefits
3.2 Market prices and the valuation principle
The Valuation Principle
Why there can be only one competitive price for a good
3.3 The time value of money and interest rates
The time value of money
The interest rate: Converting cash across time
Timelines
3.4 Valuing cash flows at different points in time
Rule 1: Comparing and combining values
Rule 2: Compounding
Rule 3: Discounting
Mylab Finance
Review Questions
Problems
Cost–benefit analysis
Market prices and the Valuation Principle
The time value of money and interest rates
Valuing cash flows at different points in time
Notes
Chapter 4 Time value of money: valuing cash flow streams
Learning Objectives
4.1 Valuing a stream of cash flows
Applying the rules of valuing cash flows to a cash flow stream
4.2 Perpetuities
4.3 Annuities
Present value of an annuity
Future value of an annuity
4.4 Growing cash flows
Growing perpetuity
Growing annuity
4.5 Solving for variables other than present value or future value
Solving for the cash flows
Rate of return
Solving for the number of periods
4.6 Non-annual cash flows
Summing it up
Mylab Finance
Review Questions
Problems
Valuing a stream of cash flows
Perpetuities
Annuities
Growing cash flows
Solving for variables other than present value or future value
Valuing cash flow streams with non-annual cash flows
Data case
Notes
Chapter 5 Interest Rates
Learning Objectives
5.1 Interest rate quotes and adjustments
The effective annual rate
Adjusting the discount rate to different time periods
Annual percentage rates
5.2 Application: discount rates and loans
Calculating loan payments
Calculating the outstanding loan balance
5.3 The determinants of interest rates
Inflation and real versus nominal rates
Investment and interest rate policy
The yield curve and discount rates
The yield curve and the economy
5.4 The opportunity cost of capital
Mylab Finance
Review Questions
Problems
Interest rate quotes and adjustments
Application: Discount rates and loans
The determinants of interest rates
The opportunity cost of capital
Notes
Chapter 6 Bond valuation
Learning Objectives
6.1 Bond terminology
6.2 Zero-coupon bonds
Zero-coupon bond cash flows
Yield to maturity of a zero-coupon bond
Risk-free interest rates
6.3 Coupon bonds
Coupon bond cash flows
Yield to maturity of a coupon bond
Coupon bond price quotes
6.4 Why bond prices change
Interest rate changes and bond prices
Time and bond prices
Interest rate risk and bond prices
Bond prices in practice
6.5 Corporate bonds
Credit risk
Corporate bond yields
Bond ratings
Credit spreads
Mylab Finance
Review Questions
Problems
Bond terminology
Zero-coupon bonds
Coupon bonds
Why bond prices change
Corporate bonds
Data Case
Notes
Chapter 7 Share valuation: the dividend-discount model
Learning Objectives
7.1 Share basics
Stock market reporting: Share quotes
Ordinary shares
Preference shares
7.2 The dividend-discount model
A one-year investor
Dividend yields, capital gains and total returns
A multiyear investor
Dividend-discount model equation
7.3 Estimating dividends in the dividend-discount model
Constant dividend growth
Dividends versus investment and growth
Changing growth rates
Value drivers and the dividend-discount model
7.4 Limitations of the dividend-discount model
Uncertain dividend forecasts
Non-dividend-paying shares
7.5 Share repurchases and the total payout model
7.6 Putting it all together
Mylab Finance
Review Questions
Problems
Share basics
The dividend-discount model
Estimating dividends in the dividend-discount model
Share repurchases and the total payout model
Notes
Part 3 Valuation and the firm
Chapter 8 Investment decision rules
Learning Objectives
8.1 The NPV decision rule
Net present value
The NPV decision rule
8.2 Using the NPV rule
Organising the cash flows and computing the net present value
The NPV profile
Measuring sensitivity with the internal rate of return
Alternative rules versus the NPV rule
8.3 Alternative decision rules
The payback rule
The IRR rule
Modified internal rate of return
8.4 Choosing between projects
Differences in scale
Timing of the cash flows
8.5 Evaluating projects with different lives
Important considerations when using the equivalent annual annuity
8.6 Choosing among projects when resources are limited
Evaluating projects with different resource requirements
8.7 Putting it all together
Mylab Finance
Review Questions
Problems
The NPV decision rule
Using the NPV rule
Alternative decision rules
Evaluating projects with different lives
Choosing among projects when resources are limited
Data case
Notes
Chapter 9 Fundamentals of capital budgeting
Learning Objectives
9.1 The capital budgeting process
9.2 Forecasting incremental earnings
Operating expenses versus capital expenditures
Incremental revenue and cost estimates
Taxes
Incremental earnings forecast
9.3 Determining incremental free cash flow
Converting from earnings to free cash flow
Calculating free cash flow directly
Calculating the net present value
9.4 Other effects on incremental free cash flow
Opportunity costs
Project externalities
Sunk costs
Adjusting free cash flow
Replacement decisions
9.5 Analysing the project
Sensitivity analysis
Break-even analysis
Scenario analysis
9.6 Real options in capital budgeting
Option to delay
Option to expand
Option to abandon
Mylab Finance
Review Questions
Problems
Forecasting incremental earnings
Determining incremental free cash flow
Other effects on incremental free cash flows
Analysing the project
Real options in capital budgeting
Data Case
Notes
Chapter 10 Share valuation: a second look
Learning Objectives
10.1 The discounted free cash flow model
Valuing the enterprise
Implementing the model
Connection to capital budgeting
10.2 Valuation based on comparable firms
Valuation multiples
Limitations of multiples
Comparison with discounted cash flow methods
Share valuation techniques: The final word
10.3 Information, competition and share prices
Information in share prices
Competition and efficient markets
Lessons for investors and corporate managers
The efficient markets hypothesis versus no arbitrage
10.4 Individual biases and trading
Excessive trading and overconfidence
Hanging on to losers and the disposition effect
Investor attention, mood and experience
Mylab Finance
Review Questions
Problems
The discounted free cash flow model
Valuation based on comparable firms
Information, competition and share prices
Individual biases and trading
Data Case
Notes
Part 4 Risk and return
Chapter 11 Risk and return in capital markets
Learning Objectives
11.1 A first look at risk and return
11.2 Historical risks and returns of shares
Computing historical returns
Average annual returns
The variance and volatility of returns
The normal distribution
11.3 The historical trade-off between risk and return
The returns of large portfolios
The returns of individual shares
11.4 Common versus independent risk
Theft versus earthquake insurance: An example
Types of risk
11.5 Diversification in share portfolios
Unsystematic versus systematic risk
Diversifiable risk and the risk premium
The importance of systematic risk
Mylab Finance
Review Questions
Problems
Historical risks and returns of shares
Common versus independent risk
Diversification in share portfolios
Notes
Chapter 12 Systematic risk and the equity risk premium
Learning Objectives
12.1 The expected return of a portfolio
Portfolio weights
Expected portfolio return
12.2 The volatility of a portfolio
Diversifying risks
Measuring shares’ co-movement: Correlation
Computing a portfolio’s variance and standard deviation
The volatility of a large portfolio
12.3 Measuring systematic risk
Role of the market portfolio
Stock market indices as the market portfolio
Market risk and beta
Estimating beta from historical returns
12.4 Putting it all together: the capital asset pricing model
The CAPM equation relating risk to expected return
The security market line
The Capital Asset Pricing Model and portfolios
Summary of the Capital Asset Pricing Model
The big picture
Mylab Finance
Review Questions
Problems
The expected return of a portfolio
The volatility of a portfolio
Measuring systematic risk
Putting it all together: The Capital Asset Pricing Model
Notes
Chapter 13 The cost of capital
Learning Objectives
13.1 A first look at the weighted average cost of capital
The firm’s capital structure
Opportunity cost and the overall cost of capital
Weighted averages and the overall cost of capital
Weighted average cost of capital calculations
13.2 The firm’s costs of debt and equity capital
Cost of debt capital
Cost of preference share capital
Cost of ordinary share capital
13.3 A second look at the weighted average cost of capital
Weighted average cost of capital equation
Weighted average cost of capital in practice
Methods in practice
13.4 Using the weighted average cost of capital to value a project
Key assumptions
WACC method application: Extending the life of a mine
Summary of the WACC method
13.5 Project-based costs of capital
Cost of capital for a new acquisition
Divisional costs of capital
13.6 When raising external capital is costly
Mylab Finance
Review Questions
Problems
A first look at the weighted average cost of capital
The firm’s costs of debt and equity capital
A second look at the weighted average cost of capital
Using the weighted average cost of capital to value a project
Project-based costs of capital
When raising external capital is costly
Data Case
Notes
Part 5 Long-term financing
Chapter 14 Raising capital
Learning Objectives
14.1 Equity financing for private companies
Sources of funding
Securities and valuation
Exiting an investment in a private company
14.2 Taking your firm public: The initial public offering
Advantages and disadvantages of going public
Primary and secondary IPO offerings
Other IPO types
14.3 IPO puzzles
Underpriced IPOs
‘Hot’ and ‘cold’ IPO markets
High cost of issuing an IPO
Poor post-IPO long-run share performance
14.4 Raising additional capital: The seasoned equity offering
SEO process
SEO price reaction
SEO costs
MyLab Finance
Review questions
Problems
Equity financing for private companies
Taking your firm public: The initial public offering
Raising additional capital: The seasoned equity offering
Notes
Chapter 15 Debt Financing
Learning Objectives
15.1 Corporate debt
Private debt
Public debt
15.2 Bond covenants
Types of covenants
Advantages of covenants
15.3 Repayment provisions
Call provisions
Sinking funds
Convertible provisions
MyLab Finance
Review questions
Problems
Corporate debt
Repayment provisions
Notes
Part 6 Capital structure and valuation
Chapter 16 Capital structure
Learning Objectives
16.1 Capital structure choices
Capital structure choices across industries
Capital structure choices within industries
16.2 Capital structure in perfect capital markets
Application: Financing a new business
Leverage and firm value
The effect of leverage on risk and return
Home-made leverage
Leverage and the cost of capital
Modigliani and Miller and the real world
16.3 Debt and taxes
The interest tax deduction and firm value
Value of the interest tax shield
The interest tax shield with permanent debt
Leverage and the weighted average cost of capital with taxes
Debt and taxes: The bottom line
16.4 The costs of bankruptcy and financial distress
Direct costs of bankruptcy
Indirect costs of financial distress
16.5 Optimal capital structure: The trade-off theory
Differences across firms
Optimal leverage
16.6 Additional consequences of leverage: Agency costs and information
Agency costs
Debt and information
16.7 Capital structure: Putting it all together
MyLab Finance
Review Questions
Problems
Capital structure in perfect capital markets
Debt and taxes
Optimal capital structure: The trade-off theory
Additional consequences of leverage: Agency costs and information
Notes
Chapter 17 Payout policy
Learning Objectives
17.1 Cash distributions to shareholders
Dividends
Share repurchases
17.2 Dividends versus share repurchases in a perfect capital market
Alternative policy 1: Pay a dividend with excess cash
Alternative policy 2: Share repurchase (no dividend)
Alternative policy 3: High dividend (equity issue)
Modigliani–Miller and dividend policy irrelevance
Dividend policy with perfect capital markets
17.3 Dividends and share repurchases under personal taxes
Taxes on dividends and capital gains
Dividend imputation
Taxation of capital gains
Dividends versus capital gains
Share repurchases structured as dividends
Optimal dividend policy with taxes
17.4 Payout versus retention of cash
Retaining cash with perfect capital markets
Retaining cash with imperfect capital markets
17.5 Signalling with payout policy
Dividend smoothing
Dividend signalling
Signalling and share repurchases
17.6 Dividend reinvestment plans and bonus issues
Dividend reinvestment plans
Bonus issues
17.7 Dividend imputation and share valuation
Valuation and franking credits: The theory
Estimating gamma
Valuation and franking credits: Market practice
17.8 Advice for the financial manager
MyLab Finance
Review questions
Problems
Cash distributions to shareholders
Dividends versus share repurchases in a perfect capital market
The tax disadvantage of dividends
Payout versus retention of cash
Signalling with payout policy
Dividend reinvestment plans and bonus issues
Dividend imputation and share valuation
Data case
Notes
Part 7 Financial planning
Chapter 18 Financial modelling and pro-forma analysis
Learning Objectives
18.1 Goals of long-term financial planning
Identify important linkages
Analyse the impact of potential business plans
Plan for future funding needs
18.2 Forecasting financial statements: The per cent of sales method
Per cent of sales method
Pro-forma income statement
Pro-forma balance sheet
Making the balance sheet balance: Net new financing
Choosing a forecast target
18.3 Forecasting a planned expansion
KMS Designs’ expansion: Financing needs
KMS Designs’ expansion: Pro-forma statement
Forecasting the balance sheet
18.4 Growth and firm value
Sustainable growth rate and external financing
18.5 Valuing the expansion
Forecasting free cash flows
KMS Designs’ expansion: Effect on firm value
MyLab Finance
Review questions
Problems
Forecasting a planned expansion
Growth and firm value
Valuing the expansion
Notes
Chapter 19 Working capital management
Learning Objectives
19.1 Overview of working capital
The cash cycle
Working capital needs by industry
Firm value and working capital
19.2 Trade credit
Trade credit terms
Trade credit and market frictions
Managing float
19.3 Receivables management
Determining the credit policy
Monitoring accounts receivable
19.4 Payables management
Determining accounts payable days outstanding
Stretching accounts payable
19.5 Inventory management
Benefits of holding inventory
Costs of holding inventory
19.6 Cash management
Motivation for holding cash
Alternative investments
MyLab Finance
Review questions
Problems
Overview of working capital
Trade credit
Receivables management
Payables management
Inventory management
Data case4
Notes
Part 8 Special topics
Chapter 20 Option applications and corporate finance
Learning Objectives
20.1 Option basics
Option contracts
Share option quotations
Options on other financial securities
20.2 Option payoffs at expiration
The long position in an option contract
The short position in an option contract
Profits for holding an option to expiration
Returns for holding an option to expiration
20.3 Factors affecting option prices
Exercise price and share price
Option prices and the exercise date
Option prices and the risk-free rate
Option prices and volatility
20.4 The Black Scholes option pricing formula
20.5 Put call parity
Portfolio insurance
20.6 Options and corporate finance
MyLab Finance
Review questions
Problems
Option payoffs at expiration
Factors affecting option prices
Put call parity
Options and corporate finance
Data Case
Notes
Chapter 21 Mergers and acquisitions
Learning Objectives
21.1 Background and historical trends
Merger waves
Types of mergers
21.2 Market reaction to a takeover
21.3 Reasons to acquire
Economies of scale and scope
Vertical integration
Expertise
Monopoly gains
Efficiency gains
Tax savings from operating losses
Diversification
Earnings growth
Managerial motives to merge
21.4 The takeover process
Valuation
The offer
Merger ‘arbitrage’
Tax and accounting issues
Board and shareholder approval
21.5 Takeover defences
Poison pills
Staggered boards
White knights
Golden parachutes
Recapitalisation
Other defensive strategies
21.6 Who gets the value added from a takeover?
The free rider problem
Toeholds
Leveraged buyouts
Competition
MyLab Finance
Review questions
Problems
The takeover process
Takeover defences
Who gets the value added from a takeover?
Notes
Chapter 22 International corporate finance
Learning Objectives
22.1 Foreign exchange
The foreign exchange market
Exchange rates
22.2 Exchange rate risk
Exchange rate fluctuations
Hedging with forward contracts
Cash-and-carry and the pricing of currency forwards
Hedging exchange rate risk with options
22.3 Internationally integrated capital markets
22.4 Valuation of foreign currency cash flows
Application: Ityesi Packaging
The Law of One Price as a robustness check
22.5 Valuation and international taxation
A single foreign project with immediate repatriation of earnings
Multiple foreign projects and deferral of earnings repatriation
22.6 Internationally segmented capital markets
Differential access to markets
Macro-level distortions
Implications of internationally segmented capital markets
22.7 Capital budgeting with exchange rate risk
Application: Ityesi Packaging
Conclusion
MyLab Finance
Review questions
Problems
Foreign exchange
Exchange rate risk
Internationally integrated capital markets
Valuation of foreign currency cash flows
Valuation and international taxation
Internationally segmented capital markets
Capital budgeting with exchange rate risk
Data Case
Notes
Chapter 23 Insurance and risk management
Learning Objectives
23.1 Insurance
The role of insurance: An example
Insurance pricing in a perfect market
The value of insurance
The costs of insurance
The insurance decision
23.2 Commodity price risk
Hedging with vertical integration and storage
Hedging with long-term contracts
Hedging with futures contracts
23.3 Interest rate risk
Interest rate risk measurement: Duration
Duration-based hedging
Swap-based hedging
MyLab Finance
Review questions
Problems
Insurance
Commodity price risk
Interest rate risk
Notes