| |
| |
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 | |