Contemporary Financial Management with infotrac (Student Edition)

by Moyer, R. Charles; McGuigan, James R.; Kretlow, William J.

• ISBN13: 9780324289084
• ISBN10: 0324289081
• Edition: 10th
• Format: Hardcover
• Copyright: 2005-01-11
• Publisher: South-Western College Pub

Summary

The tenth edition of this successful text provides a comprehensive and contemporary introduction to financial management, focusing on shareholder wealth maximization and cash flow management, the international aspects of financial management, the ethical behavior of managers, and the increased impact of the Internet in business practice. In addition, content has been added or enhanced to reflect the changing focus on finance areas including topics such as risk management, behavioral finance, the effects of inflation on financial decision-making, ethics in business, and real options.

Table of Contents

Preface	xiii
Part 1: Introduction
The Role and Objective of Financial Management	2	(28)
Key Chapter Concepts	2	(1)
Financial Challenge: Financial Management Questions	3	(1)
Introduction	4	(1)
Forms of Business Organization	5	(3)
Foundation Concept: Maximizing Shareholder Wealth as the Primary Goal	8	(5)
Maximization of Shareholder Wealth: Managerial Strategies	13	(4)
Foundation Concept: Cash Flow	17	(2)
Foundation Concept: Net Present Value Rule	19	(1)
Organization of the Financial Management Function	19	(3)
Ethical Issues: The Practice of Financial Management	20	(2)
Financial Management and Other Disciplines	22	(2)
Entrepreneurial Issues: Shareholder Wealth Maximization	23	(1)
Career Opportunities in Finance	24	(1)
Professional Finance Affiliations	25	(1)
Organization of the Text	25	(5)
Summary	27	(1)
Questions and Topics for Discussion	28	(2)
The Domestic and International Financial Marketplace	30	(34)
Key Chapter Concepts	30	(1)
Financial Challenge: Long-Term Capital Management, L.P.	31	(1)
Introduction	32	(1)
Income Taxes and Financial Management	32	(1)
An Overview of the U.S. Financial System	33	(5)
The Structure and Operation of U.S. Security Markets	38	(2)
The Global Economy and Multinational Enterprises	40	(2)
Foreign Currency Markets and Exchange Rates	42	(5)
Foundation Concept: Market Efficiency	47	(6)
Ethical Issues: Insider Trading	52	(1)
Foundation Concept: Holding Period Returns	53	(6)
International Issues: Market Efficiency Outside the United States	54	(1)
Summary	55	(1)
Questions and Topics for Discussion	55	(1)
Self-Test Problems	56	(1)
Problems	56	(3)
Appendix 2A: Taxes	59	(1)
Corporate Income Taxes	59	(5)
Entrepreneurial Issues: S Corporations	60	(1)
Questions and Topics for Discussion	61	(1)
Self-Test Problems	62	(1)
Problems	62	(2)
Evaluation of Financial Performance	64	(45)
Key Chapter Concepts	64	(1)
Financial Challenge: Earnings Management and Financial Performance Measurement	65	(1)
Introduction	66	(1)
Uses of Financial Analysis	67	(1)
Interpreting Financial Ratios	67	(1)
Basic Classifications of Financial Ratios	68	(13)
Summary of Financial Ratio Analysis	81	(3)
Trend Analysis	84	(1)
Analysis of Profitability: Return on Investment	84	(3)
Foundation Concept: Analyzing Profitability Through Return on Stockholders' Equity	87	(1)
Sources of Comparative Financial Data	87	(2)
A Word of Caution About Financial Ratio Analysis	89	(1)
Earnings and Balance Sheet Quality and Financial Analysis	90	(2)
Ethical Issues: The Sarbanes-Oxley Act and the Financial Reporting Process	92	(1)
Market Value Added: An Alternative Measure of Performance	92	(4)
International Issues: Financial Analysis of Multinational Corporations	95	(1)
Inflation and Financial Statement Analysis	96	(13)
Summary	96	(1)
Questions and Topics for Discussion	97	(1)
Self-Test Problems	98	(2)
Problems	100	(9)
Financial Planning and Forecasting	109	(27)
Key Chapter Concepts	109	(1)
Financial Challenge: Financial Forecasting in the Telecom Industry: What Went Wrong?	110	(1)
Introduction	111	(1)
Financial Planning	111	(1)
Foundation Concept: Cash Flow Analysis	112	(4)
Financial Forecasting	116	(20)
Summary	127	(1)
Questions and Topics for Discussion	128	(1)
Self-Test Problems	128	(1)
Problems	129	(7)
Part 2: Determinants of Valuation
The Time Value of Money	136	(44)
Key Chapter Concepts	136	(1)
Financial Challenge: The Powerball Winner's ``Dilemma''	137	(1)
Introduction	137	(1)
The Use of Financial Calculators and Spreadsheets	138	(2)
Interest	140	(1)
Simple Interest	141	(1)
Compound Interest and Future Value	142	(4)
Present Value	146	(3)
Annuities	149	(9)
Present Value: Some Additional Cash Flow Patterns	158	(5)
Compounding Periods and Effective Interest Rates	163	(3)
Solving the Financial Challenge	166	(10)
Summary	167	(1)
Questions and Topics for Discussion	167	(2)
Self-Test Problems	169	(1)
Problems	169	(7)
Integrative Case Problem	176	(1)
Appendix 5A: Continuous Compounding And Discounting	177	(1)
Continuous Compounding	177	(1)
Continuous Discounting	177	(1)
Effective Rate Calculations	178	(2)
Self-Test Problems	178	(1)
Problems	178	(2)
Analysis of Risk and Return	180	(46)
Key Chapter Concepts	180	(1)
Financial Challenge: Risk and Return on AT&T Common Stock	181	(1)
Introduction	182	(1)
Meaning and Measurement of Risk	182	(7)
Foundation Concept: Relationship Between Risk and Return	189	(6)
Investment Diversification and Portfolio Risk Analysis	195	(9)
Portfolio Risk and the Capital Asset Pricing Model	204	(10)
International Issues: Diversification and Multinational Corporations	212	(1)
Ethical Issues: High-Risk Securities	213	(1)
Other Dimensions of Risk	214	(12)
Summary	215	(1)
Questions and Topics for Discussion	216	(2)
Self-Test Problems	218	(1)
Problems	219	(7)
Fixed-Income Securities: Characteristics and Valuation	226	(35)
Key Chapter Concepts	226	(1)
Financial Challenge: The Bondholders of MCI Worldcom	227	(1)
Introduction	227	(1)
Characteristics of Long-Term Debt	228	(12)
International Issues: The International Bond Market	240	(1)
Foundation Concept: Valuation of Assets	240	(3)
Bond Valuation	243	(6)
Ethical Issues: Leveraged Buyouts and Bond Values	248	(1)
Characteristics of Preferred Stock	249	(3)
Valuation of Preferred Stock	252	(9)
Summary	253	(1)
Questions and Topics for Discussion	254	(2)
Self-Test Problems	256	(1)
Problems	256	(5)
Common Stock: Characteristics, Valuation, and Issuance	261	(35)
Key Chapter Concepts	261	(1)
Financial Challenge: Google Goes Public	262	(1)
Introduction	263	(1)
Characteristics of Common Stock	264	(6)
The Security Offering Process: Role of the Investment Banker	270	(6)
Foundation Concept: Valuation of Common Stock	276	(3)
International Issues: Global Equity Markets	277	(2)
Applications of the General Dividend Valuation Model	279	(17)
Entrepreneurial Issues: Valuation of Closely Held Firms	282	(3)
Summary	285	(1)
Questions and Topics for Discussion	286	(1)
Self-Test Problems	287	(1)
Problems	287	(9)
Part 3: The Capital Investment Decision
Capital Budgeting and Cash Flow Analysis	296	(36)
Key Chapter Concepts	296	(1)
Financial Challenge: Capital Investment Opportunities During a Business Downturn: The Case of Cleveland Cliffs Inc.	297	(1)
Introduction	298	(1)
Key Terms and Concepts in Capital Budgeting	299	(1)
Basic Framework for Capital Budgeting	300	(2)
Generating Capital Investment Project Proposals	302	(1)
Foundation Concept: Principles of Estimating Cash Flows	303	(2)
Net Investment (NINV)	305	(2)
Net (Operating) Cash Flows	307	(4)
Asset Expansion Projects	311	(1)
Asset Replacement Projects	312	(3)
Problems in Cash Flow Estimation	315	(1)
The Practice of Cash Flow Estimation for Capital Budgeting	315	(11)
Ethical Issues: Cash Flow Estimation Biases	318	(1)
Summary	318	(1)
Questions and Topics for Discussion	319	(1)
Self-Test Problems	320	(1)
Problems	320	(6)
Appendix 9A: Depreciation	326	(1)
Introduction to Depreciation	326	(1)
Straight-Line Depreciation	326	(1)
Accelerated Depreciation	327	(1)
Modified Accelerated Cost Recovery System	328	(2)
Real Property	330	(2)
Questions and Topics for Discussion	331	(1)
Problems	331	(1)
Capital Budgeting: Decision Criteria and Real Option Considerations	332	(42)
Key Chapter Concepts	332	(1)
Financial Challenge: Real Options and the Automobile Production Process: The Case of Honda and Toyota	333	(1)
Introduction	334	(1)
Foundation Concept: Decision Models for Evaluating Alternatives	334	(12)
Capital Rationing and the Capital Budgeting Decision	346	(3)
Reviewing and Post-Auditing an Accepted Project	349	(1)
A Comprehensive Example of Capital Budgeting: Opening a New Bank Branch	350	(4)
International Issues: A Framework for International Capital Expenditure Decisions	352	(2)
Entrepreneurial Issues: Capital Budgeting	354	(1)
Inflation and Capital Expenditures	354	(1)
Real Options in Capital Budgeting	355	(13)
Ethical Issues: The Use of Shareholder Resources	356	(3)
Summary	359	(1)
Questions and Topics for Discussion	359	(1)
Self-Test Problems	360	(1)
Problems	360	(8)
Integrative Case Problem	368	(1)
Appendix 10A: Mutually Exclusive Investments Having Unequal Lives	369	(1)
Replacement Chains	369	(1)
Equivalent Annual Annuities	370	(4)
Problems	372	(2)
Capital Budgeting and Risk	374	(30)
Key Chapter Concepts	374	(1)
Financial Challenge: Boeing Makes a Gutsy Decision	375	(1)
Introduction	376	(1)
Total Project Risk Versus Portfolio Risk	376	(1)
Adjusting for Total Project Risk	377	(9)
Adjusting for Beta Risk in Capital Budgeting	386	(16)
International Issues: Special Elements of Capital Budgeting Risk	388	(1)
Ethical Issues: Johnson & Johnson and Proprietary Competitive Information	389	(3)
Summary	392	(1)
Questions and Topics for Discussion	392	(1)
Self-Test Problems	393	(1)
Problems	394	(8)
Integrative Case Problem	402	(2)
Part 4: The Cost of Capital, Capital Structure, and Dividend Policy
The Cost of Capital	404	(36)
Key Chapter Concepts	404	(1)
Financial Challenge: Cost of Equity Capital for Mountain Fuel Supply Company	405	(1)
Introduction	406	(1)
Summary of Notation	407	(1)
Foundation Concept: Weighted Cost of Capital	407	(3)
Relative Costs of Capital	410	(1)
Computing the Component Costs of Capital	411	(9)
Divisional Costs of Capital	420	(2)
Determining the Weighted (Marginal) Cost of Capital Schedule	422	(3)
International Issues: The Cost of Capital for Multinational Companies	424	(1)
Determining the Optimal Capital Budget	425	(2)
Entrepreneurial Issues: The Cost of Capital	426	(1)
Cost of Depreciation-Generated Funds	427	(11)
Summary	428	(1)
Questions and Topics for Discussion	429	(1)
Self-Test Problems	429	(1)
Problems	430	(8)
Integrative Case Problem	438	(2)
Capital Structure Concepts	440	(30)
Key Chapter Concepts	440	(1)
Financial Challenge: Optimal Capital Structure in the Airline Industry: Delta Air Lines Versus Southwest Airlines	441	(1)
Introduction	442	(1)
Capital Structure Decisions and Maximization of Shareholder Wealth	442	(1)
Foundation Concept: Business Risk	443	(2)
Foundation Concept: Financial Risk and Financial Leverage	445	(3)
Capital Structure Theory	448	(22)
Ethical Issues: LBO Stakeholder Impacts	461	(1)
International Issues: Capital Structure	462	(1)
Summary	463	(1)
Questions and Topics for Discussion	464	(1)
Self-Test Problem	464	(1)
Problems	465	(5)
Capital Structure Management in Practice	470	(46)
Key Chapter Concepts	470	(1)
Financial Challenge: A Significant Deleveraging of AT&T's Balance Sheet	471	(1)
Introduction	472	(1)
Operating and Financial Leverage	472	(9)
Other Financial Risk Measures	481	(1)
EBIT-EPS Analysis	482	(5)
Cash Insolvency Analysis	487	(3)
Other Factors to Consider in Making Capital Structure Decisions	490	(15)
International Issues: Balancing Operating and Financial Risks at Nestle	492	(1)
Summary	493	(1)
Questions and Topics for Discussion	494	(1)
Self-Test Problems	495	(1)
Problems	496	(9)
Appendix 14A: Breakeven Analysis	505	(1)
Graphic Breakeven Analysis	505	(1)
Algebraic Breakeven Analysis	506	(4)
Breakeven Analysis and Risk Assessment	510	(1)
Some Limitations of Breakeven Analysis	511	(1)
Cash Breakeven Point	512	(4)
Questions and Topics for Discussion	513	(1)
Self-Test Problems	513	(1)
Problems	514	(2)
Dividend Policy	516	(32)
Key Chapter Concepts	516	(1)
Financial Challenge: Cisco Systems Shareholders Reject a Dividend Payout Proposal	517	(1)
Introduction	518	(1)
Determinants of Dividend Policy	519	(6)
Dividend Policy and Firm Value	525	(3)
Dividend Policies	528	(5)
Entrepreneurial Issues: Dividend Policy	532	(1)
How Dividends Are Paid	533	(2)
International Issues: Dividend Policies for Multinational Firms	535	(1)
Stock Dividends and Stock Splits	535	(2)
Share Repurchases as Dividend Decisions	537	(11)
Summary	540	(1)
Questions and Topics for Discussion	541	(1)
Self-Test Problems	542	(1)
Problems	542	(6)
Part 5: Working Capital Management
Working Capital Policy and Short-Term Financing	548	(53)
Key Chapter Concepts	548	(1)
Financial Challenge: The Costs of Financial Distress: Xerox Renegotiates Its Credit Line	549	(1)
Introduction	550	(1)
Working Capital Policy	550	(3)
Levels of Working Capital Investment	553	(3)
Proportions of Short-Term and Long-Term Financing	556	(5)
Overall Working Capital Policy	561	(1)
Short-Term Credit	561	(2)
Cost of Short-Term Funds	563	(1)
Trade Credit	564	(3)
Accrued Expenses and Deferred Income	567	(1)
Short-Term Bank Credit	568	(5)
Ethical Issues: Tying Bank Loans to Other Services	572	(1)
Commercial Paper	573	(2)
Accounts Receivable Loans	575	(3)
Inventory Loans	578	(20)
International Issues: Foreign Receivables Financing	580	(1)
Summary	581	(1)
Questions and Topics for Discussion	582	(3)
Self-Test Problems	585	(1)
Problems	586	(12)
Integrative Case Problem	598	(3)
The Management of Cash and Marketable Securities	601	(31)
Key Chapter Concepts	601	(1)
Financial Challenge: Does Microsoft Have Too Much Cash?	602	(1)
Introduction	603	(1)
Liquid Asset Balance	604	(5)
Controlling the Collection and Disbursement of Cash	609	(7)
Ethical Issues: Cash Management	615	(1)
Electronic Funds Transfer	616	(1)
Investing in Marketable Securities	617	(15)
Entrepreneurial Issues: Cash Management	618	(4)
International Issues: Cash Management	622	(2)
Summary	624	(1)
Questions and Topics for Discussion	624	(1)
Self-Test Problems	625	(1)
Problems	626	(6)
Management of Accounts Receivable and Inventories	632	(34)
Key Chapter Concepts	632	(1)
Financial Challenge: Trade Credit in the Telecom Industry: Cisco Systems	633	(1)
Introduction	634	(1)
Accounts Receivable Management	634	(8)
Evaluating Individual Credit Applicants	642	(3)
Inventory Management	645	(3)
Inventory Control Models	648	(18)
Summary	654	(1)
Questions and Topics for Discussion	655	(1)
Self-Test Problems	656	(1)
Problems	657	(9)
Part 6: Additional Topics in Contemporary Financial Management
Lease and Intermediate-Term Financing	666	(30)
Key Chapter Concepts	666	(1)
Financial Challenge: Risks in Leasing Commercial Aircraft: International Lease Finance Corporation	667	(1)
Introduction	668	(1)
Leasing	668	(1)
Types of Leases	669	(3)
Advantages and Disadvantages of Leasing	672	(2)
Entrepreneurial Issues: Leasing by Small Businesses	673	(1)
Tax and Accounting Aspects of Leases	674	(2)
Determining Lease Payments: The Lessor's Perspective	676	(2)
Ethical Issues: Continental Airlines' Leases in Bankruptcy	678	(1)
Lease-Buy Analysis: The Lessee's Perspective	678	(2)
Term Loans	680	(4)
Security Provisions and Protective Covenants	684	(2)
Suppliers of Term Loans	686	(2)
Equipment Loans	688	(7)
Summary	689	(1)
Questions and Topics for Discussion	689	(1)
Self-Test Problems	690	(1)
Problems	691	(4)
Integrative Case Problem	695	(1)
Financing with Derivatives	696	(31)
Key Concepts	696	(1)
Financial Challenge: Repricing ``Underwater Options''	697	(1)
Introduction	698	(1)
Options	699	(3)
Convertible Securities	702	(5)
Warrants	707	(2)
Analysis of Rights Offerings	709	(2)
Interest Rate Swaps	711	(9)
Summary	712	(1)
Questions and Topics for Discussion	713	(1)
Self-Test Problems	714	(1)
Problems	715	(5)
Appendix 20A: The Black-Scholes Option Pricing Model	720	(1)
The Foundations of Option Valuation	720	(1)
The Black-Scholes Option Pricing Model	721	(1)
Applying the Black-Scholes Model	721	(2)
Problems	722	(1)
Appendix 20B: Bond Refunding Analysis	723	(1)
The Bond Refunding Process	723	(4)
Problems	725	(2)
Risk Management	727	(16)
Key Chapter Concepts	727	(1)
Financial Challenge: Risk and the Weakening Dollar	728	(1)
Introduction	728	(1)
Why Manage Risk?	729	(2)
Ethical Issues: Barings Bank PLC and Nick Leeson	730	(1)
Nonhedging Risk Management Strategies	731	(2)
Hedging Strategies for Risk Management	733	(5)
Hedging Price Risk with Options	738	(5)
Summary	739	(1)
Questions and Topics for Discussion	740	(1)
Self-Test Problems	740	(1)
Problems	741	(2)
International Financial Management	743	(21)
Key Chapter Concepts	743	(1)
Financial Challenge: Argentina Takes a Financial Dive	744	(1)
Introduction	745	(1)
Factors That Affect Exchange Rates	745	(7)
Forecasting Future Exchange Rates	752	(1)
Foreign Exchange Risk	753	(11)
Ethical Issues: Payment of Bribes Abroad	757	(2)
Summary	759	(1)
Questions and Topics for Discussion	759	(1)
Self-Test Problems	760	(1)
Problems	760	(4)
Corporate Restructuring	764
Key Chapter Concepts	764	(1)
Financial Challenge: The Swift Collapse of Enron	765	(1)
Introduction	766	(1)
Mergers	766	(9)
Valuation of Merger Candidates	775	(4)
Analysis of a Leveraged Buyout	779	(2)
Business Failure	781	(3)
Alternatives for Failing Businesses	784	(13)
Summary	789	(1)
Questions and Topics for Discussion	790	(2)
Self-Test Problem	792	(1)
Problems	792	(5)
Integrative Case Problem	797
Reference Materials
Tables	1	(1)
Glossary	1	(1)
Solutions to Self-Test Problems	1	(1)
Check Answers to Selected Problems	1	(1)
Index	1