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| Corporate Governance | |
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| Learning Outcomes | |
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| Introduction | |
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| Corporate Governance: Objectives and Guiding Principles | |
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| Forms of Business and Conflicts of Interest | |
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| Sole Proprietorships | |
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| Partnerships | |
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| Corporations | |
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| Specific Sources of Conflict: Agency Relationships | |
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| Manager-Shareholder Conflicts | |
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| Director-Shareholder Conflicts | |
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| Corporate Governance Evaluation | |
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| The Board of Directors | |
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| Examples of Codes of Corporate Governance | |
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| Environmental, Social, and Governance Factors | |
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| Valuation Implications of Corporate Governance | |
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| Summary | |
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| Problems | |
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| Capital Budgeting | |
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| Learning Outcomes | |
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| Introduction | |
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| The Capital Budgeting Process | |
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| Basic Principles of Capital Budgeting | |
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| Investment Decision Criteria | |
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| Net Present Value | |
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| Internal Rate of Return | |
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| Payback Period | |
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| Discounted Payback Period | |
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| Average Accounting Rate of Return | |
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| Profitability Index | |
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| NPV Profile | |
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| Ranking Conflicts between NPV and IRR | |
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| The Multiple IRR Problem and the No IRR Problem | |
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| Popularity and Usage of the Capital Budgeting Methods | |
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| Cash Flow Projections | |
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| Table Format with Cash Flows Collected by Year | |
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| Table Format with Cash Flows Collected by Type | |
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| Equation Format for Organizing Cash Flows | |
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| More on Cash Flow Projections | |
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| Straight-Line and Accelerated Depreciation Methods | |
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| Cash Flows for a Replacement Project | |
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| Spreadsheet Modeling | |
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| Effects of Inflation on Capital Budgeting Analysis | |
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| Project Analysis and Evaluation | |
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| Mutually Exclusive Projects with Unequal Lives | |
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| Capital Rationing | |
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| Risk Analysis of Capital Investments-Standalone Methods | |
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| Risk Analysis of Capital Investments-Market Risk Methods | |
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| Real Options | |
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| Common Capital Budgeting Pitfalls | |
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| Other Income Measures and Valuation Models | |
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| The Basic Capital Budgeting Model | |
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| Economic and Accounting Income | |
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| Economic Profit, Residual Income, and Claims Valuation | |
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| Summary | |
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| Problems | |
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| Cost of Capital | |
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| Learning Outcomes | |
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| Introduction | |
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| Cost of Capital | |
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| Taxes and the Cost of Capital | |
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| Weights of the Weighted Average | |
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| Applying the Cost of Capital to Capital Budgeting and Security Valuation | |
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| Costs of the Different Sources of Capital | |
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| Cost of Debt | |
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| Cost of Preferred Stock | |
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| Cost of Common Equity | |
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| Topics in Cost of Capital Estimation | |
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| Estimating Beta and Determining a Project Beta | |
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| Country Risk | |
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| Marginal Cost of Capital Schedule | |
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| Flotation Costs | |
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| What Do CFOs Do? | |
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| Summary 160 Problems | |
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| Measures of Leverage | |
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| Learning Outcomes | |
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| Introduction | |
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| Leverage | |
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| Business Risk and Financial Risk | |
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| Business Risk and Its Components | |
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| Sales Risk | |
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| Operating Risk | |
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| Financial Risk | |
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| Total Leverage | |
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| Breakeven Points and Operating Breakeven Points | |
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| The Risks of Creditors and Owners | |
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| Summary | |
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| Problems | |
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| Capital Structure | |
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| Learning Outcomes | |
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| Introduction | |
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| The Capital Structure Decision | |
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| Proposition I without Taxes: Capital Structure Irrelevance | |
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| Proposition II without Taxes: Higher Financial Leverage Raises the Cost of Equity | |
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| Taxes, the Cost of Capital, and the Value of the Company | |
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| Costs of Financial Distress | |
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| Agency Costs | |
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| Costs of Asymmetric Information | |
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| The Optimal Capital Structure According to the Static Trade-Off Theory | |
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| Practical Issues in Capital Structure Policy | |
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| Debt Ratings | |
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| Evaluating Capital Structure Policy | |
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| Leverage in an International Setting | |
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| Summary | |
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| Problems | |
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| Dividends and Share Repurchases: Basics | |
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| Learning Outcomes | |
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| Introduction | |
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| Dividends: Forms | |
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| Regular Cash Dividends | |
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| Extra or Special (Irregular) Dividends | |
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| Liquidating Dividends | |
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| Stock Dividends | |
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| Stock Splits | |
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| Dividends: Payment Chronology | |
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| Declaration Date | |
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| Ex-Dividend Date | |
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| Holder-of-Record Date | |
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| Payment Date | |
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| Interval between Key Dates in the Dividend Payment Chronology | |
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| Share Repurchases | |
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| Share Repurchase Methods | |
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| Financial Statement Effects of Repurchases | |
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| Valuation Equivalence of Cash Dividends and Share Repurchases: The Baseline | |
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| Concluding Remarks | |
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| Summary | |
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| Problems | |
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| Dividends and Share Repurchases: Analysis | |
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| Learning Outcomes | |
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| Introduction | |
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| Dividend Policy and Company Value: Theory | |
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| Dividend Policy Does Not Matter | |
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| Dividend Policy Matters: The Bird-in-the-Hand Argument | |
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| Dividend Policy Matters: The Tax Argument | |
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| Other Theoretical Issues | |
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| Dividend Theory: Summary | |
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| Factors Affecting Dividend Policy | |
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| Investment Opportunities | |
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| The Expected Volatility of Future Earnings | |
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| Financial Flexibility | |
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| Tax Considerations | |
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| Flotation Costs | |
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| Contractual and Legal Restrictions | |
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| Factors Affecting Dividend Policy: Summary | |
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| Payout Policies | |
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| Types of Dividend Policies | |
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| The Dividend versus Share Repurchase Decision | |
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| Global Trends in Payout Policy | |
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| Analysis of Dividend Safety | |
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| Summary | |
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| Problems | |
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| Working Capital Management | |
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| Learning Outcomes | |
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| Introduction | |
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| Managing and Measuring Liquidity | |
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| Defining Liquidity Management | |
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| Measuring Liquidity | |
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| Managing the Cash Position | |
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| Forecasting Short-Term Cash Flows | |
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| Monitoring Cash Uses and Levels | |
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| Investing Short-Term Funds | |
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| Short-Term Investment Instruments | |
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| Strategies | |
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| Evaluating Short-Term Funds Management | |
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| Managing Accounts Receivable | |
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| Key Elements of the Trade Credit Granting Process | |
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| Managing Customers' Receipts | |
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| Evaluating Accounts Receivable Management | |
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| Managing Inventory | |
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| Approaches to Managing Levels of Inventory | |
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| Inventory Costs | |
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| Evaluating Inventory Management | |
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| Managing Accounts Payable | |
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| The Economics of Taking a Trade Discount | |
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| Managing Cash Disbursements | |
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| Evaluating Accounts Payable Management | |
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| Managing Short-Term Financing | |
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| Sources of Short-Term Financing | |
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| Short-Term Borrowing Approaches | |
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| Asset-Based Loans | |
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| Computing the Costs of Borrowing | |
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| Summary | |
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| Problems | |
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| Financial Statement Analysis | |
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| Learning Outcomes | |
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| Introduction | |
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| Common-Size Analysis | |
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| Vertical Common-Size Analysis | |
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| Horizontal Common-Size Analysis | |
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| Financial Ratio Analysis | |
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| Activity Ratios | |
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| Liquidity Analysis | |
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| Solvency Analysis | |
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| Profitability Analysis | |
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| Other Ratios | |
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| Effective Use of Ratio Analysis | |
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| Pro Forma Analysis | |
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| Estimating the Sales-Driven Relations | |
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| Estimating the Fixed Burdens | |
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| Forecasting Revenues | |
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| Constructing Pro Forma Statements | |
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| Summary | |
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| Problems | |
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| Mergers and Acquisitions | |
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| Learning Outcomes | |
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| Introduction | |
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| Mergers and Acquisitions: Definitions and Classifications | |
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| Motives for Merger | |
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| Synergy | |
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| Growth | |
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| Increasing Market Power | |
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| Acquiring Unique Capabilities and Resources | |
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| Diversification | |
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| Bootstrapping Earnings | |
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| Managers' Personal Incentives | |
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| Tax Considerations | |
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| Unlocking Hidden Value | |
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| Cross-Border Motivations | |
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| Transaction Characteristics | |
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| Form of Acquisition | |
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| Method of Payment | |
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| Mind-Set of Target Management | |
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| Takeovers | |
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| Pre-Offer Takeover Defense Mechanisms | |
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| Post-Offer Takeover Defense Mechanisms | |
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| Regulation | |
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| Antitrust | |
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| Securities Laws | |
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| Merger Analysis | |
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| Target Company Valuation | |
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| Bid Evaluation | |
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| Who Benefits from Mergers? | |
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| Corporate Restructuring | |
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| Summary | |
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| Problems | |
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| Glossary | |
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| References | |
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| About the Authors | |
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| About the CFA Program | |
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| Index | |