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APCB tutorial solution of exercises (Fundementals of
Corporate Finance)
Asset Pricing and Capital Budgeting (Rijksuniversiteit Groningen)
Studeersnel wordt niet gesponsord of ondersteund door een hogeschool of universiteit
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Solutions APCB tutorials
Contents
Week 1...................................................................................................................................................2
Chapter 1............................................................................................................................................2
Chapter 2............................................................................................................................................2
Week 2...................................................................................................................................................6
Chapter 3............................................................................................................................................6
Chapter 4............................................................................................................................................8
Week 3.................................................................................................................................................11
Chapter 5..........................................................................................................................................11
Chapter 6..........................................................................................................................................13
Week 4.................................................................................................................................................19
Chapter 8..........................................................................................................................................19
Chapter 9..........................................................................................................................................24
Week 5.................................................................................................................................................28
Chapter 7..........................................................................................................................................28
Chapter 10........................................................................................................................................29
Week 6.................................................................................................................................................33
Chapter 11........................................................................................................................................33
Chapter 12........................................................................................................................................36
Week 7.................................................................................................................................................39
Chapter 13........................................................................................................................................39
Exam questions.................................................................................................................................41
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Week 1
Chapter 1
Problem 4
Advantage: liquidity; infinite life, limited liablity
Disadvantage:
-
double taxation
separation of ownership and control. This will lead to agency problems. The interests of a
manager are different than the ones of the owners/ stockholders.
Problem 10.
shareholders can:
-
ensure that employees are paid with company stock and/or stock options;
ensure that underperforming managers are fired
write contracts that ensure that the interests of the managers and shareholders are closely
aligned.
Mount hostile takeovers.
Problem 15
-
generate positive publicity: environmental activism may be valued by consumers and
employees, leading to higher sales and greater applicant pool for jobs.
Pre-emptive reduction of emissions to avoid government regulation
Investor preferences: institutional investors may demand CSR: allows firm to raise more
equity capital to finance firm’s projects.
Problem 17
a primary market is where the company sells shares of itself to investors; A secondary market is
where investors can buy and/or sell the company’s shares with other investors (but not the company
itself).
Chapter 2
Problem 4
a) Cash -$20, long-term debt -$20; book value of equity: no change
b) Inventories -$5; retained earnings: -$5; book value of equity: -$5
c) Cash -$5; Net property, plant and equipment +$10; Long-term debt +$5; book value of
equity: no change
d) Accounts receivable -$3; retained earnings: -$3; book value of equity: -$3
e) These events would not directly affect the balance sheet. They will affect the income
statement. No changes to book value of equity. In the future it will impacted the earnings of
the firm.
f) These events would not directly affect the balance sheet. They will affect the income
statement. No changes to book value of equity. In the future it will impacted the earnings of
the firm, so no immediately on the balance sheet.
Problem 13
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a) Operating expenses for this year increase by $9.58 million. As a result, EBIT decrease by
$9.58. This would lead to a reduction in taxes of 0,35*$9.58 million = $3.353 million. Thus,
earnings (=Net income) would decline by 9.58 – 3.353 = $6.227 million. There would be no
effect on next year’s earnings.
Problem 19
a)
b)
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c)
Problem 23
Problem 33
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Week 2
Chapter 3
Problem 1
Chapter 3 - Problem 16
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Chapter 3- Problem 20
Chapter 3 – problem 21
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Chapter 4
problem 1
Chapter 4 – Exercise 12
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Chapter 4 – Exercise 13
Chapter 4 – Exercise 32
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Chapter 4 – Exercise 41
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Week 3
Chapter 5
Problem 6
The best option is option 1
Problem 29
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Problem 34
Chapter 6
Problem 4
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Problem 10
Problem 17
It is a 7 years bond in stead of 5 years
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Problem 29
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The bond is issued Premium
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Week 4
Chapter 8
Problem 8
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Problem 12
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Problem 28
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Problem 37
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Chapter 9
Problem 12
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Problem 14
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Problem 21
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Problem 24
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Week 5
Chapter 7
Problem 10
Problem 16
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Chapter 10
Problem 6
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Problem 17
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Problem 22
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Week 6
Chapter 11
Problem 1
Problem 7
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Problem 16
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Problem 23
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Chapter 12
Problem 8
Problem 15
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Problem 22
Problem 32
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Week 7
Chapter 13
Problem 3
Problem 4
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Problem 17
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Exam questions
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