Foundations of Finance: The Logic and Practice of Financial Management,9780137481538

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Foundations of Finance: The Logic and Practice of Financial Management

by Arthur J. Keown; William J., II Petty; David F., Jr. Scott

Edition:

2nd

ISBN13:

9780137481538

ISBN10:

0137481535

Format:

Hardcover

Pub. Date:

3/1/1998

Publisher(s):

Prentice Hall Professional Technical Reference

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Summary

Our briefest introduction to finance provides a conceptual understanding of the financial decision-making process -- rather than just an introduction to the tools and techniques of finance -- and focuses on the interrelationships among the topics covered. It establishes "10 Axioms" as the intuitive framework for understanding the "big picture" and actual practice of finance. PHLIP supported. FinCoach CD can be packaged free.

Preface

Chapter 1 An Introduction to the Foundations of Financial Management-The Ties That Bind

(26)

Goal of the Firm

(1)

Legal Forms of Business Organization

(3)

Federal Income Taxation

(5)

Ten Axioms That Form the Foundations of Financial Management

(9)

Axiom 1: The Risk-Return Trade-off-We Won't Take On Additional Risk Unless We Expect to Be Compensated with Additional Return

(1)

Axiom 2: The Time Value of Money-A Dollar Received Today Is Worth More Than a Dollar Received in the Future

(1)

Axiom 3: Cash-Not Profits-Is King

(1)

Axiom 4: Incremental Cash Flows-It's Only What Changes That Counts

(1)

Axiom 5: The Curse of Competitive Markets-Why It's Hard to Find Exceptionally Profitable Projects

(1)

Axiom 6: Efficient Capital Markets-The Markets Are Quick and the Prices Are Right

(1)

Axiom 7: The Agency Problem-Managers Won't Work for the Owners Unless It's in Their Best Interest

(1)

Axiom 8: Taxes Bias Business Decisions

(1)

Axiom 9: All Risk Is Not Equal-Some Risk Can Be Diversified Away, and Some Cannot

(1)

Axiom 10: Ethical Behavior Is Doing the Right Thing, and Ethical Dilemmas Are Everywhere in Finance

(2)

Overview of the Text

(7)

Chapter 2 The Financial Markets and Interest Rates

(39)

The Mix of Corporate Securities Sold in the Capital Market

(2)

Why Financial Markets Exist

(2)

Financing of Business: The Movement of Funds through the Economy

(3)

Components of the U.S. Financial Market System

(4)

The Investment Banker

(4)

Private Placements

(1)

Flotation Costs

(1)

Regulation

(2)

More Recent Regulatory Developments

(1)

Rates of Return in the Financial Markets

(4)

Interest Rate Determinants in a Nutshell

(3)

The Term Structure of Interest Rates

(8)

Chapter 3 Evaluating a Firm's Financial Performance and Measuring Cash Flow

(48)

Basic Financial Statements

(13)

Financial Ratio Analysis

(11)

The Dupont Analysis: An Integrative Approach to Ratio Analysis

(22)

Chapter 4 Financial Forecasting, Planning, and Budgeting

114

(27)

Financial Forecasting

115

(10)

Financial Planning and Budgeting

125

(3)

Computerized Financial Planning

128

(13)

Chapter 5 The Time Value of Money

141

(30)

Compound Interest

142

(6)

Present Value

148

(3)

Annuities

151

(5)

Annuities Due

156

(2)

Compound Interest with Nonannual Periods

158

(1)

Present Value of an Uneven Stream

159

(2)

Perpetuities

161

(10)

Chapter 6 Valuation and Characteristics of Bonds

171

(25)

Types of Bonds

172

(3)

Terminology and Characteristics of Bonds

175

(4)

Definitions of Value

179

(2)

Valuation: An Overview

181

(1)

Valuation: The Basic Process

182

(1)

Bond Valuation

183

(3)

The Bondholder's Expected Rate of Return (Yield to Maturity)

186

(1)

Bond Valuation: Three Important Relationships

187

(9)

Chapter 7 Valuation and Characteristics of Stock

196

(25)

Preferred Stock

197

(6)

Common Stock

203

(8)

The Stockholder's Expected Rate of Return

211

(10)

Chapter 8 The Meaning and Measurement of Risk and Return

221

(38)

Expected Return Defined and Measured

222

(2)

Risk Defined and Measured

224

(3)

Rates of Return: The Investor's Experience

227

(2)

Risk and Diversification

229

(11)

The Investor's Required Rate of Return

240

(3)

The Fama and French Attack on the CAPM

243

(16)

Chapter 9 Capital-Budgeting Techniques and Practice

259

(36)

Finding Profitable Projects

260

(1)

Capital-Budgeting Decision Criteria

261

(12)

Capital Rationing

273

(2)

Problems in Project Ranking-Capital Rationing, Mutually Exclusive Projects, and Problems with the IRR

275

(6)

Ethics in Capital Budgeting

281

(1)

A Glance at Actual Capital-Budgeting Practices

281

(14)

Chapter 10 Cash Flows and Other Topics in Capital Budgeting

295

(32)

Guidelines for Capital Budgeting

296

(3)

Measuring a Project's Benefits and Costs

299

(10)

Risk and the Investment Decision

309

(3)

Incorporating Risk into Capital Budgeting

312

(4)

Examining a Project's Risk through Simulation

316

(11)

Chapter 11 Cost of Capital

327

(24)

The Cost of Capital: Key Definitions and Concepts

328

(1)

Determining Individual Costs of Capital

329

(7)

The Weighted Average Cost of Capital

336

(4)

Calculating Divisional Costs of Capital: PepsiCo, Inc.

340

(2)

Using a Firm's Cost of Capital to Evaluate New Capital Investments

342

(9)

Chapter 12 Determining the Financing Mix

351

(51)

Business and Financial Risk

354

(2)

Breakeven Analysis

356

(6)

Operating Leverage

362

(4)

Financial Leverage

366

(3)

Combination of Operating and Financial Leverage

369

(3)

Planning the Financing Mix

372

(2)

A Quick Look at Capital Structure Theory

374

(10)

Basic Tools of Capital Structure Management

384

(5)

A Glance at Actual Capital Structure Management

389

(13)

Chapter 13 Dividend Policy and Internal Financing

402

(33)

Key Terms

403

(1)

Does Dividend Policy Affect Stock Price?

404

(11)

The Dividend Decision in Practice

415

(3)

Dividend Payment Procedures

418

(2)

Stock Dividends and Stock Splits

420

(3)

Stock Repurchases

423

(12)

Chapter 14 Introduction to Working-Capital Management

435

(22)

Managing Current Assets and Liabilities

436

(2)

Appropriate Level of Working Capital

438

(3)

Estimation of the Cost of Short-Term Credit

441

(2)

Sources of Short-Term Credit

443

(14)

Chapter 15 Liquid Asset Management

457

(48)

Why a Company Holds Cash

459

(3)

Cash Management Objectives and Decisions

462

(1)

Collection and Disbursement Procedures

463

(11)

Evaluation of Costs of Cash Management Services

474

(2)

Composition of Marketable-Securities Portfolio

476

(7)

Accounts-Receivable Management

483

(6)

Inventory Management

489

(16)

Chapter 16 International Business Finance

505

(28)

The Globalization of Product and Financial Markets

506

(1)

Exchange Rates

507

(10)

Interest-Rate Parity Theory

517

(1)

Purchasing-Power Parity Theory

518

(2)

Exposure to Exchange Rate Risk

520

(4)

Multinational Working-Capital Management

524

(1)

International Financing and Capital Structure Decisions

525

(1)

Direct Foreign Investment

526

(7)

Chapter 17 Changes and Challenges in Finance

533

Recent Innovations in Risk Management

534

(3)

Finance in the '90s: The Consequences of Financial Innovation in Corporate Restructuring

537

(6)

Recent Innovations in Raising Capital: Hybrid Securities

543

(1)

The Agency Problem: Changes and Challenges

544

(3)

The CAPM and Market Efficiency: The Challenges from Academia

547

Appendixes

A-1

Appendix A: Using a Calculator

A-1

Appendix B: Compound Sum of $1

B-1

Appendix C: Present Value of $1

C-1

Appendix D: Sum of an Annuity of $1 for n Periods

D-1

Appendix E: Present Value of an Annuity of $1 for n periods

E-1

Appendix F: Check Figures for Selected End-of-Chapter Study Problems

F-1

Glossary

G-1

Index

I-1

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Foundations of Finance: The Logic and Practice of Financial Management

9780137481538

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Table of Contents