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Principles of Managerial Finance, Brief plus MyFinanceLab

by
Edition:
4th
ISBN13:

9780321334305

ISBN10:
0321334302
Format:
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Pub. Date:
1/1/2006
Publisher(s):
Addison Wesley
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Summary

Gitman's Brief Fourth Edition approaches introductory finance with a focused concentration on the fundamental concepts, techniques, and practices of managerial finance. Through a proven, fully integrated learning system, this streamlined text provides students with a road map through the content. The overarching organization of the text is designed to conceptually link a firm's actions to its value as determined in the securities markets. Each major decision area is presented in terms of both risk and return factors and the potential impact on the owner's wealth.Principles of Managerial Finance, Brief now comes with MyFinanceLab, Addison-Wesley's online homework, testing, and tutorial system. MyFinanceLab saves instructors time with automatically graded homework, and gives students the benefit of individualized study plans, unlimited practice, and immediate feedback.

Table of Contents

Preface xxvii
To the Student xxxviii
Part 1 Introduction to Managerial Finance
1(134)
The Role and Environment of Managerial Finance
2(37)
Finance and Business
3(5)
What Is Finance?
3(1)
Major Areas and Opportunities in Finance
3(1)
Legal Forms of Business Organization
4(3)
Why Study Managerial Finance?
7(1)
Review Questions
8(1)
The Managerial Finance Function
8(4)
Organization of the Finance Function
8(1)
Relationship to Economics
9(1)
Relationship to Accounting
10(1)
Primary Activities of the Financial Manager
11(1)
Review Questions
11(1)
Goal of the Firm
12(7)
Maximize Profit?
12(1)
Maximize Shareholder Wealth
13(1)
Corporate Governance
14(1)
The Role of Ethics
15(2)
The Agency Issue
17(1)
Review Questions
18(1)
Financial Institutions and Markets
19(7)
Financial Institutions
19(1)
Financial Markets
20(1)
The Relationship Between Institutions and Markets
20(1)
The Money Market
20(2)
The Capital Market
22(3)
In Practice Focus on Practice: Warren Buffett---The Oracle of Omaha
25(1)
Review Questions
25(1)
Business Taxes
26(4)
Ordinary Income
26(3)
Capital Gains
29(1)
Review Questions
30(1)
Using This Text
30(9)
Summary
30(2)
Self-Test Problem
32(1)
Warm-Up Exercises
32(1)
Problems
33(3)
Chapter 1 Case: Assessing the Goal of Sports Products, Inc.
36(1)
Spreadsheet Exercise
37(1)
Web Exercise
38(1)
Financial Statements and Analysis
39(52)
The Stockholders' Report
40(8)
The Letter to Stockholders
40(1)
The Four Key Financial Statements
41(4)
Notes to the Financial Statements
45(1)
Consolidating International Financial Statements
46(1)
In Practice Focus on Ethics: Investors and Sox Declare War on Accounting Misdeeds
47(1)
Review Questions
47(1)
Using Financial Ratios
48(4)
Interested Parties
48(1)
Types of Ratio Comparisons
48(2)
Cautions About Using Ratio Analysis
50(1)
Categories of Financial Ratios
51(1)
Review Questions
52(1)
Liquidity Ratios
52(1)
Current Ratio
52(1)
Quick (Acid-Test) Ratio
52(1)
Review Questions
53(1)
Activity Ratios
53(3)
Inventory Turnover
54(1)
Average Collection Period
54(1)
Average Payment Period
55(1)
Total Asset Turnover
55(1)
Review Question
56(1)
Debt Ratios
56(3)
Debt Ratio
57(1)
Times Interest Earned Ratio
58(1)
Fixed-Payment Coverage Ratio
58(1)
Review Questions
59(1)
Profitability Ratios
59(4)
Common-Size Income Statements
59(1)
Gross Profit Margin
60(1)
Operating Profit Margin
61(1)
Net Profit Margin
61(1)
Earnings per Share (EPS)
61(1)
Return on Total Assets (ROA)
62(1)
Return on Common Equity (ROE)
62(1)
Review Questions
63(1)
Market Ratios
63(1)
Price/Earnings (P/E) Ratio
63(1)
Market/Book (M/B) Ratio
63(1)
Review Question
64(1)
A Complete Ratio Analysis
64(27)
Summarizing All Ratios
64(4)
DuPont System of Analysis
68(3)
Review Questions
71(1)
Summary
71(2)
Self-Test Problems
73(1)
Warm-Up Exercises
74(1)
Problems
75(11)
Chapter 2 Case: Assessing Martin Manufacturing's Current Financial Position
86(2)
Spreadsheet Exercise
88(2)
Web Exercise
90(1)
Cash Flow and Financial Planning
91(44)
Analyzing the Firm's Cash Flow
92(10)
Depreciation
92(3)
Developing the Statement of Cash Flows
95(3)
Operating Cash Flow
98(3)
Free Cash Flow
101(1)
Review Questions
102(1)
The Financial Planning Process
102(2)
Long-Term (Strategic) Financial Plans
103(1)
Short-Term (Operating) Financial Plans
103(1)
Review Questions
104(1)
Cash Planning: Cash Budgets
104(8)
The Sales Forecast
104(1)
Preparing the Cash Budget
105(1)
In Practice Focus on Practice: Cash Forecasts: Easier Said Than Done
106(4)
Evaluating the Cash Budget
110(1)
Coping with Uncertainty in the Cash Budget
111(1)
Review Questions
112(1)
Profit Planning: Pro Forma Statements
112(2)
Preceding Year's Financial Statements
113(1)
Sales Forecast
113(1)
Review Question
114(1)
Preparing the Pro Forma Income Statement
114(3)
Considering Types of Costs and Expenses
115(1)
Review Questions
116(1)
Preparing the Pro Forma Balance Sheet
117(2)
Review Questions
119(1)
Evaluation of Pro Forma Statements
119(16)
Review Questions
119(1)
Summary
120(1)
Self-Test Problems
121(2)
Warm-Up Exercises
123(1)
Problems
124(7)
Chapter 3 Case: Preparing Martin Manufacturing's 2007 Pro Forma Financial Statements
131(1)
Spreadsheet Exercise
132(1)
Web Exercise
133(2)
Part 2 Important Financial Concepts
135(180)
Time Value of Money
136(59)
The Role of Time Value in Finance
137(4)
Future Value Versus Present Value
137(1)
Computational Tools
138(2)
Basic Patterns of Cash Flow
140(1)
Review Questions
141(1)
Single Amounts
141(7)
Future Value of a Single Amount
141(4)
Present Value of a Single Amount
145(2)
Comparing Present Value and Future Value
147(1)
Review Questions
148(1)
Annuities
148(6)
Types of Annuities
149(1)
Finding the Future Value of an Ordinary Annuity
150(1)
Finding the Present Value of an Ordinary Annuity
151(2)
Finding the Present Value of a Perpetuity
153(1)
Review Questions
154(1)
Mixed Streams
154(4)
Future Value of a Mixed Stream
154(2)
Present Value of a Mixed Stream
156(2)
Review Question
158(1)
Compounding Interest More Frequently Than Annually
158(7)
Semiannual Compounding
158(1)
Quarterly Compounding
159(1)
A General Equation for Compounding More Frequently Than Annually
160(1)
Using Computational Tools for Compounding More Frequently Than Annually
161(1)
Continuous Compounding
162(1)
Nominal and Effective Annual Rates of Interest
163(1)
Review Questions
164(1)
In Practice Focus on Ethics: How Fair Is ``Check into Cash''?
165(1)
Special Applications of Time Value
165(30)
Determining Deposits Needed to Accumulate a Future Sum
166(1)
Loan Amortization
167(1)
Finding Interest or Growth Rates
168(3)
Finding an Unknown Number of Periods
171(1)
Review Questions
172(1)
Summary
173(2)
Self-Test Problems
175(1)
Warm-Up Exercises
176(1)
Problems
177(15)
Chapter 4 Case: Funding Jill Moran's Retirement Annuity
192(1)
Spreadsheet Exercise
192(1)
Web Exercise
193(2)
Risk and Return
195(40)
Risk and Return Fundamentals
196(3)
Risk Defined
196(1)
Return Defined
196(2)
Risk Aversion
198(1)
Review Questions
199(1)
Risk of a Single Asset
199(6)
Risk Assessment
199(2)
Risk Measurement
201(4)
Review Questions
205(1)
Risk of a Portfolio
205(6)
Correlation
205(1)
Diversification
206(2)
Correlation, Diversification, Risk, and Return
208(1)
International Diversification
209(1)
In Practice Global Focus: An International Flavor to Risk Reduction
210(1)
Review Questions
211(1)
Risk and Return: The Capital Asset Pricing Model (CAPM)
211(24)
Types of Risk
211(1)
The Model: CAPM
212(6)
Review Questions
218(1)
Summary
219(2)
Self-Test Problems
221(1)
Warm-Up Exercises
222(1)
Problems
223(9)
Chapter 5 Case: Analyzing Risk and Return on Chargers Products' Investments
232(1)
Spreadsheet Exercise
233(1)
Web Exercise
234(1)
Interest Rates and Bond Valuation
235(39)
Interest Rates and Required Returns
236(6)
Interest Rate Fundamentals
236(2)
Term Structure of Interest Rates
238(2)
Risk Premiums: Issuer and Issue Characteristics
240(1)
Review Questions
241(1)
Corporate Bonds
242(8)
Legal Aspects of Corporate Bonds
242(1)
Cost of Bonds to the Issuer
243(1)
General Features of a Bond Issue
244(1)
Interpreting Bond Quotations
245(1)
Bond Ratings
246(1)
In Practice Focus on Ethics: Can We Trust the Bond Raters?
247(1)
Popular Types of Bonds
247(1)
International Bond Issues
248(2)
Review Questions
250(1)
Valuation Fundamentals
250(3)
Key Inputs
250(1)
The Basic Valuation Model
251(2)
Review Questions
253(1)
Bond Valuation
253(21)
Bond Fundamentals
253(1)
Basic Bond Valuation
253(2)
Bond Value Behavior
255(3)
Yield to Maturity (YTM)
258(2)
Semiannual Interest and Bond Values
260(1)
Review Questions
261(1)
Summary
262(2)
Self-Test Problems
264(1)
Warm-Up Exercises
264(1)
Problems
265(6)
Chapter 6 Case: Evaluating Annie Hegg's Proposed Investment in Atilier Industries Bonds
271(1)
Spreadsheet Exercise
272(1)
Web Exercise
273(1)
Stock Valuation
274(41)
Differences Between Debt and Equity Capital
275(1)
Voice in Management
275(1)
Claims on Income and Assets
275(1)
Maturity
276(1)
Tax Treatment
276(1)
Review Question
276(1)
Common and Preferred Stock
276(12)
Common Stock
277(3)
Preferred Stock
280(2)
Issuing Common Stock
282(4)
Interpreting Stock Quotations
286(2)
Review Questions
288(1)
Common Stock Valuation
288(10)
In Practice Focus on Ethics: Do Investors Now Require a ``Credibility Premium''?
289(1)
Market Efficiency
289(2)
The Basic Stock Valuation Equation
291(3)
Free Cash Flow Valuation Model
294(2)
Other Approaches to Common Stock Valuation
296(2)
Review Questions
298(1)
Decision Making and Common Stock Value
298(17)
Changes in Expected Return
298(1)
Changes in Risk
299(1)
Combined Effect
300(1)
Review Questions
300(1)
Summary
300(3)
Self-Test Problems
303(1)
Warm-Up Exercises
303(1)
Problems
304(7)
Chapter 7 Case: Assessing the Impact of Suarez Manufacturing's Proposed Risky Investment on Its Stock Value
311(1)
Spreadsheet Exercise
312(1)
Web Exercise
313(2)
Part 3 Long-Term Investment Decisions
315(86)
Capital Budgeting Cash Flows
316(36)
The Capital Budgeting Decision Process
317(4)
Motives for Capital Expenditure
317(1)
Steps in the Process
317(1)
Basic Terminology
318(2)
Review Questions
320(1)
The Relevant Cash Flows
321(4)
In Practice Focus on Ethics: How Accurate Are Cash Flows?
321(1)
Major Cash Flow Components
322(1)
Expansion Versus Replacement Decisions
322(1)
Sunk Costs and Opportunity Costs
323(1)
International Capital Budgeting and Long-Term Investments
324(1)
Review Questions
324(1)
Finding the Initial Investment
325(5)
Installed Cost of a New Asset
325(1)
After-Tax Proceeds from Sale of Old Asset
326(2)
Change in Net Working Capital
328(1)
Calculating the Initial Investment
329(1)
Review Questions
330(1)
Finding the Operating Cash Inflows
330(4)
Interpreting the Term After-Tax
330(1)
Interpreting the Term Cash Inflows
331(1)
Interpreting the Term Incremental
332(2)
Review Questions
334(1)
Finding the Terminal Cash Flow
334(3)
Proceeds from Sale of Assets
335(1)
Taxes on Sale of Assets
335(1)
Change in Net Working Capital
335(1)
Review Questions
336(1)
Summarizing the Relevant Cash Flows
337(15)
Review Question
337(1)
Summary
337(2)
Self-Test Problems
339(1)
Warm-Up Exercises
340(1)
Problems
340(9)
Chapter 8 Case: Developing Relevant Cash Flows for Clark Upholstery Company's Machine Renewal or Replacement Decision
349(1)
Spreadsheet Exercise
350(1)
Web Exercise
351(1)
Capital Budgeting Techniques: Certainty and Risk
352(49)
Capital Budgeting Techniques
353(9)
Bennet Company's Relevant Cash Flows
353(1)
Payback Period
354(3)
Net Present Value (NPV)
357(2)
Internal Rate of Return (IRR)
359(3)
Review Questions
362(1)
Comparing NPV and IRR Techniques
362(4)
Net Present Value Profiles
362(1)
Conflicting Rankings
363(1)
Which Approach Is Better?
364(1)
Review Questions
365(1)
Additional Considerations: Real Options and Capital Rationing
366(4)
Recognizing Real Options
366(2)
Choosing Projects Under Capital Rationing
368(2)
Review Questions
370(1)
Behavioral Approaches for Dealing with Risk
370(5)
Sensitivity and Scenario Analysis
371(1)
Decision Trees
372(1)
Simulation
372(1)
International Risk Considerations
373(2)
Review Questions
375(1)
Risk-Adjusted Discount Rates
375(26)
Determining Risk-Adjusted Discount Rates (RADRs)
376(1)
In Practice Focus on Ethics: Warren Buffett Versus California Earthquake Authority
377(2)
RADRs in Practice
379(1)
Review Questions
380(1)
Summary
381(2)
Self-Test Problems
383(1)
Warm-Up Exercises
384(2)
Problems
386(11)
Chapter 9 Case: Making Norwich Tool's Lathe Investment Decision
397(1)
Spreadsheet Exercise
398(1)
Web Exercise
399(2)
Part 4 Long-Term Financial Decisions
401(108)
The Cost of Capital
402(35)
An Overview of the Cost of Capital
403(4)
Some Key Assumptions
403(1)
In Practice Focus on Ethics: Creative Accounting and Cost of Capital at WorldCom
404(1)
The Basic Concept
404(1)
Specific Sources of Capital
405(1)
Review Questions
406(1)
The Cost of Long-Term Debt
407(3)
Net Proceeds
407(1)
Before-Tax Cost of Debt
407(3)
After-Tax Cost of Debt
410(1)
Review Questions
410(1)
The Cost of Preferred Stock
410(1)
Preferred Stock Dividends
410(1)
Calculating the Cost of Preferred Stock
411(1)
Review Question
411(1)
The Cost of Common Stock
411(4)
Finding the Cost of Common Stock Equity
411(2)
The Cost of Retained Earnings
413(1)
The Cost of New Issues of Common Stock
414(1)
Review Questions
415(1)
The Weighted Average Cost of Capital
415(3)
Calculating the Weighted Average Cost of Capital (WACC)
415(1)
Weighting Schemes
416(1)
Economic Value Added (EVA®)
417(1)
Review Questions
418(1)
The Marginal Cost and Investment Decisions
418(19)
The Weighted Marginal Cost of Capital (WMCC)
418(3)
The Investment Opportunities Schedule (IOS)
421(1)
Using the WMCC and IOS to Make Financing/Investment Decisions
421(2)
Review Questions
423(1)
Summary
423(2)
Self-Test Problem
425(1)
Warm-Up Exercises
426(1)
Problems
427(6)
Chapter 10 Case: Making Star Products' Financing/Investment Decision
433(2)
Spreadsheet Exercise
435(1)
Web Exercise
436(1)
Leverage and Capital Structure
437(42)
Leverage
438(13)
Breakeven Analysis
439(3)
Operating Leverage
442(3)
In Practice Focus on Practice: Adobe's Operating Leverage
445(1)
Financial Leverage
446(2)
Total Leverage
448(3)
Review Questions
451(1)
The Firm's Capital Structure
451(8)
Types of Capital
451(1)
External Assessment of Capital Structure
452(1)
Capital Structure of Non-U.S. Firms
452(2)
Capital Structure Theory
454(3)
The Optimal Capital Structure
457(2)
Review Questions
459(1)
The EBIT-EPS Approach to Capital Structure
459(5)
Presenting a Financing Plan Graphically
459(2)
Comparing Alternative Capital Structures
461(1)
Considering Risk in EBIT-EPS Analysis
462(1)
The Basic Shortcoming of EBIT-EPS Analysis
463(1)
Review Question
464(1)
Choosing the Optimal Capital Structure
464(15)
Linkage
464(1)
Estimating Value
465(1)
Maximizing Value Versus Maximizing EPS
465(1)
Some Other Important Considerations
466(1)
Review Questions
466(1)
Summary
467(2)
Self-Test Problems
469(1)
Warm-Up Exercises
470(1)
Problems
471(5)
Chapter 11 Case: Evaluating McGraw Industries' Capital Structure
476(1)
Spreadsheet Exercise
477(1)
Web Exercise
478(1)
Dividend Policy
479(30)
Dividend Fundamentals
480(3)
Cash Dividend Payment Procedures
480(2)
Tax Treatment of Dividends
482(1)
Dividend Reinvestment Plans
482(1)
Review Questions
482(1)
The Relevance of Dividend Policy
483(3)
The Residual Theory of Dividends
483(2)
Arguments for Dividend Irrelevance
485(1)
Arguments for Dividend Relevance
486(1)
Review Questions
486(1)
Factors Affecting Dividend Policy
486(4)
Legal Constraints
487(1)
Contractual Constraints
488(1)
Internal Constraints
488(1)
Growth Prospects
488(1)
Owner Considerations
488(1)
In Practice Focus on Ethics: Were Ford Managers Hoarding Cash?
489(1)
Market Considerations
490(1)
Review Question
490(1)
Types of Dividend Policies
490(3)
Constant-Payout-Ratio Dividend Policy
491(1)
Regular Dividend Policy
491(1)
Low-Regular-and-Extra Dividend Policy
492(1)
Review Question
493(1)
Other Forms of Dividends
493(16)
Stock Dividends
493(2)
Stock Splits
495(1)
Stock Repurchases
496(1)
Review Questions
497(1)
Summary
498(1)
Self-Test Problem
499(1)
Warm-Up Exercises
500(1)
Problems
501(5)
Chapter 12 Case: Establishing General Access Company's Dividend Policy and Initial Dividend
506(1)
Spreadsheet Exercise
507(1)
Web Exercise
508(1)
Part 5 Short-Term Financial Decisions
509
Working Capital and Current Assets Management
510(39)
Net Working Capital Fundamentals
511(3)
Net Working Capital
511(1)
The Tradeoff Between Profitability and Risk
512(1)
Review Questions
513(1)
The Cash Conversion Cycle
514(4)
Calculating the Cash Conversion Cycle
514(1)
Funding Requirements of the Cash Conversion Cycle
515(3)
Strategies for Managing the Cash Conversion Cycle
518(1)
Review Questions
518(1)
Inventory Management
518(6)
Differing Viewpoints About Inventory Level
519(1)
Common Techniques for Managing Inventory
519(4)
In Practice Focus on Practice: RFID: The Wave of the Future
523(1)
International Inventory Management
523(1)
Review Questions
524(1)
Accounts Receivable Management
524(10)
Credit Selection and Standards
524(5)
Credit Terms
529(2)
Credit Monitoring
531(2)
Review Questions
533(1)
Management of Receipts and Disbursements
534(15)
Float
534(1)
Speeding Up Collections
534(1)
Slowing Down Payments
535(1)
Cash Concentration
535(1)
Zero-Balance Accounts
536(1)
Investing in Marketable Securities
537(1)
Review Questions
537(2)
Summary
539(1)
Self-Test Problems
540(1)
Warm-Up Exercises
541(1)
Problems
542(4)
Chapter 13 Case: Assessing Roche Publishing Company's Cash Management Efficiency
546(1)
Spreadsheet Exercise
547(1)
Web Exercise
548(1)
Current Liabilities Management
549
Spontaneous Liabilities
550(5)
Accounts Payable Management
550(4)
In Practice Focus on Ethics: Amazon Stays Ethical to Avoid Biting the Hands that Feed It
554(1)
Accruals
554(1)
Review Questions
555(1)
Unsecured Sources of Short-Term Loans
555(7)
Bank Loans
555(5)
Commercial Paper
560(1)
International Loans
561(1)
Review Questions
562(1)
Secured Sources of Short-Term Loans
562
Characteristics of Secured Short-Term Loans
563(1)
The Use of Accounts Receivable as Collateral
564(2)
The Use of Inventory as Collateral
566(1)
Review Questions
567(1)
Summary
568(3)
Self-Test Problem
571(1)
Warm-Up Exercises
572(1)
Problems
572(6)
Chapter 14 Case: Selecting Kanton Company's Financing Strategy and Unsecured Short-Term Borrowing Arrangement
578(1)
Spreadsheet Exercise
579(1)
Web Exercise
580
Appendixes
A Financial Tables
1(1)
B Solutions to Self-Test Problems
1(1)
C Answers to Selected End-of-Chapter Problems
1(1)
Glossary 1(1)
Credits 1(1)
Index 1


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