Foundations of Finance: Logic and Practice of Financial Management and MyFinanceLab Student Access Code Package

by Keown, Arthur J.; Martin, John H.; Petty, John W.; Scott, David F

• ISBN13: 9780131856059
• ISBN10: 0131856057
• Edition: 5th
• Format: Package
• Copyright: 2008-01-01
• Publisher: Pearson College Div

Summary

KEY BENEFIT: Keown allows readers to see the big picture by letting them understand the logic that drives finance rather than memorizing formulas. Very user friendly, the basic pedagogical approach to the presentation of new tools and techniques is "say it" then "illustrate it with an example" and reinforce with lots of "real world examples".As well as including strong international coverage some key topics are: Financial Markets and Interest Rates; Understanding Financial Statements and Cash Flows; Time Value of Money; Risk and Return; Bond and Stock Valuation; Capital-Budgeting Techniques and Practice; Cash Flows and Other Topics in Capital Budgeting; and Current Asset Management.For an enduring understanding of the basic tools and fundamental principles upon which finance is based.

Table of Contents

About the Authors	vi
Preface	xxi
PART: 1 THE SCOPE AND ENVIRONMENT OF FINANCIAL MANAGEMENT	2	(132)
An Introduction to the Foundations of Financial Management---The Ties That Bind	5	(26)
Goal of the Firm	6	(1)
Legal Forms of Business Organization	7	(3)
An Entrepreneur's Perspective: Limited Liability and the Entrepreneur	10	(13)
Federal Income Taxation	11	(5)
Ten Principles That Form the Foundations of Financial Management	16	(1)
Principle 1: The Risk--Return Trade-Off---We Won't Take On Additional Risk Unless We Expect to Be Compensated with Additional Return	16	(1)
Principle 2: The Time Value of Money---A Dollar Received Today Is Worth More Than a Dollar Received in the Future	17	(1)
Principle 3: Cash---Not Profits---Is King	17	(1)
Principle 4: Incremental Cash Flows---It's Only What Changes That Counts	17	(1)
Principle 5: The Curse of Competitive Markets---Why It's Hard to Find Exceptionally Profitable Projects	18	(1)
Principle 6: Efficient Capital Markets---The Markets Are Quick and the Prices Are Right	19	(1)
Principle 7: The Agency Problem---Managers Won't Work for the Owners Unless It's in Their Best Interest	20	(1)
Principle 8: Taxes Bias Business Decisions	20	(1)
Principle 9: All Risk Is Not Equal---Some Risk Can Be Diversified Away, and Some Cannot	21	(1)
Principle 10: Ethical Behavior Is Doing the Right Thing, and Ethical Dilemmas Are Everywhere in Finance	22	(1)
Ethics in Financial Management: The Enron Lessons: Trust	23	(1)
An Entrepreneur's Perspective: The Entrepreneur and Finance	24	(7)
Finance and the Multinational Firm: The New Role	24	(1)
Summary	25	(1)
Key Terms	26	(1)
Study Questions	26	(1)
Self-Test Problem	27	(1)
Study Problems	27	(1)
Comprehensive Problem	28	(1)
Self-Test Solution	29	(2)
The Financial Markets and Interest Rates	31	(42)
The Financial Manager, Internal and External Funds, and Flexibility	34	(2)
The Mix of Corporate Securities Sold in the Capital Market	36	(1)
Why Financial Markets Exist	37	(2)
Financing of Business: The Movement of Funds Through the Economy	39	(2)
Components of the U.S. Financial Market System	41	(4)
The Investment Banker	45	(3)
Across the Hall: Management and Selection Criteria for an Investment Banker	48	(11)
Private Placements	48	(2)
Flotation Costs	50	(1)
Regulation	50	(5)
Rates of Return in the Financial Markets	55	(1)
Interest Rate Levels over Recent Periods	56	(3)
Across the Hall: Economics---Commercial Banking and the Importance of Interest Rates	59	(14)
Interest Rate Determinants in a Nutshell	60	(3)
The Term Structure of Interest Rates	63	(4)
Finance and the Multinational Firm: Efficient Financial Markets and Intercountry Risk	67	(1)
Summary	67	(2)
Key Terms	69	(1)
Study Questions	69	(1)
Study Problems	70	(1)
Web Works	70	(1)
Comprehensive Problems	71	(2)
Understanding Financial Statements and Cash Flows	73	(28)
Income Statement	74	(2)
Financial Management in Practice: Starbucks Corporation: A Firm on the Go	76	(2)
Balance Sheet	77	(1)
Across the Hall: Want to Start a New Business? Better Know Your Numbers	78	(3)
Financial Management in Practice: Being Profitable Is Vital: Just Ask Ford Motor Company	81	(5)
Measuring Cash Flows	82	(4)
Financial Management in Practice: Profits and Cash Matter: The FedEx Dilemma	86	(1)
Financial Management in Practice: Measuring Free Cash Flows: The Tyco International Way	87	(1)
Ethics in Financial Management: Financial Scandals: European Style	88	(13)
Summary	89	(1)
Key Terms	90	(1)
Study Questions	91	(1)
Self-Test Problem	91	(1)
Study Problems	92	(4)
Web Works	96	(1)
Comprehensive Problem	97	(2)
Self-Test Solution	99	(2)
Evaluating a Firm's Financial Performance	101	(33)
The Purpose of Financial Analysis	102	(2)
Financial Management in Practice: Only with Financial Analysis Can We Know How We Are Doing	104	(7)
Measuring Key Financial Relationships	105	(6)
Financial Management in Practice: Keeping Your Eyes on the Numbers	111	(2)
Financial Management in Practice: Managing by the Numbers	113	(9)
Financial Management in Practice: Economic Value Added Used to Measure a Firm's Financial Performance	122	(12)
Limitations of Financial Ratio Analysis	122	(1)
Summary	123	(1)
Key Terms	124	(1)
Study Questions	125	(1)
Self-Test Problems	125	(1)
Study Problems	126	(5)
Web Works	131	(1)
Comprehensive Problem	131	(1)
Self-Test Solutions	132	(2)
PART: 2 VALUATION OF FINANCIAL ASSETS	134	(122)
The Time Value of Money	137	(36)
Compound Interest and Future Value	138	(2)
Tables, Calculators, and Spreadsheets---Three Alternatives to Solving Time Value of Money Problems	140	(5)
Present Value	145	(4)
Annuities	149	(5)
Annuities Due	154	(4)
Compound Interest with Nonannual Periods	158	(2)
Present Value of an Uneven Stream	160	(1)
Perpetuities	161	(1)
The Multinational Firm: The Time Value of Money	161	(1)
Summary	162	(1)
Key Terms	163	(1)
Study Questions	163	(1)
Self-Test Problems	163	(1)
Study Problems	163	(6)
Web Works	169	(1)
Comprehensive Problem	170	(1)
Self-Test Solutions	171	(2)
The Meaning and Measurement of Risk and Return	173	(32)
Expected Return Defined and Measured	174	(1)
Risk Defined and Measured	175	(3)
Financial Management in Practice: Want Big and Risky Returns: Think Small	178	(7)
Rates of Return: The Investor's Experience	179	(2)
Risk and Diversification	181	(4)
Across the Hall: Bankers Have to Diversify Too	185	(6)
Financial Management in Practice: Do Stocks Always Give Higher Returns Than Bonds?	191	(3)
The Investor's Required Rate of Return	192	(2)
Financial Management in Practice: Does Beta Always Work?	194	(11)
Summary	195	(1)
Key Terms	196	(1)
Study Questions	196	(1)
Self-Test Problems	197	(1)
Study Problems	198	(2)
Web Works	200	(1)
Comprehensive Problem	200	(2)
Self-Test Solutions	202	(3)
Valuation and Characteristics of Bonds	205	(26)
Types of Bonds	206	(2)
Terminology and Characteristics of Bonds	208	(3)
Financial Management in Practice: Co-Cos: A Good Deal for Whom?	211	(3)
Definitions of Value	211	(1)
Determinants of Value	212	(2)
Financial Management in Practice: Ethics: Keeping Perspective	214	(5)
Valuation: The Basic Process	214	(1)
Bond Valuation	215	(3)
Yield to Maturity	218	(1)
Financial Management in Practice: AT&T Bond Prices Fall Thanks to WorldCom	219	(12)
Bond Valuation: Three Important Relationships	220	(4)
Summary	224	(1)
Key Terms	225	(1)
Study Questions	225	(1)
Self-Test Problems	225	(1)
Study Problems	225	(2)
Web Works	227	(1)
Comprehensive Problem	227	(1)
Self-Test Solutions	228	(3)
Valuation and Characteristics of Stock	231	(25)
Preferred Stock	232	(2)
Financial Management in Practice: Reading a Stock Quote in the Wall Street Journal	234	(4)
Common Stock	236	(2)
Financial Management in Practice: What Does a Stock Look Like?	238	(1)
Financial Management in Practice: What Do You Tell Your Shareholders?	239	(17)
The Stockholder's Expected Rate of Return	247	(4)
Summary	251	(1)
Key Terms	252	(1)
Study Questions	252	(1)
Self-Test Problems	252	(1)
Study Problems	253	(1)
Web Works	254	(1)
Comprehensive Problem	255	(1)
Self-Test Solutions	255	(1)
PART 3: INVESTMENT IN LONG-TERM ASSETS	256	(108)
Capital-Budgeting Techniques and Practice	259	(36)
Finding Profitable Projects	260	(1)
Capital-Budgeting Decision Criteria	261	(2)
Financial Management in Practice: Finding Profitable Projects in Competitive Markets---Creating Them by Developing a Cost Advantage	263	(3)
Across the Hall: Marketing	266	(16)
Capital Rationing	276	(2)
Problems in Project Ranking: Capital Rationing, Mutually Exclusive Projects, and Problems with the IRR	278	(4)
Ethics in Financial Management: The Financial Downside to Poor Ethical Behavior	282	(13)
Ethics in Capital Budgeting	282	(1)
A Glance at Actual Capital-Budgeting Practices	283	(1)
Finance and the Multinational Firm: Capital Budgeting	284	(1)
Summary	284	(2)
Key Terms	286	(1)
Study Questions	286	(1)
Self-Test Problem	287	(1)
Study Problems	287	(4)
Web Works	291	(1)
Comprehensive Problem	291	(2)
Self-Test Solution	293	(2)
Cash Flows and Other Topics in Capital Budgeting	295	(34)
Guidelines for Capital Budgeting	296	(3)
Financial Management in Practice: Universal Studios	299	(7)
An Overview of the Calculations of a Project's Free Cash Flows	299	(7)
Across the Hall: ... Marketing	306	(23)
Options in Capital Budgeting	308	(2)
Risk and the Investment Decision	310	(3)
Incorporating Risk into Capital Budgeting	313	(3)
Examining a Project's Risk Through Simulation	316	(3)
Finance and the Multinational Firm: Calculating Cash Flows and the International Dimension of Risk	319	(1)
Summary	319	(1)
Key Terms	320	(1)
Study Questions	320	(1)
Self-Test Problem	321	(1)
Study Problems	321	(4)
Web Work	325	(1)
Comprehensive Problem	325	(2)
Self-Test Solution	327	(2)
Cost of Capital	329	(35)
The Cost of Capital: Key Definitions and Concepts	330	(1)
Determining Individual Costs of Capital	331	(7)
Financial Management in Practice: IPOs: Should a Firm Go Public?	338	(5)
The Weighted Average Cost of Capital	339	(3)
Calculating Divisional Costs of Capital: PepsiCo, Inc.	342	(1)
Financial Management in Practice: The Pillsbury Company Adopts EVA® with a Grassroots Education Program	343	(5)
Using a Firm's Cost of Capital to Evaluate New Capital Investments	344	(2)
Shareholder Value--Based Management	346	(2)
Financial Management in Practice: New Users Explain Their Goals and Objectives in Adopting EVA	348	(4)
Finance and the Multinational Firm: Why Do Interest Rates Differ Between Countries?	351	(1)
Financial Management in Practice: Tying Incentive Compensation to Economic Value Added	352	(12)
Summary	353	(3)
Key Terms	356	(1)
Study Questions	356	(1)
Self-Test Problems	356	(1)
Study Problems	357	(4)
Web Works	361	(1)
Comprehensive Problem	361	(1)
Self-Test Solutions	362	(2)
PART 4: CAPITAL STRUCTURE AND DIVIDEND POLICY	364	(80)
Determining the Financing Mix	367	(48)
Business and Financial Risk	369	(1)
Break-Even Analysis	370	(1)
Across the Hall: Accounting---Cost Structure, Forecasting, and Investment	371	(6)
Financial Management in Practice: General Motors: Pricing Strategy in a Slow Aggregate Economy	377	(8)
Operating Leverage	377	(3)
Financial Leverage	380	(3)
Combination of Operating and Financial Leverage	383	(2)
Financial Management in Practice: Coca--Cola Financial Policies	385	(1)
Planning the Financing Mix	385	(1)
Financial Management in Practice: The Enron Lessons: Leverage	386	(10)
A Quick Look at Capital Structure Theory	387	(9)
Financial Management in Practice: Georgia-Pacific on Capital Structure	396	(5)
Basic Tools of Capital Structure Management	396	(5)
Financial Management in Practice: The Walt Disney Company on Capital Costs and Capital Structure	401	(14)
A Glance at Actual Capital Structure Management	402	(2)
Finance and the Multinational Firm: Business Risk and Global Sales	404	(1)
Summary	404	(2)
Key Terms	406	(1)
Study Questions	406	(1)
Self-Test Problem	407	(1)
Study Problems	407	(4)
Web Works	411	(1)
Comprehensive Problems	412	(1)
Self-Test Solution	413	(2)
Dividend Policy and Internal Financing	415	(29)
Key Terms	416	(1)
Does Dividend Policy Affect Stock Price?	417	(9)
The Dividend Decision in Practice	426	(1)
Alternative Dividend Policies	427	(3)
Dividend Payment Procedures	430	(1)
Stock Dividends and Stock Splits	431	(2)
Stock Repurchases	433	(2)
Financial Management in Practice: ``Many Concerns Use Excess Cash to Repurchase Their Shares''	435	(9)
Finance and the Multinational Firm: The Case of Low-Dividend Payments; So Where Do We Invest?	436	(2)
Summary	438	(1)
Key Terms	439	(1)
Study Questions	439	(1)
Self-Test Problems	440	(1)
Study Problems	440	(1)
Web Works	441	(1)
Comprehensive Problem	442	(1)
Self-Test Solutions	443	(1)
PART 5: WORKING-CAPITAL MANAGEMENT AND INTERNATIONAL BUSINESS FINANCE	444	(107)
Short-Term Financial Planning	447	(22)
Financial Forecasting	448	(5)
The Sustainable Rate of Growth	453	(1)
Financial Management in Practice: Sustainable Growth---A Broader Perspective at DuPont	454	(2)
Limitations of the Percent of Sales Forecast Method	454	(2)
Financial Management in Practice: To Bribe or Not to Bribe	456	(2)
Constructing and Using a Cash Budget	456	(2)
Financial Management in Practice: Being Honest About the Uncertainty of the Future	458	(11)
Summary	458	(1)
Key Terms	459	(1)
Study Questions	459	(1)
Self-Test Problems	459	(1)
Study Problems	460	(5)
Web Works	465	(1)
Comprehensive Problem	466	(1)
Self-Test Solutions	467	(2)
Working-Capital Management	469	(22)
Managing Current Assets and Liabilities	470	(1)
Appropriate Level of Working Capital	471	(3)
Estimation of the Cost of Short-Term Credit	474	(1)
Sources of Short-Term Credit	475	(1)
Financial Management in Practice: Managing Working Capital by Trimming Receivables	476	(15)
Multinational Working-Capital Management	483	(1)
Summary	484	(1)
Key Terms	485	(1)
Study Questions	485	(1)
Self-Test Problems	486	(1)
Study Problems	486	(2)
Web Works	488	(1)
Self-Test Solutions	489	(2)
Current Asset Management	491	(36)
Why a Company Holds Cash	492	(2)
Cash Management Objectives and Decisions	494	(1)
Collection and Disbursement Procedures	495	(6)
Evaluation of Costs of Cash Management Services	501	(1)
Composition of Marketable-Securities Portfolio	502	(6)
Accounts-Receivable Management	508	(3)
Inventory Management	511	(6)
Summary	517	(1)
Key Terms	518	(1)
Study Questions	518	(1)
Self-Test Problems	518	(1)
Study Problems	519	(4)
Web Works	523	(1)
Comprehensive Problem	523	(1)
Self-Test Solutions	524	(3)
International Business Finance	527	(24)
The Globalization of Product and Financial Markets	528	(1)
Exchange Rates	528	(8)
Across the Hall: Marketing	536	(1)
Interest-Rate Parity Theory	536	(1)
Financial Management in Practice: ``The Euro Has Yet to Spark Hoped-For Financial Revolution''	537	(14)
Purchasing-Power Parity Theory	537	(2)
Exposure to Exchange Rate Risk	539	(3)
Multinational Working-Capital Management	542	(1)
International Financing and Capital Structure Decisions	543	(1)
Direct Foreign Investment	544	(2)
Summary	546	(1)
Key Terms	546	(1)
Study Questions	547	(1)
Self-Test Problem	547	(1)
Study Problems	548	(1)
Web Works	548	(1)
Comprehensive Problem	548	(1)
Self-Test Solution	549	(2)
Appendixes	551	(24)
Appendix A Using a Calculator	551	(12)
Appendix B Compound Sum of $1 -- FVIF i%, n years	563	(2)
Appendix C Present Value of $1 -- PVIF i%, n years	565	(2)
Appendix D Sum of an Annuity of $1 for n Periods -- FVIFA i%, n years	567	(2)
Appendix E Present Value of an Annuity of $1 for n Periods -- PVIFA i%, n years	569	(2)
Appendix F Check Figures for Selected End-of-Chapter Study Problems	571	(4)
Glossary	575	(10)
Indexes	585