Solution to Problems
Chapter 1
1-4
The agency problem is a result of the separation of owners and managers, where
managers do whats in their own best interests rather than what is in the best interest of
the shareholders. Large firms are typically run by
Chapter 7- SOLUTIONS TO
END-OF-CHAPTER PROBLEMS
7-2.
Value (V )
b
=
14
10
70
1000
7-4.
ANSWER
-779.00
If the interest is paid semiannually:
Value (V ) =
b
16
4
50
1000
ANSWER
-1116.52
If interest is paid annually:
Value (V ) =
b
8
8
100
1000
7-11. a.
b.
A
CHAPTER 9
Cost of Capital
CHAPTER ORIENTATION
In Chapters 7 and 8, we considered the valuation of debt and equity instruments. The concepts
advanced serve as a foundation for determining the required rate of return for a firm and for
specific investment p
Decision making is when the managers make decisions to create value for the firm's owners. Risk and Return is sort of a proportional projection. The higher the risk, the higher the return. The lower the return, in general, is lower the risk. Financial man
the realtaionship between interest rates and the term to maturity where the risk of default is held constant.
the two types of flotation costs that occur whe issuing new securities are the underwriters spread and the issuing cost. the underwriters cost co