| |
| |
| Preface | |
| |
| |
| |
| Fundamental Concepts | |
| |
| |
| |
| An Overview of Financial Management | |
| |
| |
| About Using the Text | |
| |
| |
| Beginning-of-Chapter Questions | |
| |
| |
| The Basic Goal: Creating Stockholder Value | |
| |
| |
| Agency Relationships | |
| |
| |
| Transparency in Financial Reporting | |
| |
| |
| Market Interest Rates | |
| |
| |
| A Preview of What's Ahead | |
| |
| |
| ThomsonNOW Resources | |
| |
| |
| Summary | |
| |
| |
| |
| Risk and Return: Part I | |
| |
| |
| Beginning-of-Chapter Questions | |
| |
| |
| Investment Returns | |
| |
| |
| Box: Corporate Valuation and Risk | |
| |
| |
| Stand-Alone Risk | |
| |
| |
| Box: The Trade-Off between Risk and Return | |
| |
| |
| Risk in a Portfolio Context | |
| |
| |
| Box: The Benefits of Diversifying Overseas | |
| |
| |
| Calculating Beta Coefficients | |
| |
| |
| The Relationship between Risk and Rates of Return | |
| |
| |
| Some Concerns about Beta and the CAPM | |
| |
| |
| Summary | |
| |
| |
| |
| Risk and Return: Part II | |
| |
| |
| Beginning-of-Chapter Questions | |
| |
| |
| Measuring Portfolio Risk | |
| |
| |
| Box: Corporate Valuation and Risk | |
| |
| |
| Efficient Portfolios | |
| |
| |
| Choosing the Optimal Portfolio | |
| |
| |
| The Basic Assumptions of the Capital Asset Pricing Model | |
| |
| |
| The Capital Market Line and the Security Market Line | |
| |
| |
| Calculating Beta Coefficients | |
| |
| |
| Empirical Tests of the CAPM | |
| |
| |
| Arbitrage Pricing Theory | |
| |
| |
| The Fama-French Three-Factor Model | |
| |
| |
| An Alternative Theory of Risk and Return: Behavioral Finance | |
| |
| |
| Summary | |
| |
| |
| |
| Bond Valuation | |
| |
| |
| Beginning-of-Chapter Questions | |
| |
| |
| Who Issues Bonds? | |
| |
| |
| Box: Corporate Valuation and Risk | |
| |
| |
| Key Characteristics of Bonds | |
| |
| |
| Bond Valuation | |
| |
| |
| Bond Yields | |
| |
| |
| Box: Drinking Your Coupons | |
| |
| |
| Bonds with Semiannual Coupons | |
| |
| |
| Assessing the Risk of a Bond | |
| |
| |
| Default Risk | |
| |
| |
| Bond Markets | |
| |
| |
| Summary | |
| |
| |
| |
| Basic Stock Valuation | |
| |
| |
| Beginning-of-Chapter Questions | |
| |
| |
| Legal Rights and Privileges of Common Stockholders | |
| |
| |
| Box: Corporate Valuation and Stock Risk | |
| |
| |
| Types of Common Stock | |
| |
| |
| The Market for Common Stock | |
| |
| |
| Box: Rational Exuberance? | |
| |
| |
| Common Stock Valuation | |
| |
| |
| Constant Growth Stocks | |
| |
| |
| Expected Rate of Return on a Constant Growth Stock | |
| |
| |
| Valuing Stocks That Have a Nonconstant Growth Rate | |
| |
| |
| Stock Valuation by the Free Cash Flow Approach | |
| |
| |
| Market Multiple Analysis | |
| |
| |
| Stock Market Equilibrium | |
| |
| |
| Actual Stock Prices and Returns | |
| |
| |
| Preferred Stock | |
| |
| |
| Box: A Nation of Traders | |
| |
| |
| Summary | |
| |
| |
| |
| Financial Options | |
| |
| |
| Beginning-of-Chapter Questions | |
| |
| |
| Financial Options | |
| |
| |
| Box: Reporting Employee Stock Options | |
| |
| |
| Introduction to Option Pricing Models: The Binomial Approach | |
| |
| |
| The Black-Scholes Option Pricing Model (OPM) | |
| |
| |
| Box: Taxes and Stock Options | |
| |
| |
| The Valuation of Put Options | |
| |
| |
| Applications of Option Pricing in Corporate Finance | |
| |
| |
| Summary | |
| |
| |
| |
| Accounting for Financial Management | |
| |
| |
| Beginning-of-Chapter Questions | |
| |
| |
| Financial Statements and Reports | |
| |
| |
| Box: Corporate Valuation and Financial Statements | |
| |
| |
| The Balance Sheet | |
| |
| |
| The Income Statement | |
| |
| |
| Statement of Retained Earnings | |
| |
| |
| Net Cash Flow | |
| |
| |
| Box: Financial Analysis on the Internet | |
| |
| |
| Statement of Cash Flows | |
| |
| |
| Modifying Accounting Data for Managerial Decisions | |
| |
| |
| Box: Financial Bamboozling: How to Spot It | |
| |
| |
| MVA and EVA | |
| |
| |
| The Federal Income Tax System | |
| |
| |
| Summary | |
| |
| |
| |
| Analysis of Financial Statements | |
| |
| |
| Beginning-of-Chapter Questions | |
| |
| |
| Ratio Analysis | |
| |
| |
| Box: Corporate Valuation and Analysis of Financial Statements | |
| |
| |
| Liquidity Ratios | |
| |
| |
| Asset Management Ratios | |
| |
| |
| Debt Management Ratios | |
| |
| |
| Profitability Ratios | |
| |
| |
| Box: International Accounting Differences Create Headaches for Investors | |
| |
| |
| Market Value Ratios | |
| |
| |
| Trend Analysis, Common Size Analysis, and Percent Change Analysis | |
| |
| |
| Tying the Ratios Together: The Du Pont Equation | |
| |
| |
| Comparative Ratios and "Benchmarking" | |
| |
| |
| Uses and Limitations of Ratio Analysis | |
| |
| |
| Box: Ratio Analysis in the Internet Age | |
| |
| |
| Looking beyond the Numbers | |
| |
| |
| Summary | |
| |
| |
| |
| Corporate Valuation | |
| |
| |
| |
| Financial Planning and Forecasting Financial Statements | |
| |
| |
| Beginning-of-Chapter Questions | |
| |
| |
| Overview of Financial Planning | |
| |
| |
| Box: Corporate Valuation and Financial Planning | |
| |
| |
| Sales Forecast | |
| |
| |
| Financial Statement Forecasting: The Percent of Sales Method | |
| |
| |
| The AFN Formula | |
| |
| |
| Forecasting Financial Requirements When the Balance Sheet Ratios Are Subject to Change | |
| |
| |
| Summary | |
| |
| |
| |
| Determining the Cost of Capital | |
| |
| |
| Beginning-of-Chapter Questions | |
| |
| |
| The Weighted Average Cost of Capital | |
| |
| |
| Box: Corporate Valuation and the Cost of Capital | |
| |
| |
| Cost of Debt, r[subscript d] (1-T) | |
| |
| |
| Cost of Preferred Stock, r[subscript ps] | |
| |
| |
| Cost of Common Stock, r[subscript s] | |
| |
| |
| The CAPM Approach | |
| |
| |
| Dividend-Yield-Plus-Growth-Rate, or Discounted Cash Flow (DCF), Approach | |
| |
| |
| Bond-Yield-Plus-Risk-Premium Approach | |
| |
| |
| Comparison of the CAPM, DCF, and Bond-Yield-Plus-Risk-Premium Methods | |
| |
| |
| Composite, or Weighted Average, Cost of Capital, WACC | |
| |
| |
| Box: Global Variations in the Cost of Capital | |
| |
| |
| Factors That Affect the Weighted Average Cost of Capital | |
| |
| |
| Adjusting the Cost of Capital for Risk | |
| |
| |
| Techniques for Measuring Divisional Betas | |
| |
| |
| Estimating the Cost of Capital for Individual Projects | |
| |
| |
| Adjusting the Cost of Capital for Flotation Costs | |
| |
| |
| Some Problem Areas in Cost of Capital | |
| |
| |
| Four Mistakes to Avoid | |
| |
| |
| Summary | |
| |
| |
| |
| Corporate Value and Value-Based Management | |
| |
| |
| Beginning-of-Chapter Questions | |
| |
| |
| Overview of Corporate Valuation | |
| |
| |
| Box: Corporate Valuation: Putting the Pieces Together | |
| |
| |
| The Corporate Valuation Model | |
| |
| |
| Value-Based Management | |
| |
| |
| Corporate Governance and Shareholder Wealth | |
| |
| |
| Box: Value-Based Management in Practice | |
| |
| |
| Box: International Corporate Governance | |
| |
| |
| Summary | |
| |
| |
| |
| Project Valuation | |
| |
| |
| |
| Capital Budgeting: Decision Criteria | |
| |
| |
| Beginning-of-Chapter Questions | |
| |
| |
| Overview of Capital Budgeting | |
| |
| |
| Box: Corporate Valuation and Capital Budgeting | |
| |
| |
| Project Classifications | |
| |
| |
| Capital Budgeting Decision Rules | |
| |
| |
| Comparison of the NPV and IRR Methods | |
| |
| |
| Modified Internal Rate of Return (MIRR) | |
| |
| |
| Profitability Index | |
| |
| |
| Conclusions on Capital Budgeting Methods | |
| |
| |
| Business Practices | |
| |
| |
| The Post-Audit | |
| |
| |
| Box: How Does Industry Evaluate Projects? | |
| |
| |
| Special Applications of Cash Flow Evaluation | |
| |
| |
| The Optimal Capital Budget | |
| |
| |
| Summary | |
| |
| |
| |
| Capital Budgeting: Estimating Cash Flows and Analyzing Risk | |
| |
| |
| Beginning-of-Chapter Questions | |
| |
| |
| Estimating Cash Flows | |
| |
| |
| Box: Corporate Valuation, Cash Flows, and Risk Analysis | |
| |
| |
| Identifying the Relevant Cash Flows | |
| |
| |
| Tax Effects | |
| |
| |
| Evaluating Capital Budgeting Projects | |
| |
| |
| Adjusting for Inflation | |
| |
| |
| Project Risk Analysis: Techniques for Measuring Stand-Alone Risk | |
| |
| |
| Box: Capital Budgeting Practices in the Asia/Pacific Region | |
| |
| |
| Box: High-Tech CFOs | |
| |
| |
| Project Risk Conclusions | |
| |
| |
| Incorporating Project Risk into Capital Budgeting | |
| |
| |
| Managing Risk through Phased Decisions: Decision Trees | |
| |
| |
| Introduction to Real Options | |
| |
| |
| Summary | |
| |
| |
| |
| Real Options | |
| |
| |
| Beginning-of-Chapter Questions | |
| |
| |
| Valuing Real Options | |
| |
| |
| Box: Corporate Valuation and Real Options | |
| |
| |
| The Investment Timing Option: An Illustration | |
| |
| |
| The Growth Option: An Illustration | |
| |
| |
| Box: Growth Options at Dot-Com Companies | |
| |
| |
| Concluding Thoughts on Real Options | |
| |
| |
| Summary | |
| |
| |
| |
| Strategic Financing Decisions | |
| |
| |
| |
| Capital Structure Decisions: Part I | |
| |
| |
| Beginning-of-Chapter Questions | |
| |
| |
| A Preview of Capital Structure Issues | |
| |
| |
| Box: Corporate Valuation and the Cost of Capital | |
| |
| |
| Business and Financial Risk | |
| |
| |
| Capital Structure Theory | |
| |
| |
| Box: Yogi Berra on the MM Proposition | |
| |
| |
| Capital Structure Evidence and Implications | |
| |
| |
| Estimating the Optimal Capital Structure | |
| |
| |
| Box: Taking a Look at Global Capital Structures | |
| |
| |
| Summary | |
| |
| |
| |
| Capital Structure Decisions: Part II | |
| |
| |
| Beginning-of-Chapter Questions | |
| |
| |
| Capital Structure Theory: Arbitrage Proofs of the Modigliani-Miller Models | |
| |
| |
| Box: Corporate Valuation: Capital Structure Decisions | |
| |
| |
| Introducing Personal Taxes: The Miller Model | |
| |
| |
| Criticisms of the MM and Miller Models | |
| |
| |
| An Extension to the MM Model | |
| |
| |
| Risky Debt and Equity as an Option | |
| |
| |
| Capital Structure Theory: Our View | |
| |
| |
| Summary | |
| |
| |
| |
| Distributions to Shareholders: Dividends and Repurchases | |
| |
| |
| Beginning-of-Chapter Questions | |
| |
| |
| Box: Corporate Valuation and Distributions to Shareholders | |
| |
| |
| The Level of Distributions and Firm Value | |
| |
| |
| Box: Dividend Yields around the World | |
| |
| |
| Clientele Effect | |
| |
| |
| Information Content, or Signaling, Hypothesis | |
| |
| |
| Implications for Dividend Stability | |
| |
| |
| Setting the Target Distribution Level: The Residual Distribution Model | |
| |
| |
| Distributions in the Form of Dividends | |
| |
| |
| Distributions through Stock Repurchases | |
| |
| |
| Comparison of Dividends and Repurchases | |
| |
| |
| Other Factors Influencing Distributions | |
| |
| |
| Overview of the Distribution Policy Decision | |
| |
| |
| Stock Splits and Stock Dividends | |
| |
| |
| Dividend Reinvestment Plans | |
| |
| |
| Summary | |
| |
| |
| |
| Tactical Financing Decisions | |
| |
| |
| |
| Initial Public Offerings, Investment Banking, and Financial Restructuring | |
| |
| |
| Beginning-of-Chapter Questions | |
| |
| |
| The Financial Life Cycle of a Startup Company | |
| |
| |
| Box: Corporate Valuation, IPOs, and Financial Restructuring | |
| |
| |
| The Decision to Go Public: Initial Public Offerings | |
| |
| |
| The Process of Going Public | |
| |
| |
| Equity Carve-Outs: A Special Type of IPO | |
| |
| |
| Non-IPO Investment Banking Activities | |
| |
| |
| The Decision to Go Private | |
| |
| |
| Managing the Maturity Structure of Debt | |
| |
| |
| Refunding Operations | |
| |
| |
| Box: TVA Ratchets Down Its Interest Expenses | |
| |
| |
| Managing the Risk Structure of Debt | |
| |
| |
| Box: Bowie Bonds Ch-Ch-Change Asset Securitization | |
| |
| |
| Summary | |
| |
| |
| |
| Lease Financing | |
| |
| |
| Beginning-of-Chapter Questions | |
| |
| |
| The Two Parties to Leasing | |
| |
| |
| Types of Leases | |
| |
| |
| Box: Corporate Valuation and Lease Financing | |
| |
| |
| Tax Effects | |
| |
| |
| Financial Statement Effects | |
| |
| |
| Evaluation by the Lessee | |
| |
| |
| Evaluation by the Lessor | |
| |
| |
| Other Issues in Lease Analysis | |
| |
| |
| Box: Lease Securitization | |
| |
| |
| Other Reasons for Leasing | |
| |
| |
| Summary | |
| |
| |
| |
| Hybrid Financing: Preferred Stock, Warrants, and Convertibles | |
| |
| |
| Beginning-of-Chapter Questions | |
| |
| |
| Preferred Stock | |
| |
| |
| Box: Corporate Valuation and Hybrid Financing | |
| |
| |
| Box: Where's the Dividend? | |
| |
| |
| Box: MIPS, QUIPS, TOPrS, and QUIDS: A Tale of Two Perspectives | |
| |
| |
| Warrants | |
| |
| |
| Convertibles | |
| |
| |
| A Final Comparison of Warrants and Convertibles | |
| |
| |
| Reporting Earnings When Warrants or Convertibles Are Outstanding | |
| |
| |
| Summary | |
| |
| |
| |
| Working Capital Management | |
| |
| |
| |
| Working Capital Management | |
| |
| |
| Beginning-of-Chapter Questions | |
| |
| |
| The Cash Conversion Cycle | |
| |
| |
| Box: Corporate Valuation and Working Capital Management | |
| |
| |
| Alternative Net Operating Working Capital Policies | |
| |
| |
| Cash Management | |
| |
| |
| Box: The Best at Managing Working Capital | |
| |
| |
| The Cash Budget | |
| |
| |
| Box: The Great Debate: How Much Cash Is Enough? | |
| |
| |
| Cash Management Techniques | |
| |
| |
| Inventory | |
| |
| |
| Receivables Management | |
| |
| |
| Box: Supply Chain Management | |
| |
| |
| Accruals and Accounts Payable (Trade Credit) | |
| |
| |
| Alternative Short-Term Financing Policies | |
| |
| |
| Short-Term Investments: Marketable Securities | |
| |
| |
| Short-Term Financing | |
| |
| |
| Short-Term Bank Loans | |
| |
| |
| Commercial Paper | |
| |
| |
| Use of Security in Short-Term Financing | |
| |
| |
| Summary | |
| |
| |
| |
| Providing and Obtaining Credit | |
| |
| |
| Beginning-of-Chapter Questions | |
| |
| |
| Credit Policy | |
| |
| |
| Box: Corporate Valuation and Credit Policy | |
| |
| |
| Setting the Credit Period and Standards | |
| |
| |
| Setting the Collection Policy | |
| |
| |
| Cash Discounts | |
| |
| |
| Other Factors Influencing Credit Policy | |
| |
| |
| The Payments Pattern Approach to Monitoring Receivables | |
| |
| |
| Analyzing Proposed Changes in Credit Policy | |
| |
| |
| Analyzing Proposed Changes in Credit Policy: Incremental Analysis | |
| |
| |
| The Cost of Bank Loans | |
| |
| |
| Choosing a Bank | |
| |
| |
| Summary | |
| |
| |
| |
| Other Topics in Working Capital Management | |
| |
| |
| Beginning-of-Chapter Questions | |
| |
| |
| The Concept of Zero Working Capital | |
| |
| |
| Box: Corporate Valuation and Working Capital Management | |
| |
| |
| Setting the Target Cash Balance | |
| |
| |
| Inventory Control Systems | |
| |
| |
| Accounting for Inventory | |
| |
| |
| The Economic Ordering Quantity (EOQ) Model | |
| |
| |
| EOQ Model Extensions | |
| |
| |
| Summary | |
| |
| |
| |
| Special Topics | |
| |
| |
| |
| Derivatives and Risk Management | |
| |
| |
| Beginning-of-Chapter Questions | |
| |
| |
| Reasons to Manage Risk | |
| |
| |
| Box: Corporate Valuation and Risk Management | |
| |
| |
| Background on Derivative | |
| |
| |
| Derivatives in the News | |
| |
| |
| Other Types of Derivatives | |
| |
| |
| Risk Management | |
| |
| |
| Fundamentals of Risk Management | |
| |
| |
| Box: Microsoft's Goal: Manage Every Risk! | |
| |
| |
| Using Derivatives to Reduce Risks | |
| |
| |
| Box: Risk Management in the Cyber Economy | |
| |
| |
| Summary | |
| |
| |
| |
| Bankruptcy, Reorganization, and Liquidation | |
| |
| |
| Beginning-of-Chapter Questions | |
| |
| |
| Financial Distress and Its Consequences | |
| |
| |
| Box: Corporate Valuation and Bankruptcy | |
| |
| |
| Issues Facing a Firm in Financial Distress | |
| |
| |
| Settlements without Going through Formal Bankruptcy | |
| |
| |
| Federal Bankruptcy Law | |
| |
| |
| Reorganization in Bankruptcy | |
| |
| |
| Liquidation in Bankruptcy | |
| |
| |
| Other Motivations for Bankruptcy | |
| |
| |
| Some Criticisms of Bankruptcy Laws | |
| |
| |
| Other Topics in Bankruptcy | |
| |
| |
| Summary | |
| |
| |
| |
| Mergers, LBOs, Divestitures, and Holding Companies | |
| |
| |
| Beginning-of-Chapter Questions | |
| |
| |
| Box: Corporate Valuation and Mergers | |
| |
| |
| Rationale for Mergers | |
| |
| |
| Types of Mergers | |
| |
| |
| Level of Merger Activity | |
| |
| |
| Hostile versus Friendly Takeovers | |
| |
| |
| Merger Regulation | |
| |
| |
| Overview of Merger Analysis | |
| |
| |
| The Adjusted Present Value (APV) Approach | |
| |
| |
| The Free Cash Flow to Equity (FCFE) Approach | |
| |
| |
| Illustration of the Three Valuation Approaches | |
| |
| |
| Setting the Bid Price | |
| |
| |
| Analysis When There Is a Permanent Change in Capital Structure | |
| |
| |
| Taxes and the Structure of the Takeover Bid | |
| |
| |
| Box: Tempest in a Teapot? | |
| |
| |
| Financial Reporting for Mergers | |
| |
| |
| Analysis for a "True Consolidation" | |
| |
| |
| The Role of Investment Bankers | |
| |
| |
| Who Wins: The Empirical Evidence | |
| |
| |
| Corporate Alliances | |
| |
| |
| Leveraged Buyouts | |
| |
| |
| Divestitures | |
| |
| |
| Holding Companies | |
| |
| |
| Summary | |
| |
| |
| |
| Multinational Financial Management | |
| |
| |
| Beginning-of-Chapter Questions | |
| |
| |
| Multinational, or Global, Corporations | |
| |
| |
| Box: Corporate Valuation and Multinational Firms | |
| |
| |
| Box: The Euro: What You Need to Know | |
| |
| |
| Multinational versus Domestic Financial Management | |
| |
| |
| Exchange Rates | |
| |
| |
| The International Monetary System | |
| |
| |
| Trading in Foreign Exchange | |
| |
| |
| Interest Rate Parity | |
| |
| |
| Box: Hungry for a Big Mac? Go to the Philippines! | |
| |
| |
| Purchasing Power Parity | |
| |
| |
| Inflation, Interest Rates, and Exchange Rates | |
| |
| |
| International Money and Capital Markets | |
| |
| |
| Multinational Capital Budgeting | |
| |
| |
| Box: Stock Market Indices around the World | |
| |
| |
| International Capital Structures | |
| |
| |
| Multinational Working Capital Management | |
| |
| |
| Summary | |
| |
| |
| Appendixes | |
| |
| |
| |
| Mathematical Table | |
| |
| |
| |
| Answers to End-of-Chapter Problems | |
| |
| |
| |
| Selected Equations and Data | |
| |
| |
| Glossary | |
| |
| |
| Name Index | |
| |
| |
| Subject Index | |
| |
| |
| Web Chapters | |
| |
| |
| |
| Time Value of Money | |
| |
| |
| |
| Basic Financial Tools: A Review | |
| |
| |
| |
| Pension Plan Management | |
| |
| |
| |
| Financial Management in Not-for-Profit Businesses | |
| |
| |
| Web Extensions | |
| |
| |
| |
| Continuous Distributions and Estimating Beta with a Calculator | |
| |
| |
| |
| Bond Risk, Duration, and Zero Coupon Bonds | |
| |
| |
| |
| Derivation of Valuation Equations | |
| |
| |
| |
| The Binomial Approach | |
| |
| |
| |
| Individual Taxes | |
| |
| |
| |
| Financing Feedbacks and Alternative Forecasting Techniques | |
| |
| |
| |
| Estimation Issues: Growth Rates and the Nonconstant Growth Model | |
| |
| |
| |
| The ARR Method, the EAA Approach, and the Marginal WACC | |
| |
| |
| |
| Replacement Project Analysis | |
| |
| |
| |
| Abandonment Options and Risk-Neutral Valuation | |
| |
| |
| |
| Degree of Leverage | |
| |
| |
| |
| Rights Offerings | |
| |
| |
| |
| Percentage Cost Analysis, Leasing Feedback, and Leveraged Leases | |
| |
| |
| |
| Calling Convertible Issues | |
| |
| |
| |
| Secured Short-Term Financing | |
| |
| |
| |
| Risk Management with Insurance and Bond Portfolio Immunization | |
| |
| |
| |
| Case Histories and Multiple Discriminant Analysis | |
| |
| |
| |
| Comparison of Alternative Valuation Models | |