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Fundamentals of Corporate Finance Standard Edition + S&P Card + Student CD

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Edition:
7th
ISBN13:

9780073134284

ISBN10:
0073134287
Format:
Hardcover
Pub. Date:
2/7/2005
Publisher(s):
McGraw-Hill/Irwin
List Price: $213.00

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Summary

The best-selling Fundamentals of Corporate Finance (FCF) is written with one strongly held principle- that corporate finance should be developed and taught in terms of a few integrated, powerful ideas. As such, there are three basic themes that are the central focus of the book: 1) An emphasis on intuition-underlying ideas are discussed in general terms and then by way of examples that illustrate in more concrete terms how a financial manager might proceed in a given situation. 2) A unified valuation approach-net present value (NPV) is treated as the basic concept underlying corporate finance. Every subject covered is firmly rooted in valuation, and care is taken to explain how particular decisions have valuation effects. 3) A managerial focus-the authors emphasize the role of the financial manager as decision maker, and they stress the need for managerial input and judgment.The Seventh Edition continues the tradition of excellence that has earned Fundamentals of Corporate Finance its status as market leader. Every chapter has been updated to provide the most current examples that reflect corporate finance in today's world. The supplements package has also been updated and improved. From a new computerized test bank that is easier than ever to use, to new narrated PowerPoint for students, to new interactive learning modules, student and instructor support has never been stronger. There is also an optional, exciting new web-based program called "Homework Manager" that will help your students learn corporate finance by duplicating problems from each chapter in the textbook and by providing automatic grading and feedback to both students and instructors.

Table of Contents

PART ONE Overview of Corporate Finance
Introduction to Corporate Finance
1(19)
Corporate Finance and the Financial Manager
2(2)
What Is Corporate Finance?
2(1)
The Financial Manager
2(1)
Financial Management Decisions
2(1)
Capital Budgeting
2(1)
Capital Structure
3(1)
Working Capital Management
4(1)
Conclusion
4(1)
Forms of Business Organization
4(4)
Sole Proprietorship
5(1)
Partnership
5(1)
Corporation
6(1)
A Corporation by Another Name
7(1)
The Goal of Financial Management
8(2)
Possible Goals
8(1)
The Goal of Financial Management
9(1)
A More General Goal
9(1)
The Agency Problem and Control of the Corporation
10(4)
Agency Relationships
10(1)
Management Goals
10(2)
Do Managers Act in the Stockholders' Interests?
12(1)
Managerial Compensation
12(1)
Control of the Firm
13(1)
Conclusion
14(1)
Stakeholders
14(1)
Financial Markets and the Corporation
14(3)
Cash Flows to and from the Firm
14(1)
Primary versus Secondary Markets
15(1)
Primary Markets
15(1)
Secondary Markets
16(1)
Summary and Conclusions
17(3)
Financial Statements, Taxes, and Cash Flow
20(28)
The Balance Sheet
21(4)
Assets: The Left-Hand Side
21(1)
Liabilities and Owners' Equity: The Right-Hand Side
21(1)
Net Working Capital
22(1)
Liquidity
23(1)
Debt versus Equity
24(1)
Market Value versus Book Value
24(1)
The Income Statement
25(4)
GAAP and the Income Statement
26(1)
Noncash Items
27(1)
Time and Costs
27(2)
Taxes
29(2)
Corporate Tax Rates
29(1)
Average versus Marginal Tax Rates
29(2)
Cash Flow
31(8)
Cash Flow from Assets
32(1)
Operating Cash Flow
32(1)
Capital Spending
33(1)
Change in Net Working Capital
33(1)
Conclusion
34(1)
A Note on ``Free'' Cash Flow
34(1)
Cash Flow to Creditors and Stockholders
34(1)
Cash Flow to Creditors
34(1)
Cash Flow to Stockholders
35(1)
An Example: Cash Flows for Dole Cola
36(1)
Operating Cash Flow
36(1)
Net Capital Spending
37(1)
Change in NWC and Cash Flow from Assets
37(1)
Cash Flow to Stockholders and Creditors
38(1)
Summary and Conclusions
39(9)
PART TWO Financial Statements and Long-Term Financial Planning
Working with Financial Statements
48(42)
Cash Flow and Financial Statements: A Closer Look
49(4)
Sources and Uses of Cash
49(2)
The Statement of Cash Flows
51(2)
Standardized Financial Statements
53(3)
Common-Size Statements
53(1)
Common-Size Balance Sheets
54(1)
Common-Size Income Statements
54(1)
Common-Size Statements of Cash Flows
55(1)
Common-Base Year Financial Statements: Trend Analysis
55(1)
Combined Common-Size and Base-Year Analysis
56(1)
Ratio Analysis
56(12)
Short-Term Solvency, or Liquidity, Measures
57(1)
Current Ratio
58(1)
The Quick (or Acid-Test) Ratio
59(1)
Other Liquidity Ratios
59(1)
Long-Term Solvency Measures
60(1)
Total Debt Ratio
60(1)
A Brief Digression: Total Capitalization versus Total Assets
61(1)
Times Interest Earned
61(1)
Cash Coverage
61(1)
Asset Management, or Turnover, Measures
62(1)
Inventory Turnover and Days' Sales in Inventory
62(1)
Receivables Turnover and Days' Sales in Receivables
63(1)
Asset Turnover Ratios
64(1)
Profitability Measures
64(1)
Profit Margin
65(1)
Return on Assets
65(1)
Return on Equity
65(1)
Market Value Measures
66(1)
Price-Earnings Ratio
66(1)
Market-to-Book Ratio
67(1)
Conclusion
68(1)
The Du Pont Identity
68(3)
A Closer Look at ROE
68(2)
An Expanded Du Pont Analysis
70(1)
Using Financial Statement Information
71(7)
Why Evaluate Financial Statements?
72(1)
Internal Uses
72(1)
External Uses
72(1)
Choosing a Benchmark
72(1)
Time-Trend Analysis
72(1)
Peer Group Analysis
73(4)
Problems with Financial Statement Analysis
77(1)
Summary and Conclusions
78(12)
Long-Term Financial Planning and Growth
90(34)
What Is Financial Planning?
91(3)
Growth as a Financial Management Goal
91(1)
Dimensions of Financial Planning
92(1)
What Can Planning Acccomplish?
93(1)
Examining Interactions
93(1)
Exploring Options
93(1)
Avoiding Surprises
93(1)
Ensuring Feasibility and Internal Consistency
93(1)
Conclusion
94(1)
Financial Planning Models: A First Look
94(3)
A Financial Planning Model: The Ingredients
94(1)
Sales Forecast
94(1)
Pro Forma Statements
94(1)
Asset Requirements
95(1)
Financial Requirements
95(1)
The Plug
95(1)
Economic Assumptions
95(1)
A Simple Financial Planning Model
95(2)
The Percentage of Sales Approach
97(5)
The Income Statement
97(1)
The Balance Sheet
98(1)
A Particular Scenario
99(1)
An Alternative Scenario
100(2)
External Financing and Growth
102(9)
EFN and Growth
104(2)
Financial Policy and Growth
106(1)
The Internal Growth Rate
106(1)
The Sustainable Growth Rate
107(1)
Determinants of Growth
108(1)
A Note on Sustainable Growth Rate Calculations
109(2)
Some Caveats Regarding Financial Planning Models
111(1)
Summary and Conclusions
111(13)
PART THREE Valuation of Future Cash Flows
Introduction to Valuation: The Time Value of Money
124(25)
Future Value and Compounding
125(7)
Investing for a Single Period
125(1)
Investing for More Than One Period
125(6)
A Note on Compound Growth
131(1)
Present Value and Discounting
132(4)
The Single-Period Case
132(1)
Present Values for Multiple Periods
133(3)
More on Present and Future Values
136(8)
Present versus Future Value
136(1)
Determining the Discount Rate
137(4)
Finding the Number of Periods
141(3)
Summary and Conclusions
144(5)
Discounted Cash Flow Valuation
149(43)
Future and Present Values of Multiple Cash Flows
150(7)
Future Value with Multiple Cash Flows
150(3)
Present Value with Multiple Cash Flows
153(3)
A Note on Cash Flow Timing
156(1)
Valuing Level Cash Flows: Annuities and Perpetuities
157(10)
Present Value for Annuity Cash Flows
157(2)
Annuity Tables
159(1)
Finding the Payment
160(2)
Finding the Rate
162(1)
Future Value for Annuities
163(1)
A Note on Annuities Due
164(1)
Perpetuities
165(2)
Comparing Rates: The Effect of Compounding
167(5)
Effective Annual Rates and Compounding
167(1)
Calculating and Comparing Effective Annual Rates
168(2)
EARs and APRs
170(1)
Taking It to the Limit: A Note on Continuous Compounding
171(1)
Loan Types and Loan Amortization
172(6)
Pure Discount Loans
172(1)
Interest-Only Loans
173(1)
Amortized Loans
173(5)
Summary and Conclusions
178(14)
Interest Rates and Bond Valuation
192(41)
Bonds and Bond Valuation
193(10)
Bond Features and Prices
193(1)
Bond Values and Yields
193(4)
Interest Rate Risk
197(1)
Finding the Yield to Maturity: More Trial and Error
198(5)
More on Bond Features
203(5)
Is It Debt or Equity?
203(1)
Long-Term Debt: The Basics
203(2)
The Indenture
205(1)
Terms of a Bond
205(1)
Security
206(1)
Seniority
206(1)
Repayment
206(1)
The Call Provision
207(1)
Protective Covenants
207(1)
Bond Ratings
208(1)
Some Different Types of Bonds
209(5)
Government Bonds
209(1)
Zero Coupon Bonds
210(1)
Floating-Rate Bonds
211(1)
Other Types of Bonds
212(2)
Bond Markets
214(5)
How Bonds Are Bought and Sold
214(2)
Bond Price Reporting
216(3)
A Note on Bond Price Quotes
219(1)
Inflation and Interest Rates
219(2)
Real versus Nominal Rates
219(1)
The Fisher Effect
220(1)
Determinants of Bond Yields
221(5)
The Term Structure of Interest Rates
221(2)
Bond Yields and the Yield Curve: Putting It All Together
223(2)
Conclusion
225(1)
Summary and Conclusions
226(7)
Stock Valuation
233(28)
Common Stock Valuation
234(9)
Cash Flows
234(2)
Some Special Cases
236(1)
Zero Growth
236(1)
Constant Growth
236(3)
Nonconstant Growth
239(2)
Components of the Required Return
241(2)
Some Features of Common and Preferred Stocks
243(4)
Common Stock Features
243(1)
Shareholder Rights
243(1)
Proxy Voting
244(1)
Classes of Stock
245(1)
Other Rights
245(1)
Dividends
245(1)
Preferred Stock Features
246(1)
Stated Value
246(1)
Cumulative and Noncumulative Dividends
246(1)
Is Preferred Stock Really Debt?
247(1)
The Stock Markets
247(7)
Dealers and Brokers
247(1)
Organization of the NYSE
248(1)
Members
248(1)
Operations
249(1)
Floor Activity
249(1)
NASDAQ Operations
250(1)
NASDAQ Participants
251(1)
Stock Market Reporting
252(2)
Summary and Conclusions
254(7)
PART FOUR Capital Budgeting
Net Present Value and Other Investment Criteria
261(34)
Net Present Value
262(4)
The Basic Idea
262(1)
Estimating Net Present Value
263(3)
The Payback Rule
266(3)
Defining the Rule
266(1)
Analyzing the Rule
267(1)
Redeeming Qualities of the Rule
268(1)
Summary of the Rule
269(1)
The Discounted Payback
269(3)
The Average Accounting Return
272(2)
The Internal Rate of Return
274(9)
Problems with the IRR
278(1)
Nonconventional Cash Flows
278(2)
Mutually Exclusive Investments
280(2)
Redeeming Qualities of the IRR
282(1)
The Profitability Index
283(1)
The Practice of Capital Budgeting
284(2)
Summary and Conclusions
286(9)
Making Capital Investment Decisions
295(35)
Project Cash Flows: A First Look
296(1)
Relevant Cash Flows
296(1)
The Stand-Alone Principle
296(1)
Incremental Cash Flows
296(3)
Sunk Costs
297(1)
Opportunity Costs
297(1)
Side Effects
298(1)
Net Working Capital
298(1)
Financing Costs
298(1)
Other Issues
299(1)
Pro Forma Financial Statements and Project Cash Flows
299(3)
Getting Started: Pro Forma Financial Statements
299(1)
Project Cash Flows
300(1)
Project Operating Cash Flow
301(1)
Project Net Working Capital and Capital Spending
301(1)
Projected Total Cash Flow and Value
301(1)
More on Project Cash Flow
302(10)
A Closer Look at Net Working Capital
302(3)
Depreciation
305(1)
Modified ACRS Depreciation (MACRS)
305(2)
Book Value versus Market Value
307(1)
An Example: The Majestic Mulch and Compost Company (MMCC)
308(1)
Operating Cash Flows
309(1)
Change in NWC
309(1)
Capital Spending
310(1)
Total Cash Flow and Value
310(2)
Conclusion
312(1)
Alternative Definitions of Operating Cash Flow
312(2)
The Bottom-Up Approach
313(1)
The Top-Down Approach
313(1)
The Tax Shield Approach
314(1)
Conclusion
314(1)
Some Special Cases of Discounted Cash Flow Analysis
314(7)
Evaluating Cost-Cutting Proposals
315(1)
Setting the Bid Price
316(3)
Evaluating Equipment Options with Different Lives
319(2)
Summary and Conclusions
321(9)
Project Analysis and Evaluation
330(31)
Evaluating NPV Estimates
331(2)
The Basic Problem
331(1)
Projected versus Actual Cash Flows
331(1)
Forecasting Risk
331(1)
Sources of Value
332(1)
Scenario and Other What-If Analyses
333(4)
Getting Started
333(1)
Scenario Analysis
334(2)
Sensitivity Analysis
336(1)
Simulation Analysis
337(1)
Break-Even Analysis
337(7)
Fixed and Variable Costs
338(1)
Variable Costs
338(1)
Fixed Costs
339(1)
Total Costs
339(2)
Accounting Break-Even
341(1)
Accounting Break-Even: A Closer Look
342(1)
Uses for the Accounting Break-Even
343(1)
Operating Cash Flow, Sales Volume, and Break-Even
344(5)
Accounting Break-Even and Cash Flow
344(1)
The Base Case
344(1)
Calculating the Break-Even Level
344(1)
Payback and Break-Even
345(1)
Sales Volume and Operating Cash Flow
345(1)
Cash Flow, Accounting, and Financial Break-Even Points
346(1)
Accounting Break-Even Revisited
346(1)
Cash Break-Even
346(1)
Financial Break-Even
347(1)
Conclusion
347(2)
Operating Leverage
349(3)
The Basic Idea
349(1)
Implications of Operating Leverage
349(1)
Measuring Operating Leverage
349(2)
Operating Leverage and Break-Even
351(1)
Capital Rationing
352(1)
Soft Rationing
352(1)
Hard Rationing
352(1)
Summary and Conclusions
353(8)
PART FIVE Risk and Return
Some Lessons from Capital Market History
361(33)
Returns
362(4)
Dollar Returns
362(2)
Percentage Returns
364(2)
The Historical Record
366(6)
A First Look
367(1)
A Closer Look
368(4)
Average Returns: The First Lesson
372(2)
Calculating Average Returns
372(1)
Average Returns: The Historical Record
372(1)
Risk Premiums
373(1)
The First Lesson
373(1)
The Variability of Returns: The Second Lesson
374(6)
Frequency Distributions and Variability
374(1)
The Historical Variance and Standard Deviation
375(2)
The Historical Record
377(1)
Normal Distribution
377(2)
The Second Lesson
379(1)
Using Capital Market History
379(1)
More on Average Returns
380(3)
Arithmetic versus Geometric Averages
380(1)
Calculating Geometric Average Returns
381(1)
Arithmetic Average Return or Geometric Average Return?
382(1)
Capital Market Efficiency
383(5)
Price Behavior in an Efficient Market
383(2)
The Efficient Markets Hypothesis
385(1)
Some Common Misconceptions about the EMH
385(2)
The Forms of Market Efficiency
387(1)
Summary and Conclusions
388(6)
Return, Risk, and the Security Market Line
394(36)
Expected Returns and Variances
395(3)
Expected Return
395(2)
Calculating the Variance
397(1)
Portfolios
398(4)
Portfolio Weights
399(1)
Portfolio Expected Returns
399(1)
Portfolio Variance
400(2)
Announcements, Surprises, and Expected Returns
402(2)
Expected and Unexpected Returns
402(1)
Announcements and News
403(1)
Risk: Systematic and Unsystematic
404(2)
Systematic and Unsystematic Risk
404(1)
Systematic and Unsystematic Components of Return
405(1)
Diversification and Portfolio Risk
406(3)
The Effect of Diversification: Another Lesson from Market History
406(1)
The Principle of Diversification
407(1)
Diversificaton and Unsystematic Risk
408(1)
Diversification and Systematic Risk
408(1)
Systematic Risk and Beta
409(3)
The Systematic Risk Principle
409(1)
Measuring Systematic Risk
410(1)
Portfolio Betas
411(1)
The Security Market Line
412(8)
Beta and the Risk Premium
412(1)
The Reward-to-Risk Ratio
413(1)
The Basic Argument
414(2)
The Fundamental Result
416(1)
The Security Market Line
417(1)
Market Portfolios
417(1)
The Capital Asset Pricing Model
418(2)
The SML and the Cost of Capital: A Preview
420(1)
The Basic Idea
420(1)
The Cost of Capital
420(1)
Summary and Conclusions
421(9)
Options and Corporate Finance
430(38)
Options: The Basics
431(5)
Puts and Calls
431(1)
Stock Option Quotations
431(2)
Option Payoffs
433(3)
Fundamentals of Option Valuation
436(5)
Value of a Call Option at Expiration
436(1)
The Upper and Lower Bounds on a Call Option's Value
437(1)
The Upper Bound
437(1)
The Lower Bound
437(1)
A Simple Model: Part I
438(1)
The Basic Approach
439(1)
A More Complicated Case
439(1)
Four Factors Determining Option Values
440(1)
Valuing a Call Option
441(3)
A Simple Model: Part II
441(1)
The Fifth Factor
442(1)
A Closer Look
443(1)
Employee Stock Options
444(1)
ESO Features
444(1)
ESO Repricing
445(1)
Equity as a Call Option on the Firm's Assets
445(3)
Case I: The Debt Is Risk-Free
446(1)
Case II: The Debt Is Risky
446(2)
Options and Capital Budgeting
448(6)
The Investment Timing Decision
448(2)
Managerial Options
450(1)
Contingency Planning
451(1)
Options in Capital Budgeting: An Example
452(1)
Strategic Options
453(1)
Conclusion
453(1)
Options and Corporate Securities
454(5)
Warrants
454(1)
The Difference between Warrants and Call Options
454(1)
Earnings Dilution
455(1)
Convertible Bonds
455(1)
Features of a Convertible Bond
455(1)
Value of a Convertible Bond
455(2)
Other Options
457(1)
The Call Provision on a Bond
457(1)
Put Bonds
458(1)
Insurance and Loan Guarantees
458(1)
Summary and Conclusions
459(9)
PART SIX Cost of Capital and Long-Term Financial Policy
Cost of Capital
468(31)
The Cost of Capital: Some Preliminaries
469(1)
Required Return versus Cost of Capital
469(1)
Financial Policy and Cost of Capital
469(1)
The Cost of Equity
470(4)
The Dividend Growth Model Approach
470(1)
Implementing the Approach
470(1)
Estimating g
471(1)
Advantages and Disadvantages of the Approach
472(1)
The SML Approach
472(1)
Implementing the Approach
473(1)
Advantages and Disadvantages of the Approach
473(1)
The Costs of Debt and Preferred Stock
474(2)
The Cost of Debt
474(1)
The Cost of Preferred Stock
475(1)
The Weighted Average Cost of Capital
476(9)
The Capital Structure Weights
476(1)
Taxes and the Weighted Average Cost of Capital
477(1)
Calculating the WACC for Eastman Chemical
478(1)
Eastman's Cost of Equity
478(2)
Eastman's Cost of Debt
480(1)
Eastman's WACC
481(2)
Solving the Warehouse Problem and Similar Capital Budgeting Problems
483(2)
Performance Evaluation: Another Use of the WACC
485(1)
Divisional and Project Costs of Capital
485(4)
The SML and the WACC
485(1)
Divisional Cost of Capital
486(1)
The Pure Play Approach
487(1)
The Subjective Approach
488(1)
Flotation Costs and the Weighted Average Cost of Capital
489(3)
The Basic Approach
489(1)
Flotation Costs and NPV
490(2)
Summary and Conclusions
492(7)
Raising Capital
499(37)
The Financing Life Cycle of a Firm: Early-Stage Financing and Venture Capital
500(2)
Venture Capital
500(1)
Some Venture Capital Realities
501(1)
Choosing a Venture Capitalist
501(1)
Conclusion
502(1)
Selling Securities to the Public: The Basic Procedure
502(1)
Alternative Issue Methods
503(2)
Underwriters
505(4)
Choosing an Underwriter
506(1)
Types of Underwriting
506(1)
Firm Commitment Underwriting
506(1)
Best Efforts Underwriting
506(1)
Dutch Auction Underwriting
507(1)
The Aftermarket
507(1)
The Green Shoe Provision
508(1)
Lockup Agreements
508(1)
The Quiet Period
508(1)
IPOs and Underpricing
509(6)
IPO Underpricing: The 1999--2000 Experience
509(1)
Evidence on Underpricing
510(2)
Why Does Underpricing Exist?
512(3)
New Equity Sales and the Value of the Firm
515(1)
The Costs of Issuing Securities
516(4)
The Costs of Selling Stock to the Public
516(2)
The Costs of Going Public: The Case of Symbion
518(2)
Rights
520(6)
The Mechanics of a Rights Offering
520(1)
Number of Rights Needed to Purchase a Share
521(1)
The Value of a Right
522(2)
Ex Rights
524(1)
The Underwriting Arrangements
524(1)
Effects on Shareholders
525(1)
Dilution
526(2)
Dilution of Proportionate Ownership
526(1)
Dilution of Value: Book versus Market Values
526(1)
A Misconception
527(1)
The Correct Arguments
528(1)
Issuing Long-Term Debt
528(1)
Shelf Registration
529(1)
Summary and Conclusions
530(6)
Financial Leverage and Capital Structure Policy
536(36)
The Capital Structure Question
537(1)
Firm Value and Stock Value: An Example
537(1)
Capital Structure and the Cost of Capital
538(1)
The Effect of Financial Leverage
538(5)
The Basics of Financial Leverage
539(1)
Financial Leverage, EPS, and ROE: An Example
539(1)
EPS versus EBIT
540(2)
Corporate Borrowing and Homemade Leverage
542(1)
Capital Structure and the Cost of Equity Capital
543(4)
M&M Proposition I: The Pie Model
544(1)
The Cost of Equity and Financial Leverage: M&M Proposal II
544(2)
Business and Financial Risk
546(1)
M&M Propositions I and II with Corporate Taxes
547(5)
The Interest Tax Shield
547(1)
Taxes and M&M Proposition I
548(1)
Taxes, the WACC, and Proposition II
549(1)
Conclusion
550(2)
Bankruptcy Costs
552(2)
Direct Bankruptcy Costs
553(1)
Indirect Bankruptcy Costs
553(1)
Optimal Capital Structure
554(4)
The Static Theory of Capital Structure
554(1)
Optimal Capital Structure and the Cost of Capital
555(1)
Optimal Capital Structure: A Recap
556(2)
Capital Structure: Some Managerial Recommendations
558(1)
Taxes
558(1)
Financial Distress
558(1)
The Pie Again
558(2)
The Extended Pie Model
559(1)
Marketed Claims versus Nonmarketed Claims
560(1)
Observed Capital Structures
560(2)
A Quick Look at the Bankruptcy Process
562(3)
Liquidation and Reorganization
562(1)
Bankruptcy Liquidation
562(1)
Bankruptcy Reorganization
563(1)
Financial Management and the Bankruptcy Process
564(1)
Agreements to Avoid Bankruptcy
565(1)
Summary and Conclusions
565(7)
Dividends and Dividend Policy
572(33)
Cash Dividends and Dividend Payment
573(3)
Cash Dividends
573(1)
Standard Method of Cash Dividend Payment
574(1)
Dividend Payment: A Chronology
574(1)
More on the Ex-Dividend Date
575(1)
Does Dividend Policy Matter?
576(2)
An Illustration of the Irrelevance of Dividend Policy
576(1)
Current Policy: Dividends Set Equal to Cash Flow
576(1)
Alternative Policy: Initial Dividend Greater than Cash Flow
577(1)
Homemade Dividends
577(1)
A Test
578(1)
Real-World Factors Favoring a Low Payout
578(3)
Taxes
578(2)
Expected Return, Dividends, and Personal Taxes
580(1)
Flotation Costs
580(1)
Dividend Restrictions
580(1)
Real-World Factors Favoring a High Payout
581(2)
Desire for Current Income
581(1)
Uncertainty Resolution
582(1)
Tax and Legal Benefits from High Dividends
582(1)
Corporate Investors
582(1)
Tax-Exempt Investors
582(1)
Conclusion
583(1)
A Resolution of Real-World Factors?
583(2)
Information Content of Dividends
583(1)
The Clientele Effect
584(1)
Establishing a Dividend Policy
585(5)
Residual Dividend Approach
585(2)
Dividend Stability
587(1)
A Compromise Dividend Policy
587(2)
Some Survey Evidence on Dividends
589(1)
Stock Repurchase: An Alternative to Cash Dividends
590(3)
Cash Dividends versus Repurchase
591(1)
Real-World Considerations in a Repurchase
592(1)
Share Repurchase and EPS
593(1)
Stock Dividends and Stock Splits
593(4)
Some Details on Stock Splits and Stock Dividends
593(1)
Example of a Small Stock Dividend
594(1)
Example of a Stock Split
594(1)
Example of a Large Stock Dividend
595(1)
Value of Stock Splits and Stock Dividends
595(1)
The Benchmark Case
595(1)
Popular Trading Range
595(1)
Reverse Splits
596(1)
Summary and Conclusions
597(8)
PART SEVEN Short-Term Financial Planning and Management
Short-Term Finance and Planning
605(32)
Tracing Cash and Net Working Capital
606(1)
The Operating Cycle and the Cash Cycle
607(6)
Defining the Operating and Cash Cycles
608(1)
The Operating Cycle
608(1)
The Cash Cycle
608(2)
The Operating Cycle and the Firm's Organizational Chart
610(1)
Calculating the Operating and Cash Cycles
610(1)
The Operating Cycle
611(1)
The Cash Cycle
612(1)
Interpreting the Cash Cycle
613(1)
Some Aspects of Short-Term Financial Policy
613(6)
The Size of the Firm's Investment in Current Assets
614(1)
Alternative Financing Policies for Current Assets
615(1)
An Ideal Case
615(1)
Different Policies for Financing Current Assets
615(3)
Which Financing Policy Is Best?
618(1)
Current Assets and Liabilities in Practice
619(1)
The Cash Budget
619(3)
Sales and Cash Collections
620(1)
Cash Outflows
621(1)
The Cash Balance
621(1)
Short-Term Borrowing
622(4)
Unsecured Loans
623(1)
Compensating Balances
623(1)
Cost of a Compensating Balance
623(1)
Letters of Credit
624(1)
Secured Loans
624(1)
Accounts Receivable Financing
624(1)
Inventory Loans
625(1)
Other Sources
625(1)
A Short-Term Financial Plan
626(1)
Summary and Conclusions
627(10)
Cash and Liquidity Management
637(33)
Reasons for Holding Cash
638
The Speculative and Precautionary Motives
638(1)
The Transaction Motive
638(1)
Compensating Balances
638(1)
Costs of Holding Cash
638(1)
Cash Management versus Liquidity Management
639
Understanding Float
629(17)
Disbursement Float
639(1)
Collection Float and Net Float
640(1)
Float Management
641(1)
Measuring Float
641(1)
Some Details
642(1)
Cost of the Float
643(2)
Ethical and Legal Questions
645(1)
Electronic Data Interchange: The End of Float?
645(1)
Cash Collection and Concentration
646(5)
Components of Collection Time
646(1)
Cash Collection
646(1)
Lockboxes
647(1)
Cash Concentration
648(1)
Accelerating Collections: An Example
648(3)
Managing Cash Disbursements
651(1)
Increasing Disbursement Float
651(1)
Controlling Disbursements
651(1)
Zero-Balance Accounts
651(1)
Controlled Disbursement Accounts
652(1)
Investing Idle Cash
652(3)
Temporary Cash Surpluses
653(1)
Seasonal or Cyclical Activities
653(1)
Planned or Possible Expenditures
653(1)
Characteristics of Short-Term Securities
654(1)
Maturity
654(1)
Default Risk
654(1)
Marketability
654(1)
Taxes
654(1)
Some Different Types of Money Market Securities
654(1)
Summary and Conclusions
655(15)
Appendix 20A Determining the Target Cash Balance
660(1)
The Basic Idea
660(1)
The BAT Model
660(2)
The Opportunity Costs
662(1)
The Trading Costs
662(1)
The Total Cost
663(1)
The Solution
663(2)
Conclusion
665(1)
The Miller-Orr Model: A More General Approach
665(1)
The Basic Idea
665(1)
Using the Model
665(1)
Implications of the BAT and Miller-Orr Models
666(1)
Other Factors Influencing the Target Cash Balance
667(3)
Credit and Inventory Management
670(39)
Credit and Receivables
671(1)
Components of Credit Policy
671(1)
The Cash Flows from Granting Credit
671(1)
The Investment in Receivables
672(1)
Terms of the Sale
672(4)
The Basic Form
672(1)
The Credit Period
673(1)
The Invoice Date
673(1)
Length of the Credit Period
673(1)
Cash Discounts
674(1)
Cost of the Credit
675(1)
Trade Discounts
675(1)
The Cash Discount and the ACP
675(1)
Credit Instruments
676(1)
Analyzing Credit Policy
676(3)
Credit Policy Effects
676(1)
Evaluating a Proposed Credit Policy
677(1)
NPV of Switching Policies
677(2)
A Break-Even Application
679(1)
Optimal Credit Policy
679(2)
The Total Credit Cost Curve
679(1)
Organizing the Credit Function
680(1)
Credit Analysis
681(3)
When Should Credit Be Granted?
681(1)
A One-Time Sale
681(1)
Repeat Business
682(1)
Credit Information
683(1)
Credit Evaluation and Scoring
683(1)
Collection Policy
684(1)
Monitoring Receivables
684(1)
Collection Effort
685(1)
Inventory Management
685(2)
The Financial Manager and Inventory Policy
686(1)
Inventory Types
686(1)
Inventory Costs
686(1)
Inventory Management Techniques
687(8)
The ABC Approach
687(1)
The Economic Order Quantity Model
688(1)
Inventory Depletion
688(1)
The Carrying Costs
689(1)
The Shortage Costs
690(1)
The Total Costs
690(2)
Extensions to the EOQ Model
692(1)
Safety Stocks
692(1)
Reorder Points
692(2)
Managing Derived-Demand Inventories
694(1)
Materials Requirements Planning
694(1)
Just-in-Time Inventory
694(1)
Summary and Conclusions
695(14)
Appendix 21A More on Credit Policy Analysis
700(1)
Two Alternative Approaches
700(1)
The One-Shot Approach
700(1)
The Accounts Receivable Approach
701(1)
Discounts and Default Risk
702(1)
NPV of the Credit Decision
703(1)
A Break-Even Application
703(6)
PART EIGHT Topics in Corporate Finance
International Corporate Finance
709
Terminology
710(1)
Foreign Exchange Markets and Exchange Rates
711(5)
Exchange Rates
712(1)
Exchange Rate Quotations
712(1)
Cross-Rates and Triangle Arbitrage
713(2)
Types of Transactions
715(1)
Purchasing Power Parity
716(3)
Absolute Purchasing Power Parity
716(1)
Relative Purchasing Power Parity
717(1)
The Basic Idea
718(1)
The Result
718(1)
Currency Appreciation and Depreciation
719(1)
Interest Rate Parity, Unbiased Forward Rates, and the International Fisher Effect
719(4)
Covered Interest Arbitrage
720(1)
Interest Rate Parity
721(1)
Forward Rates and Future Spot Rates
722(1)
Putting It All Together
722(1)
Uncovered Interest Parity
722(1)
The International Fisher Effect
722(1)
International Capital Budgeting
723(3)
Method 1: The Home Currency Approach
724(1)
Method 2: The Foreign Currency Approach
725(1)
Unremitted Cash Flows
725(1)
Exchange Rate Risk
726(3)
Short-Run Exposure
726(1)
Long-Run Exposure
726(1)
Translation Exposure
727(1)
Managing Exchange Rate Risk
728(1)
Political Risk
729(1)
Summary and Conclusions
729
Appendix A Mathematical Tables 1(1)
Appendix B Key Equations 1(1)
Appendix C Answers to Selected End-of-Chapter Problems
Index 1


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