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Practical Financial Management with Thomson ONE,9780324260762
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Practical Financial Management with Thomson ONE

by
Edition:
4th
ISBN13:

9780324260762

ISBN10:
0324260768
Format:
Hardcover
Pub. Date:
1/5/2004
Publisher(s):
Cengage Learning
List Price: $342.32
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Summary

A text that offers clear, concise, and practical real world treatment of key financial management topics with the assumption readers have little knowledge of financial concepts. Advanced math is eliminated from the theory sections and everyday math is geared towards making the material useful yet understandable, supported by numerous worked-out examples and graphical and intuitive presentations of math where appropriate. Written by a former CFO, the book offers practical, real-world discussion of key topics, including cross-functional coverage of the agendas and biases decision-makers across the firm may bring to a financial proposal.

Table of Contents

PART 1 Introduction to Financial Management
1(150)
Foundations
2(23)
An Overview of Finance
3(4)
Financial Assets
3(1)
Financial Markets
4(1)
Raising Money
5(1)
Financial Management
6(1)
The Price of Securities---A Link between the Firm and the Market
7(1)
Finance and Accounting
7(2)
The Importance of Cash Flow
8(1)
The Language of Finance
9(1)
Financial Theory---The Relationship with Economics
9(1)
Forms of Business Organization and Their Financial Impact
10(5)
The Proprietorship Form
11(1)
The Corporate Form
12(2)
The Truth about Limited Liability
14(1)
S-Type Corporations and Limited Liability Companies
15(1)
Insights: The Limited Liability Company (LLC): An Alternative to the S-Type Corporation
15(1)
The Goals of Management
16(1)
Stakeholders and Conflicts of Interest
16(1)
Conflicts of Interest---An Illustration
17(1)
Management---A Privileged Stakeholder Group
17(1)
The Agency Problem
17(1)
Insights: Ethics and Ethical Investing
18(2)
Creditors versus Stockholders---A Financially Important Conflict of Interest
20(1)
Thomson One
20(1)
Questions
21(1)
Business Analysis
22(1)
Problems
23(1)
Internet Problem
23(1)
Thomson One
23(2)
Financial Background: A Review of Accounting, Financial Statements, and Taxes
25(90)
Accounting Systems and Financial Statements
25(4)
The Nature of Financial Statements
26(1)
The Accounting System
27(2)
The Income Statement
29(2)
Presentation
29(2)
The Balance Sheet
31(10)
Presentation
31(1)
Assets
32(5)
Liabilities
37(3)
Equity
40(1)
The Tax Environment
41(4)
Taxing Authorities and Tax Bases
41(1)
Income Taxes---The Total Effective Tax Rate
42(1)
Progressive Tax Systems, Marginal and Average Rates
43(1)
Capital Gains and Losses
44(1)
Income Tax Calculations
45(8)
Personal Taxes
45(4)
Corporate Taxes
49(4)
Questions
53(1)
Problems
54(6)
Internet Problem
60(1)
Computer Problems
60(3)
Cash Flows and Financial Analysis
Financial Information---Where Does It Come From, Who Uses It, and What Are We Looking For?
63(4)
Users of Financial Information
64(1)
Sources of Financial Information
64(3)
Insights: The Devil Is in the Details
67(1)
The Orientation of Financial Analysis
67(1)
Insights: The Ethics of Presenting Financial Information
68(2)
The Statement of Cash Flows
70(10)
How the Statement of Cash Flows Works---Preliminary Examples
70(3)
Business Cash Flows
73(2)
Constructing the Statement of Cash Flows
75(4)
Free Cash Flows
79(1)
Ratio Analysis
80(14)
Comparisons
80(1)
Common Size Statements
81(1)
Ratios
82(1)
Liquidity Ratios
83(1)
Asset Management Ratios
84(3)
Debt Management Ratios
87(2)
Profitability Ratios
89(2)
Market Value Ratios
91(1)
Du Pont Equations
92(2)
Insights: New Ideas in Financial Analysis: MVA and EVA
94(4)
Using the Du Pont Equations
96(1)
Sources of Comparative Information
97(1)
Limitations and Weaknesses of Ratio Analysis
97(1)
Questions
98(1)
Business Analysis
99(1)
Problems
99(10)
Internet Problem
109(1)
Computer Problems
109(4)
Thomson One
113(2)
The Financial System and Interest
115(36)
The Financial System
115(6)
Cash Flows Between the Sectors
116(1)
Savings and Investment
116(2)
Financial Markets
118(3)
The Stock Market and Stock Exchanges
121(5)
Overview
121(1)
Trading---The Role of Brokers
121(1)
Exchanges
122(1)
Private, Public, and Listed Companies, and the Nasdaq Market
123(3)
Insights: It's All in the Timing---IPOs Are a Risky Business
126(2)
Reading Stock Quotations
127(1)
Insights: Efficient Financial Markets
128(1)
Interest
129(4)
The Relationship Between Interest and the Stock Market
129(1)
Interest and the Economy
130(1)
Debt Markets
130(3)
The Components of an Interest Rate
133(9)
Components of the Base Rate
133(1)
Risk Premiums
134(2)
Putting the Pieces Together
136(1)
Federal Government Securities, Risk-Free and Real Rates
137(3)
Yield Curves---The Term Structure of Interest Rates
140(2)
Questions
142(1)
Business Analysis
143(1)
Problems
144(3)
Internet Problem
147(1)
Appendix 4A: Can There Be Interest Without Money? The Desert Island
147(4)
PART 2 Discounted Cash Flow and the Value of Securities
151(204)
Time Value of Money
153(50)
Outline of Approach
154(1)
Amount Problems
155(7)
The Future Value of an Amount
156(3)
Financial Calculators
159(1)
The Expression for the Present Value of an Amount
160(2)
Annuity Problems
162(16)
Annuities
163(1)
The Future Value of an Annuity---Developing a Formula
163(3)
The Future Value of an Annuity---Solving Problems
166(3)
Compound Interest and Non-Annual Compounding
169(6)
The Present Value of an Annuity---Developing a Formula
175(1)
The Present Value of an Annuity---Solving Problems
176(2)
Insights: The Lottery: Congratulations, Youire Rich---But Not As Rich As You Thought
178(16)
The Annuity Due
183(3)
Perpetuities
186(3)
Multipart Problems
189(3)
Uneven Streams and Imbedded Annuities
192(2)
Questions
194(1)
Business Analysis
195(1)
Problems
195(5)
Internet Problem
200(1)
Computer Problems
200(3)
The Valuation and Characteristics of Bonds
203(61)
The Basis of Value
203(2)
Investing
204(1)
Return
204(1)
Bond Valuation
205(13)
Bond Terminology and Practice
205(1)
Bond Valuation---Basic Ideas
206(1)
Determining the Price of a Bond
207(6)
Maturity Risk Revisited
213(1)
Finding the Yield at a Given Price
214(3)
Call Provisions
217(1)
Insights: Can a Bond Be a Bond Without Paying Interest?
218(5)
Risky Issues
222(1)
Convertible Bonds
223(9)
Advantages of Convertible Bonds
225(1)
Forced Conversion
225(1)
Valuation (Pricing) Convertibles
226(3)
Effect of Earnings per Share---Diluted EPS
229(3)
Other Convertible Securities
232(1)
Institutional Characteristics of Bonds
232(4)
Registration, Transfer Agents, and Owners of Record
232(1)
Kinds of Bonds
232(1)
Bond Ratings---Assessing Default Risk
233(3)
Insights: Even the Safest Companies Can Default on Bonds---The Perils of Utility Deregulation in California
236(2)
Bond Indentures---Controlling Default Risk
236(2)
Insights: Ethical Debt Management
238(1)
Questions
238(1)
Business Analysis
239(1)
Problems
240(3)
Internet Problem
243(1)
Computer Problems
243(2)
Appendix 6A: Lease Financing
245(19)
The Valuation and Characteristics of Stock
264(42)
Common Stock
264(4)
The Return on an Investment in Common Stock
264(1)
The Nature of Cash Flows from Common Stock Ownership
265(2)
The Basis of Value
267(1)
Growth Models of Common Stock Valuation
268(10)
Developing Growth-Based Models
269(2)
The Constant Growth Model
271(2)
The Expected Return
273(1)
Two-Stage Growth
274(2)
Practical Limitations of Pricing Models
276(2)
Insights: Reconciling Valuation Theory and Practice
278(1)
Some Institutional Characteristics of Common Stock
279(1)
Corporate Organization and Control
279(1)
Insights: Corporate Governance in Large Companies: The Role of Boards of Directors
280(3)
Voting Rights and Issues
281(1)
Stockholders' Claims on Income and Assets
282(1)
Preferred Stock
283(2)
Valuation of Preferred Stock
283(1)
Characteristics of Preferred Stock
284(1)
Securities Analysis
285(2)
Options and Warrants
287(12)
Options in General
287(1)
Stock Options
287(1)
Call Options
288(1)
Intrinsic Value
289(1)
Options and Leverage
290(2)
Trading in Options
292(1)
Writing Options
292(2)
Put Options
294(2)
Option Pricing Models
296(1)
Warrants
296(1)
Employee Stock Options
297(2)
Questions
299(1)
Business Analysis
299(1)
Problems
300(3)
Internet Problem
303(1)
Computer Problems
303(2)
Thomson One
305(1)
Risk and Return
306(49)
Why Study Risk and Return?
306(5)
The General Relationship between Risk and Return
307(1)
The Return on an Investment
308(2)
Risk---A Preliminary Definition
310(1)
Portfolio Theory
311(18)
Review of the Concept of a Random Variable
311(4)
The Return on a Stock Investment as a Random Variable
315(2)
Risk Redefined as Variability
317(2)
Risk Aversion
319(3)
Decomposing Risk---Systematic (Market) and Unsystematic (Business-Specific) Risk
322(1)
Portfolios
323(1)
Diversification---How Portfolio Risk Is Affected When Stocks Are Added
324(3)
Measuring Market Risk---The Concept of Beta
327(2)
Insights: Is It Investing or Gambling?
329(3)
Insights: Just How Risky Is AT&T---Really? A Problem With Betas
332(10)
Using Beta---The Capital Asset Pricing Model (Capm)
333(9)
The Validity and Acceptance of the Capm and Its Sml
342(1)
Insights: Beta in Practice
342(1)
Questions
343(1)
Business Analysis
344(1)
Problems
344(6)
Internet Problem
350(1)
Computer Problems
351(2)
Thomson One
353(2)
PART 3 Business Investment Decisions---Capital Budgeting
355(132)
Capital Budgeting
357(36)
Characteristics of Business Projects
357(3)
Project Types and Risk
357(1)
Stand-Alone and Mutually Exclusive Projects
358(1)
Project Cash Flows
358(1)
The Cost of Capital
359(1)
Capital Budgeting Techniques
360(17)
Payback Period
360(2)
Net Present Value (Npv)
362(4)
Internal Rate of Return (Irr)
366(5)
Comparing IRR and NPV
371(2)
NPV and IRR Solutions Using Financial Calculators and Spreadsheets
373(1)
Projects with a Single Outflow and Regular Inflows
374(1)
Profitability Index (PI)
375(2)
Insights: Which Methods Do Businesses Prefer?
377(5)
Comparing Projects with Unequal Lives
378(3)
Capital Rationing
381(1)
Questions
382(2)
Business Analysis
384(1)
Problems
384(6)
Internet Problem
390(1)
Computer Problems
390(3)
Cash Flow Estimation
393(28)
Cash Flow Estimation
393(1)
Capital Budgeting Processes
393(1)
Project Cash Flows---An Overview and Some Specifics
394(4)
The General Approach to Cash Flow Estimation
394(1)
A Few Specific Issues
395(3)
Estimating New Venture Cash Flows
398(7)
Terminal Values
402(1)
Accuracy and Estimates
402(2)
Macrs---A Note on Depreciation
404(1)
Estimating Cash Flows for Replacement Projects
405(4)
Insights: Ethics in Cash Flow Estimation
409(1)
Question
410(1)
Business Analysis
410(2)
Problems
412(6)
Internet Problem
418(1)
Computer Problems
418(3)
Risk Topics and Real Options in Capital Budgeting
421(32)
Risk in Capital Budgeting---General Considerations
421(3)
Cash Flows as Random Variables
421(1)
The Importance of Risk in Capital Budgeting
422(2)
Incorporating Risk into Capital Budgeting---Numerical and Computer Methods
424(9)
Scenario/Sensitivity Analysis
424(2)
Computer (Monte Carlo) Simulation
426(2)
Decision Tree Analysis
428(5)
Real Options
433(4)
Real Options in Capital Budgeting
433(3)
Valuing Real Options
436(1)
Insights: Volatile Energy Prices and Real Options, Thinking Can Lead to Big Profits on Inefficient Facilities
437(2)
Designing Real Options into Projects
438(1)
Incorporating Risk into Capital Budgeting---The Theoretical Approach and Risk-Adjusted Rates of Return
439(6)
Estimating Risk-Adjusted Rates Using Capm
440(3)
Problems with the Theoretical Approach---Finding the Right Beta and Concerns About the Appropriate Risk Definition
443(2)
Questions
445(1)
Business Analysis
446(1)
Problems
447(6)
Cost of Capital
453(34)
The Purpose of the Cost of Capital
453(1)
Cost of Capital Concepts
454(1)
Capital Components
454(1)
Capital Structure
454(1)
Insights: The Cost of Capital---Intuitively
455(4)
Returns on Investments and the Costs of Capital Components
455(1)
The Weighted Average Calculation---the WACC
456(1)
Capital Structure and Cost---Book vs. Market Value
457(2)
Calculating the WACC
459(8)
Developing Market-Value-Based Capital Structure
459(1)
Calculating Component Costs of Capital
460(7)
Putting the Weights and Costs Together
467(1)
The Marginal Cost of Capital (MCC)
467(3)
The Break in MCC When Retained Earnings Run Out
467(1)
The MCC Schedule
468(2)
The Cost of Capital---A Comprehensive Example
470(5)
A Potential Mistake---Handling Separately Funded Projects
475(1)
Insights: Revisiting Eva
476(1)
Questions
477(1)
Business Analysis
478(1)
Problems
479(6)
Internet Problem
485(2)
PART 4 Long-Term Financing Issues
487(78)
Capital Structure and Leverage
489(50)
Background
489(4)
The Central Issue
490(1)
Risk in the Context of Leverage
490(2)
Leverage and Risk---Two Kinds of Each
492(1)
Our Approach to Leverage
492(1)
Financial Leverage
493(9)
The Effect of Financial Leverage
493(5)
Financial Leverage and Financial Risk
498(1)
Putting the Ideas Together---The Effect on Stock Price
499(3)
Insights: AOL Time Warner: The Perils of Leverage
502(5)
The Degree of Financial Leverage (DFL)---A Measurement
503(2)
Ebit--Eps Analysis
505(2)
Operating Leverage
507(11)
Terminology and Definitions
508(1)
Breakeven Analysis
509(1)
Breakeven Diagrams
509(3)
The Effect of Operating Leverage
512(2)
The Degree of Operating Leverage (DOL)---A Measurement
514(1)
Comparing Operating and Financial Leverage
515(2)
The Compounding Effect of Operating and Financial Leverage
517(1)
Capital Structure Theory
518(1)
Background---The Value of the Firm
518(1)
Insights: Leverage and Business Strategy
519(11)
The Early Theory by Modigliani and Miller
521(4)
Relaxing the Assumptions---More Insights
525(4)
An Insight into Mergers and Acquisitions
529(1)
Questions
530(1)
Business Analysis
531(2)
Problems
533(4)
Internet Problem
537(1)
Thomson One
538(1)
Dividends
539(26)
Background
539(2)
Dividends as a Basis for Value
539(1)
Understanding the Dividend Decision
540(1)
The Dividend Controversy
541(6)
Dividend Irrelevance
541(3)
Dividend Preference
544(1)
Dividend Aversion
544(1)
Other Theories and Ideas
545(1)
Conclusion
546(1)
Insights: Microsoft Shocks the High-Tech World By Declaring a Dividend
547(1)
Practical Considerations
548(1)
Legal and Contractual Restrictions on Dividends
548(1)
Insights: The Painful Decision to Cut Dividends
549(6)
Dividend Policy
549(1)
The Mechanics of Dividend Payments
550(2)
Stock Splits and Dividends
552(3)
Stock Repurchases
555(3)
Repurchase as an Alternative to a Dividend
555(2)
Other Repurchase Issues
557(1)
Questions
558(1)
Business Analysis
559(1)
Problems
560(3)
Internet Problem
563(2)
PART 5 Operations Issues---Working Capital Management and Planning
565(102)
The Management of Working Capital
567(48)
Working Capital Basics
567(1)
Working Capital, Funding Requirements, and the Current Accounts
568(1)
Insights: Going Broke Profitably
568(8)
The Objective of Working Capital Management
570(1)
Operations---The Cash Conversion Cycle
570(2)
Permanent and Temporary Working Capital
572(1)
Financing Net Working Capital
572(4)
Working Capital Policy
576(1)
Sources of Short-Term Financing
576(9)
Spontaneous Financing
576(2)
Unsecured Bank Loans
578(1)
Revolving Credit Agreement
579(2)
Commercial Paper
581(1)
Short-Term Credit Secured by Current Assets
582(3)
Cash Management
585(7)
Definitions and Objectives
586(1)
Marketable Securities
587(1)
Check Disbursement and Collection Procedures
587(2)
Accelerating Cash Receipts
589(2)
Managing Cash Outflow
591(1)
Evaluating the Cost of Cash Management Services
591(1)
Insights: Ethical Cash Management
592(1)
Managing Accounts Receivable
593(2)
Objectives and Policy
593(1)
Determinants of the Receivables Balance
593(2)
Insights: A Practical Management Warning
595(2)
Insights: How Lafarge's Western Region Controls Receivables---Sharing Responsibility for Collections with Sales
597(1)
Inventory Management
598(7)
Who Is Responsible for Inventories?
598(1)
The Benefits and Costs of Carrying Inventory
598(2)
Inventory Control and Management
600(1)
The Economic Order Quantity (EOQ) Model
600(3)
Safety Stocks, Reorder Points, and Lead Times
603(1)
Tracking Inventories---The ABC System
604(1)
Just in Time (JIT) Inventory Systems
604(1)
Questions
605(2)
Business Analysis
607(1)
Problems
608(5)
Internet Problem
613(2)
Financial Planning
615(52)
Business Planning
615(8)
Component Parts of a Business Plan
616(1)
The Purpose of Planning and Plan Information
616(2)
Credibility and Supporting Detail
618(1)
Four Kinds of Business Plan
619(4)
The Financial Plan as a Component of a Business Plan
623(1)
Making Financial Projections
623(28)
Planning for New and Existing Businesses
623(1)
The General Approach, Assumptions, and the Debt/Interest Problem
624(6)
Plans with Simple Assumptions
630(2)
Forecasting Cash Needs
632(1)
The Percentage of Sales Method---A Formula Approach
632(3)
The Sustainable Growth Rate
635(1)
Plans with More Complicated Assumptions
636(3)
A Comprehensive Example---A Complex Plan for an Existing Business
639(7)
Planning at the Department Level
646(1)
The Cash Budget
647(4)
Management Issues in Financial Planning
651(3)
The Financial Plan as a Set of Goals
651(1)
Risk in Financial Planning in General
652(2)
Insights: Judgment Calls and Ethics in Business Planning
654(2)
Financial Planning and Computers
655(1)
Questions
656(1)
Business Analysis
657(2)
Problems
659(6)
Internet Problem
665(2)
PART 6 Current Topics in Financial Management
667(60)
Corporate Restructuring
669(38)
Mergers and Acquisitions
669(17)
Basic Definitions, Terminology, and Procedure
669(4)
The Antitrust Laws
673(1)
The Reasons Behind Mergers
674(2)
Holding Companies
676(1)
The History of Merger Activity in the United States
676(3)
Merger Analysis and the Price Premium
679(7)
Insights: How A Trendy Soft Drink Gave Cereal Giant Quaker Oats a $1.4 Billion Case of Indigestion
686(3)
Defensive Tactics
687(2)
Other Kinds of Takeovers---LBOs and Proxy Fights
689(2)
Leveraged Buyouts (LBOs)
689(1)
Proxy Fights
690(1)
Divestitures
691(1)
The Reasons for Divestitures
691(1)
Methods of Divesting Operations
691(1)
Bankruptcy and the Reorganization of Failed Businesses
692(4)
Failure and Insolvency
692(1)
Bankruptcy---Concept and Objectives
693(1)
Bankruptcy Procedures---Reorganization, Restructuring, Liquidation
693(3)
Insights: Is Bankruptcy Too Easy---What About Ethics and Fraud
696(2)
Questions
698(1)
Business Analysis
699(2)
Problems
701(4)
Internet Problem
705(1)
Thomson One
706(1)
International Finance
707(20)
Currency Exchange
708(9)
The Foreign Exchange Market
708(1)
Exchange Rates
708(2)
Changing Exchange Rates and Exchange Rate Risk
710(2)
European Currencies in the Twenty-First Century---The Euro
712(1)
Supply and Demand---The Source of Exchange Rate Movement
712(3)
Governments and the International Monetary System
715(2)
International Capital Markets
717(2)
The Eurodollar Market
718(1)
The International Bond Market
718(1)
Political Risk
719(1)
Transaction and Translation Risks
720(2)
Questions
722(1)
Business Analysis
722(1)
Problems
723(1)
Internet Problems
724(3)
Appendix A Financial Tables 727(9)
Appendix B Answers to Selected Problems 736(4)
Glossary 740(9)
Index 749


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