Corporate Finance 11e Solutions Manual

Discover the official resource for success on the 2024 CFA Level I exam. Get your copy of the CFA® Program Curriculum now.The 2024 CFA Program Curriculum Level I Box Set contains the content you need to perform well on the Level I CFA exam in 2024. Designed for candidates to use for exam preparation and professional reference purposes, this set includes the full official curriculum for Level I and is part of the larger CFA Candidate Body of Knowledge (CBOK).Covering all ten core topics found on the Level I exam, the 2024 CFA Program Curriculum Level I Box Set helps you:Develop critical knowledge and skills essential in the industry.Learn from financial thought leaders.Access market-relevant instruction.The set also features practice questions to assist with your mastery of key terms, concepts, and formulas. Volumes include:Volume 1: Quantitative MethodsVolume 2: Economics and Financial Statement AnalysisVolume 3: Financial Statement Analysis and Corporate IssuersVolume 4: Corporate Issuers, Equity Investments, and Fixed IncomeVolume 5: Fixed Income, Derivatives, Alternative Investments, and Portfolio ManagementVolume 6: Portfolio Management and Ethical and Professional StandardsIndispensable for anyone preparing for the 2024 Level I CFA exam, the 2024 CFA Program Curriculum Level I Box Set is a must-have resource for those seeking the foundational skills required to become a Chartered Financial Analyst®. How to Use the CFA Program Curriculum Errata Designing Your Personal Study Program CFA Institute Learning Ecosystem (LES) Feedback Portfolio Management Learning Module 1 Portfolio Risk and Return: Part I Introduction Historical Return and Risk Nominal Returns of Major US Asset Classes Real Returns of Major US Asset Classes Nominal and Real Returns of Asset Classes in Major Countries Risk of Major Asset Classes Risk–Return Trade-off Other Investment Characteristics Distributional Characteristics Market Characteristics Risk Aversion and Portfolio Selection The Concept of Risk Aversion Utility Theory and Indifference Curves Indifference Curves Application of Utility Theory to Portfolio Selection Portfolio Risk & Portfolio of Two Risky Assets Portfolio of Two Risky Assets Portfolio of Many Risky Assets Importance of Correlation in a Portfolio of Many Assets The Power of Diversification Correlation and Risk Diversification Historical Risk and Correlation Historical Correlation among Asset Classes Avenues for Diversification Efficient Frontier: Investment Opportunity Set & Minimum Variance Portfolios Investment Opportunity Set Minimum-Variance Portfolios Efficient Frontier: A Risk-Free Asset and Many Risky Assets Capital Allocation Line and Optimal Risky Portfolio The Two-Fund Separation Theorem Efficient Frontier: Optimal Investor Portfolio Investor Preferences and Optimal Portfolios Summary Practice Problems Solutions Learning Module 2 Portfolio Risk and Return: Part II Introduction Capital Market Theory: Risk-Free and Risky Assets Portfolio of Risk-Free and Risky Assets Capital Market Theory: The Capital Market Line Passive and Active Portfolios What Is the “Market”? The Capital Market Line (CML) Capital Market Theory: CML - Leveraged Portfolios Leveraged Portfolios with Different Lending and Borrowing Rates Systematic and Nonsystematic Risk Systematic Risk and Nonsystematic Risk Return Generating Models Return-Generating Models Decomposition of Total Risk for a Single-Index Model Return-Generating Models: The Market Model Calculation and Interpretation of Beta Estimation of Beta Beta and Expected Return Capital Asset Pricing Model: Assumptions and the Security Market Line Assumptions of the CAPM The Security Market Line Capital Asset Pricing Model: Applications Estimate of Expected Return Beyond CAPM: Limitations and Extensions of CAPM Limitations of the CAPM Extensions to the CAPM Portfolio Performance Appraisal Measures The Sharpe Ratio The Treynor Ratio M2: Risk-Adjusted Performance (RAP) Jensen’s Alpha Applications of the CAPM in Portfolio Construction Security Characteristic Line Security Selection Implications of the CAPM for Portfolio Construction Summary References Practice Problems Solutions Corporate Issuers Learning Module 1 Organizational Forms, Corporate Issuer Features, and Ownership Introduction Organizational Forms of Businesses Organizational Forms of Businesses Sole Trader or Proprietorship Partnerships Limited Companies Key Features of Corporate Issuers Legal Identity Owner–Manager Separation Owner/Shareholder Liability External Financing Taxation Publicly vs. Privately Owned Corporate Issuers Exchange Listing, Liquidity, and Price Transparency Share Issuance Registration and Disclosure Requirements Going from Private to Public Going from Public to Private The Varieties of Corporate Owners Practice Problems Solutions Learning Module 2 Investors and Other Stakeholders Introduction Financial Claims of Lenders and Shareholders Debt Versus Equity Debt Versus Equity: Risk and Return Conflicts of Interest among Lenders and Shareholders Corporate Stakeholders and Governance Shareholders versus Stakeholders Investors Board of Directors Managers Employees Customers Suppliers Governments Corporate ESG Considerations Environmental Factors Social Factors Governance Factors Evaluating ESG-Related Risks and Opportunities Practice Problems Solutions Learning Module 3 Corporate Governance: Conflicts, Mechanisms, Risks, and Benefits Introduction Stakeholder Conflicts and Management Shareholder, Board Director, and Manager Relationships Controlling and Minority Shareholder Relationships Shareholder versus Creditor Interests Corporate Governance Mechanisms Corporate Reporting and Transparency Shareholder Mechanisms Creditor Mechanisms Board and Management Mechanisms Employee Mechanisms Customer and Supplier Mechanisms Government Mechanisms Corporate Governance Risks and Benefits Operational Risks and Benefits Legal, Regulatory, and Reputational Risks and Benefits Financial Risks and Benefits Practice Problems Solutions Learning Module 4 Working Capital and Liquidity Introduction Cash Conversion Cycle Liquidity Primary Liquidity Sources Secondary Liquidity Sources Factors Affecting Liquidity: Drags and Pulls Measuring and Evaluating Liquidity Managing Working Capital and Liquidity Working Capital Management Liquidity and Short-Term Funding Practice Problems Solutions Learning Module 5 Capital Investments and Capital Allocation Introduction Capital Investments Going Concern Projects Regulatory Compliance Projects Expansion of Existing Business New Lines of Business and Other Projects Capital Allocation Net Present Value (NPV) Internal Rate of Return Return on Invested Capital Capital Allocation Principles and Pitfalls Capital Allocation Principles Capital Allocation Pitfalls Real Options Practice Problems Solutions Learning Module 6 Capital Structure Introduction The Cost of Capital Factors Affecting Capital Structure Determinants of the Amount and Type of Financing Needed Determinants of the Costs of Debt and Equity Modigliani–Miller Capital Structure Propositions Capital Structure Irrelevance (MM Proposition I without Taxes) Higher Financial Leverage Raises the Cost of Equity (MM Proposition II without Taxes) Firm Value with Taxes (MM Proposition II with Taxes) Cost of Capital (MM Proposition II with Taxes) Cost of Financial Distress Optimal Capital Structure Target Weights and WACC Pecking Order Theory and Agency Costs Practice Problems Solutions Learning Module 7 Business Models Introduction Defining the Business Model Business Model Features Pricing and Revenue Models The Value Proposition (Who + What + Where + How Much) Business Organization and Capabilities Business Model Types Conventional Business Models Business Model Variations Business Model Innovation Network Effects and Platform Business Models Practice Problems Solutions Financial Statement Analysis Learning Module 1 Introduction to Financial Statement Analysis Introduction Financial Statement Analysis Framework Articulate the Purpose and Context of the Analysis Collect Data Process Data Analyze/Interpret the Data Develop and Communicate Conclusions and Recommendations Follow-Up Scope of Financial Statement Analysis Regulated Sources of Information International Organization of Securities Commissions US Securities and Exchange Commission Capital Markets Regulation in Europe Financial Notes and Supplementary Schedules Business and Geographic Segment Reporting Management Commentary or Management’s Discussion and Analysis Auditor's Reports Comparison of IFRS with Alternative Financial Reporting Systems Monitoring Developments in Financial Reporting Standards New Products or Types of Transactions Evolving Standards and the Role of CFA Institute Other Sources of Information Practice Problems Solutions Learning Module 2 Analyzing Income Statements Introduction Revenue Recognition General Principles Accounting Standards for Revenue Recognition Expense Recognition General Principles Capitalization versus Expensing Capitalization of Interest Costs Capitalization of Internal Development Costs Implications for Financial Analysts: Expense Recognition Non-Recurring Items Unusual or Infrequent Items Discontinued Operations Changes in Accounting Policy Changes in Scope and Exchange Rates Earnings per Share Simple versus Complex Capital Structure Basic EPS Diluted EPS: The If-Converted Method Diluted EPS When a Company Has Convertible Preferred Stock Outstanding Diluted EPS When a Company Has Convertible Debt Outstanding Diluted EPS: The Treasury Stock Method Other Issues with Diluted EPS and Changes in EPS Changes in EPS Income Statement Ratios and Common-Size Analysis Common-Size Analysis of the Income Statement Income Statement Ratios Practice Problems Solutions Learning Module 3 Analyzing Balance Sheets Introduction Intangible Assets Identifiable Intangibles Goodwill Financial Instruments Non-Current Liabilities Long-Term Financial Liabilities Deferred Tax Liabilities Ratios and Common-Size Analysis Common-Size Analysis of the Balance Sheet Some interesting general observations can be made from these data: Balance Sheet Ratios Practice Problems Solutions Learning Module 4 Analyzing Statements of Cash Flows I Introduction Linkages between the Financial Statements Primary Financial Statements Relationship between Financial Statements Linkages Between Current Assets and Current Liabilities The Direct Method for Cash Flows from Operating Activities Operating Activities: Direct Method The Indirect Method for Cash Flows from Operating Activities Operating Activities: Indirect Method Conversion from the Indirect to Direct Method Method to Convert Cash Flow from Indirect to Direct Cash Flows from Investing Activities Cash Flows from Investing Activities Cash Flows from Financing Activities Cash Flow from Financing activities: Long-Term Debt and Common Stock Computing Dividends Paid Differences in Cash Flow Statements Prepared under US GAAP versus IFRS Practice Problems Solutions Learning Module 5 Analyzing Statements of Cash Flows II Introduction Evaluating Sources and Uses of Cash Ratios and Common-Size Analysis Free Cash Flow Measures Cash Flow Statement Analysis: Cash Flow Ratios Practice Problems Solutions Learning Module 6 Analysis of Inventories Introduction Inventory Valuation The Effects of Inflation and Deflation on Inventories, Costs of Sales, and Gross Margin Presentation and Disclosure Presentation and Disclosure Inventory Ratios Practice Problems Solutions Learning Module 7 Analysis of Long-Term Assets Introduction Acquisition of Intangible Assets Intangible Assets Purchased in Situations Other Than Business Combinations Intangible Assets Developed Internally Intangible Assets Acquired in a Business Combination Impairment and Derecognition of Assets Impairment of Property, Plant, and Equipment Impairment of Intangible Assets with a Finite Life Impairment of Intangibles with Indefinite Lives Impairment of Long-Lived Assets Held for Sale Reversals of Impairments of Long-Lived Assets Derecognition Presentation and Disclosure Using Disclosures in Analysis Practice Problems Solutions Learning Module 8 Topics in Long-Term Liabilities and Equity Introduction Leases Requirements for Lease Accounting Examples of Leases Advantages of Leasing Lease Classification as Finance or Operating Financial Reporting of Leases Lessee Accounting—IFRS Lessee Accounting—US GAAP Lessor Accounting Financial Reporting for Postemployment and Share-Based Compensation Plans Employee Compensation Deferred Compensation Defined-Benefit Pension Plans Accounting for Defined-Benefit Plans under IFRS Accounting for Defined-Benefit Plan under US GAAP Pension-Related Disclosures Share-Based Compensation Stock Grants Stock Options Accounting for Stock Options Other Types of Share-Based Compensation Presentation and Disclosure Presentation and Disclosure of Leases Lessee Disclosure Lessor Disclosure Presentation and Disclosure of Postemployment Plans Presentation and Disclosure of Share-Based Compensation Practice Problems Solutions Glossary