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Solutions to Lectures on Corporate Finance, Second Edition

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Solutions to Lectures on Corporate Finance, Second Edition
Solutions to Lectures on Corporate Finance, Second Edition
Peter Bossaerts and Bernt Arne Ødegaard 2006

LECTURES ON CORPORATE FINANCE - (Second Edition) © World Scientific Publishing Co. Pte. Ltd. http://www.worldscibooks.com/economics/6188.html

Contents
1 Finance 2 Axioms of modern corporate finance 3 On Value Additivity 4 On the Efficient Markets Hypothesis 5 Present Value 6 Capital Budgeting 7 Valuation Under Uncertainty: The CAPM 8 Valuing Risky Cash Flows 9 Introduction to derivatives. 10 Pricing Derivatives 11 Pricing of Multiperiod, Risky Investments 12 Where To Get State Price Probabilities? 13 Warrants 14 The Dynamic Hedge Argument 15 Multiple Periods in the Binomial Option Pricing Model 16 An Application: Pricing Corporate Bonds 17 Are capital structure decisions relevant? 18 Maybe capital structure affects firm value after all? 19 Valuation Of Projects Financed Partly With Debt 20 And What About Dividends? 21 Risk And Incentive Management 1 2 3 4 6 14 21 25 28 34 36 39 40 42 49 55 60 64 68 70 73

LECTURES ON CORPORATE FINANCE - (Second Edition) © World Scientific Publishing Co. Pte. Ltd. http://www.worldscibooks.com/economics/6188.html

Finance

1

Chapter 1

Finance

LECTURES ON CORPORATE FINANCE - (Second Edition) © World Scientific Publishing Co. Pte. Ltd. http://www.worldscibooks.com/economics/6188.html

2

Axioms of modern corporate finance

Chapter 2

Axioms of modern corporate finance

LECTURES ON CORPORATE FINANCE - (Second Edition) © World Scientific Publishing Co. Pte. Ltd. http://www.worldscibooks.com/economics/6188.html

On Value Additivity

3

Chapter 3

On Value Additivity
Problems
3.1 Ketchup [2] As an empirical investigation, check your local supermarket. Does 2 ketchup bottles of 0.5 litres cost the same as one ketchup bottle of 1 liter? What does this tell you about value additivity in financial markets? 3.2 Milk [2] Why is skimmed milk always cheaper than regular milk even if it is healthier?
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