Financial Management and Mastering Finance : Universal CD-ROM Ver. 1.1

by Gallagher, Timothy J.; Andrew, Joseph D.

• ISBN13: 9780131768826
• ISBN10: 0131768824
• Edition: 3rd
• Format: Hardcover w/CD
• Copyright: 2003-01-01
• Publisher: Pearson College Div

Summary

For undergraduate-level courses in Principles of Finance, Principles of Financial Management, or Principles of Corporate Finance. This unique author teamone academic, one a full-time financial practitionerpresents the latest in financial theory while maintaining a strong real-world connection. Engaging students with humor and an attractive layout, the text is student-focused yet does not water down content. This substantive and concise presentation demonstrates that finance is important, dynamic, interesting, and fun, with a direct benefit to students personally. Its consistent approach focuses on value: what creates value, what destroys it, how value is measured, and how value and risk are related.

Table of Contents

Preface	xxi
About the Authors	xxxi
Part I THE WORLD OF FINANCE	xxxii
Finance and the Firm	2	(20)
The Field of Finance	4	(1)
Finance Career Paths	5	(1)
Financial Management	5	(3)
The Role of the Financial Manager	5	(1)
Finance at Work: Brad Ford, Senior Accountant---Inventory Control for Eagle Food Centers	6	(2)
The Basic Financial Goal of the Firm	8	(3)
In Search of Value	9	(2)
Legal and Ethical Challenges in Financial Management	11	(4)
Agency Issues	12	(1)
Finance at Work: Melanie Rosen, Electronic Media, The New York Times	13	(1)
The Interests of Other Groups	13	(1)
The Interests of Society as a Whole	14	(1)
Forms of Business Organization	15	(3)
The Proprietorship	15	(1)
The Partnership	16	(1)
The Corporation	17	(1)
Limited Liability Companies (LLCs)	18	(1)
What's Next	18	(4)
Summary	19	(1)
Self-Test	20	(1)
Review Questions	20	(1)
Build Your Communication Skills	20	(1)
Problems	21	(1)
Answers to Self-Test	21	(1)
Financial Markets and Interest Rates	22	(20)
The Financial System	24	(2)
Securities	24	(1)
Financial Intermediaries	25	(1)
Financial Markets	26	(2)
The Primary Market	26	(1)
The Secondary Market	26	(1)
The Money Market	26	(1)
The Capital Market	27	(1)
Security Exchanges	27	(1)
The Over-the-Counter (OTC) Market	27	(1)
Market Efficiency	28	(1)
Securities in the Financial Marketplace	28	(5)
Securities in the Money Market	28	(1)
Securities in the Capital Market	29	(1)
Ethical Connections: So. Calif Edison Hasn't Paid $395M of Commercial Paper	30	(3)
Financial Management and You: How to Buy Treasury Securities Without Using a Broker	33	(1)
Interest	33	(4)
Determinants of Interest Rates	34	(2)
The Yield Curve	36	(1)
What's Next	37	(5)
Summary	37	(2)
Self-Test	39	(1)
Review Questions	39	(1)
Build Your Communication Skills	39	(1)
Problems	40	(1)
Answers to Self-Test	41	(1)
Financial Institutions	42	(22)
Financial Intermediation	44	(5)
Denomination and Maturity Matching	44	(1)
Absorbing Credit Risk	45	(1)
Commercial Banks	46	(1)
Bank Regulation	46	(1)
Commercial Bank Operations	46	(2)
Ethical Connections: How Ethical Is Your Financial Institution?	48	(1)
Online Banking	49	(1)
The Federal Reserve System	49	(3)
Organization of the Fed	50	(1)
Controlling the Money Supply	51	(1)
The Discount Window	52	(1)
Savings and Loan Associations	52	(3)
Legislation Affecting S&Ls	52	(1)
Regulation of S&Ls	53	(1)
Mutual Companies versus Stockholder-Owned Companies	53	(1)
The Problem of Matching Loan and Deposit Maturities	54	(1)
S&Ls' Real Assets	55	(1)
Credit Unions	55	(1)
The Common Bond Requirement	55	(1)
Members as Shareholders	55	(1)
Credit Unions Compared with Banks	55	(1)
Credit Union Regulation	56	(1)
Finance Companies, Insurance Companies, and Pension Funds	56	(3)
Types of Finance Companies	56	(1)
Insurance Companies	57	(2)
Financial Management and You: The Social Security System	59	(1)
What's Next	59	(5)
Summary	59	(1)
Self-Test	60	(1)
Review Questions	61	(1)
Build Your Communication Skills	61	(1)
Problems	61	(1)
Answers to Self-Test	62	(2)
Part II ESSENTIAL CONCEPTS IN FINANCE	64	(170)
Review of Accounting	66	(28)
Review of Accounting Fundamentals	68	(1)
Basic Accounting Financial Statements	68	(11)
The Income Statement	68	(3)
Financial Management and You: A Special Earnings Category: EBITDA	71	(1)
Ethical Connections: Rite Aid Says SEC Has Begun Investigating the Drugstore Chain's Finances	72	(1)
The Balance Sheet	73	(3)
The Statement of Cash Flows	76	(3)
Depreciation	79	(4)
Ethical Connections: Interview with Lynn Turner; Former Chief Accountant of the SEC	80	(1)
Calculating the Amount of Depreciation Expense	81	(2)
Financial Management and You: Your Personal Tax Rates	83	(1)
Income Taxes	83	(2)
What's Next	85	(9)
Summary	85	(1)
Self-Test	85	(1)
Review Questions	86	(1)
Build Your Communication Skills	87	(1)
Problems	87	(5)
Answers to Self-Test	92	(2)
Analysis of Financial Statements	94	(40)
Assessing Financial Health	96	(2)
Misleading Numbers	96	(1)
Financial Ratios	97	(1)
The Basic Financial Ratios	98	(14)
Calculating the Ratios	99	(4)
Liquidity Ratios	103	(9)
Trend Analysis and Industry Comparisons	112	(3)
Finance at Work: Lee Anne Schuster, Kitchell Contractors, Marketing	113	(1)
Trend Analysis	113	(1)
Industry Comparisons	114	(1)
Summary Analysis: Trend and Industry Comparisons Together	115	(2)
Locating Information About Financial Ratios	117	(2)
What's Next	119	(15)
Summary	119	(1)
Equations Introduced in This Chapter	120	(1)
Self-Test	121	(1)
Review Questions	121	(1)
Build Your Communication Skills	122	(1)
Problems	122	(11)
Answers to Self-Test	133	(1)
Forecasting for Financial Planning	134	(26)
Why Forecasting is Important	136	(2)
Forecasting Approaches	137	(1)
Why Forecasts Are Sometimes Wrong	137	(1)
Forecasting Sales	138	(1)
Forecasting Financial Statements	139	(12)
Budgets	140	(1)
Producing Pro Forma Financial Statements	140	(8)
Analyzing Forecasts for Financial Planning	148	(2)
Finance at Work: Keith Ender, Customer Service Manager, James River Paper Company	150	(1)
What's Next	151	(9)
Summary	151	(1)
Self-Test	152	(1)
Review Questions	152	(1)
Build Your Communication Skills	153	(1)
Problems	153	(6)
Answers to Self-Test	159	(1)
Risk and Return	160	(34)
Risk	162	(1)
Risk Aversion	162	(1)
The Risk-Return Relationship	162	(1)
Measuring Risk	163	(6)
Using Standard Deviation to Measure Risk	163	(5)
Using the Coefficient of Variation to Measure Risk	168	(1)
The Types of Risks Firms Encounter	169	(10)
Business Risk	169	(2)
Financial Risk	171	(1)
Portfolio Risk	172	(7)
Dealing with Risk	179	(2)
Risk-Reduction Methods	179	(1)
Financial Management and You: Mutual Funds and Risk	180	(1)
Compensating for the Presence of Risk	180	(1)
Relating Return and Risk: The Capital Asset Pricing Model	181	(2)
What's Next	183	(11)
Summary	183	(2)
Equations Introduced in This Chapter	185	(1)
Self-Test	186	(1)
FinCoach Practice Exercises	187	(1)
Review Questions	187	(1)
Build Your Communication Skills	187	(1)
Problems	188	(4)
Answers to Self-Test	192	(2)
The Time Value of Money	194	(40)
Why Money Has Time Value	196	(1)
Measuring the Time Value of Money	196	(4)
The Future Value of a Single Amount	197	(3)
The Sensitivity of Future Values to Changes in Interest Rates or the Number of Compounding Periods	200	(1)
The Present Value of a Single Amount	200	(4)
The Sensitivity of Present Values to Changes in k and n	203	(1)
Working with Annuities	204	(10)
Future Value of an Ordinary Annuity	204	(4)
The Present Value of an Ordinary Annuity	208	(2)
Ethical Connections: When a Million Isn't a Million. Taking a Chance on the Time Value of Money	210	(1)
Future and Present Values of Annuities Due	210	(2)
Perpetuities	212	(1)
Present Value of an Investment with Uneven Cash Flows	212	(2)
Special Time Value of Money Problems	214	(6)
Finding the Interest Rate	214	(3)
Finding the Number of Periods	217	(1)
Solving for the Payment	218	(1)
Loan Amortization	219	(1)
Compounding More Than Once Per Year	220	(4)
What's Next	224	(10)
Summary	224	(1)
Equations Introduced in This Chapter	225	(1)
Self-Test	226	(1)
FinCoach Practice Exercises	227	(1)
Review Questions	227	(1)
Build Your Communication Skills	228	(1)
Problems	228	(5)
Answers to Self-Test	233	(1)
Part III CAPITAL BUDGETING AND BUSINESS VALUATION	234	(140)
The Cost of Capital	236	(30)
The Cost of Capital	238	(1)
Sources of Capital	238	(10)
The Cost of Debt	239	(1)
The Cost of Preferred and Common Stock Funds	240	(4)
The Weighted Average Cost of Capital (WACC)	244	(4)
The Marginal Cost of Capital (MCC)	248	(5)
Finance at Work: Interview with Fred Higgins: Minit Mart Foods, Inc., CEO	249	(1)
The Firm's MCC Schedule	249	(4)
The MCC Schedule and Capital Budgeting Decisions	253	(3)
The Optimal Capital Budget	255	(1)
The Importance of MCC to Capital Budgeting Decisions	255	(1)
What's Next	256	(10)
Summary	257	(1)
Equations Introduced in This Chapter	258	(1)
Self-Test	259	(1)
FinCoach Practice Exercises	260	(1)
Review Questions	260	(1)
Build Your Communication Skills	260	(1)
Problems	260	(5)
Answers to Self-Test	265	(1)
Capital Budgeting Decision Methods	266	(42)
The Capital Budgeting Process	268	(2)
Decision Practices	269	(1)
Types of Projects	269	(1)
Capital Budgeting Cash Flows	269	(1)
Stages in the Capital Budgeting Process	270	(1)
Capital Budgeting Decision Methods	270	(13)
The Payback Method	270	(2)
The Net Present Value (NPV) Method	272	(5)
The Internal Rate of Return (IRR) Method	277	(3)
Conflicting Rankings Between the NPV and IRR Methods	280	(2)
The Modified Internal Rate of Return (MIRR) Method	282	(1)
Capital Rationing	283	(1)
Risk and Capital Budgeting	284	(4)
Measuring Risk in Capital Budgeting	284	(2)
Finance at Work: Jim Bruner, Former Maricopa County Supervisor, State of Arizona	286	(1)
Adjusting for Risk	287	(1)
What's Next	288	(14)
Summary	288	(2)
Equations Introduced in This Chapter	290	(1)
Self-Test	290	(1)
FinCoach Practice Exercises	291	(1)
Review Questions	291	(1)
Build Your Communication Skills	291	(1)
Problems	292	(7)
Answers to Self-Test	299	(3)
Appendix 10A: Wrinkles in Capital Budgeting	302	(1)
Nonsimple Projects	302	(1)
Multiple IRRs	302	(2)
Mutually Exclusive Projects with Unequal Project Lives	304	(4)
Comparing Projects with Unequal Lives	305	(2)
Equations Introduced in This Appendix	307	(1)
Estimating Incremental Cash Flows	308	(26)
Incremental Cash Flows	310	(1)
Types of Incremental Cash Flows	311	(11)
Initial Investment Cash Flows	311	(1)
Operating Cash Flows	312	(2)
Shutdown Cash Flows	314	(1)
Financing Cash Flows	315	(1)
Incremental Cash Flows of an Expansion Project	316	(4)
Financial Management and You: The Incremental Costs of Studying Abroad	320	(1)
Asset Replacement Decisions	321	(1)
Real Options	322	(3)
What's Next	325	(9)
Summary	325	(1)
Self-Test	326	(1)
FinCoach Practice Exercises	327	(1)
Review Questions	327	(1)
Build Your Communication Skills	327	(1)
Problems	328	(4)
Answers to Self-Test	332	(2)
Business Valuation	334	(40)
The Importance of Business Valuation	336	(3)
A General Valuation Model	336	(1)
Applying the General Valuation Model to Businesses	337	(1)
Valuing Current Liabilities and Long-Term Debt	338	(1)
Bond Valuation	339	(6)
Semiannual Coupon Interest Payments	341	(1)
The Yield to Maturity of a Bond	342	(2)
The Relationship Between Bond YTM and Price	344	(1)
Preferred Stock Valuation	345	(2)
Finding the Present Value of Preferred Stock Dividends	346	(1)
The Yield on Preferred Stock	346	(1)
Common Stock Valuation	347	(12)
Valuing Individual Shares of Common Stock	348	(3)
Valuing Total Common Stockholders' Equity	351	(1)
The Free Cash Flow DCF Model	352	(7)
The Yield on Common Stock	359	(1)
Valuing Complete Businesses	359	(2)
The Free Cash Flow DCF Model Applied to a Complete Business	359	(1)
The Replacement Value of Assets Method	360	(1)
What's Next	361	(13)
Summary	361	(1)
Equations Introduced in This Chapter	362	(2)
Self-Test	364	(1)
FinCoach Practice Exercises	365	(1)
Review Questions	365	(1)
Build Your Communication Skills	365	(1)
Problems	366	(5)
Answers to Self-Test	371	(3)
Part IV LONG-TERM FINANCING DECISIONS	374	(108)
Capital Structure Basics	376	(30)
Capital Structure	378	(7)
Operating Leverage	378	(4)
Financial Leverage	382	(2)
Combined Leverage	384	(1)
Breakeven Analysis and Leverage	385	(7)
Constructing a Sales Breakeven Chart	386	(3)
Applying Breakeven Analysis	389	(3)
LBOs	392	(1)
Ethical Connections: Let's Rip off the Bondholders?	393	(1)
Capital Structure Theory	393	(3)
Tax Deductibility of Interest	393	(1)
Modigliani and Miller	394	(1)
Toward an Optimal Capital Structure	394	(2)
What's Next	396	(10)
Summary	396	(1)
Equations Introduced in This Chapter	397	(2)
Self-Test	399	(1)
Review Questions	400	(1)
Build Your Communication Skills	400	(1)
Problems	400	(5)
Answers to Self-Test	405	(1)
Corporate Bonds, Preferred Stock, and Leasing	406	(28)
Bond Basics	408	(1)
Features of Bond Indentures	409	(2)
Security	410	(1)
Plans for Paying Off the Bond Issue	410	(1)
Call Provisions	410	(1)
A Sample Bond Refunding Problem	411	(4)
Restrictive Covenants	413	(1)
The Independent Trustee of the Bond Issue	414	(1)
Types of Bonds	415	(5)
Secured Bonds	415	(1)
Unsecured Bonds (Debentures)	415	(1)
Convertible Bonds	416	(2)
Variable-Rate Bonds	418	(1)
Putable Bonds	419	(1)
Junk Bonds	419	(1)
International Bonds	419	(1)
Ethical Connections: SEC Charges 50 Municipalities in Bid to Stop Fraud in Muni-Bond Market	420	(1)
Super Long-Term Bonds	420	(1)
Preferred Stock	420	(2)
Preferred Stock Dividends	421	(1)
Preferred Stock Investors	421	(1)
Convertible Preferred Stock	421	(1)
Leasing	422	(5)
Genuine Leases versus Fakes	422	(1)
Operating and Financial (Capital) Leases	423	(1)
Finance at Work: Hybird Financing---Mezzanine Capital	424	(1)
Lease or Buy?	425	(2)
What's Next	427	(7)
Summary	428	(1)
Equations Introduced in This Chapter	429	(1)
Self-Test	429	(1)
Review Questions	429	(1)
Build Your Communication Skills	429	(1)
Problems	429	(4)
Answers to Self-Test	433	(1)
Common Stock	434	(26)
The Characteristics of Common Stock	436	(4)
Stock Issued by Private Corporations	438	(1)
Stock Issued by Publicly Traded Corporations	438	(1)
Finance at Work: Chris Heller, Corporate Communications Consultant	439	(1)
Institutional Ownership of Common Stock	440	(1)
Voting Rights of Common Stockholders	440	(3)
Proxies	440	(1)
Board of Directors Elections	441	(2)
The Pros and Cons of Equity Financing	443	(1)
Disadvantages of Equity Financing	443	(1)
Advantages of Equity Financing	444	(1)
Issuing Common Stock	444	(4)
The Function of Investment Bankers	445	(2)
Pricing New Issues of Stock	447	(1)
Rights and Warrants	448	(5)
Preemptive Rights	448	(2)
Warrants	450	(3)
What's Next	453	(7)
Summary	453	(1)
Equations Introduced in This Chapter	454	(1)
Self-Test	455	(1)
Review Questions	455	(1)
Build Your Communication Skills	455	(1)
Problems	456	(2)
Answers to Self-Test	458	(2)
Dividend Policy	460	(22)
Dividends	462	(1)
Why A Dividend Policy is Necessary	462	(1)
Factors Affecting Dividend Policy	463	(2)
Need for Funds	463	(1)
Management Expectations and Dividend Policy	463	(1)
Stockholders' Preferences	463	(1)
Restrictions on Dividend Payments	463	(2)
Cash Versus Earnings	465	(1)
Leading Dividend Theories	465	(3)
The Residual Theory of Dividends	466	(1)
The Clientele Dividend Theory	466	(1)
The Signaling Dividend Theory	467	(1)
The Bird-in-the-Hand Theory	467	(1)
Modigliani and Miller's Dividend Theory	468	(1)
The Mechanics of Paying Dividends	468	(2)
Dividend Reinvestment Plans	469	(1)
Alternatives to Cash Dividends	470	(5)
Stock Dividends and Stock Splits	470	(1)
Financial Management and You: Dividend Reinvestment Records Can Avoid Tax Headaches	470	(5)
What's Next	475	(7)
Summary	475	(1)
Equations Introduced in This Chapter	476	(1)
Self-Test	476	(1)
Review Questions	477	(1)
Build Your Communication Skills	477	(1)
Problems	477	(4)
Answers to Self-Test	481	(1)
Part V SHORT-TERM FINANCING DECISIONS	482	(106)
Working Capital Policy	484	(20)
Managing Working Capital	486	(1)
Why Businesses Accumulate Working Capital	486	(3)
Fluctuating Current Assets	487	(1)
Permanent and Temporary Current Assets	487	(2)
Liquidity Versus Profitability	489	(1)
Establishing the Optimal Level of Current Assets	489	(1)
Managing Current Liabilities: Risk and Return	490	(1)
Three Working Capital Financing Approaches	490	(4)
The Aggressive Approach	491	(1)
The Conservative Approach	492	(1)
The Moderate Approach	493	(1)
Working Capital Financing and Financial Ratios	494	(1)
Finance at Work: Interview with Michael Coleman, Vice President of Tek Soft	495	(1)
What's Next	495	(9)
Summary	496	(1)
Self-Test	496	(1)
Review Questions	497	(1)
Build Your Communication Skills	497	(1)
Problems	497	(5)
Answers to Self-Test	502	(2)
Managing Cash	504	(26)
Cash Management Concepts	506	(1)
Determining the Optimal Cash Balance	506	(6)
The Minimum Cash Balance	506	(2)
The Maximum Cash Balance	508	(1)
Determining the Optimal Cash Balance	509	(2)
Finance at Work: Karen Noble, Professional Golfer	511	(1)
Forecasting Cash Needs	512	(5)
Developing a Cash Budget	512	(5)
Managing the Cash Flowing in and Out of the Firm	517	(6)
Increasing Cash Inflows	517	(4)
Decreasing Cash Outflows	521	(1)
Speeding Up Cash Inflows	521	(1)
Slowing Down Cash Outflows	522	(1)
What's Next	523	(7)
Summary	523	(1)
Equations Introduced in This Chapter	524	(1)
Self-Test	524	(1)
Review Questions	524	(1)
Build Your Communication Skills	525	(1)
Problems	525	(4)
Answers to Self-Test	529	(1)
Accounts Receivable and Inventory	530	(34)
Why Firms Accumulate Accounts Receivable and Inventory	533	(1)
How Accounts Receivable and Inventory Affect Profitability and Liquidity	533	(2)
Finding Optimal Levels of Accounts Receivable and Inventory	535	(11)
The Optimal Level of Accounts Receivable	535	(5)
The Optimal Level of Inventory	540	(6)
Inventory Management Approaches	546	(1)
The ABC Inventory Classification System	546	(1)
Just-in-Time Inventory Control (JIT)	547	(1)
Making Credit Decisions	547	(1)
Collection Policies to Handle Bad Debts	548	(3)
Finance at Work: Automating Collections	550	(1)
What's Next	551	(13)
Summary	552	(1)
Equations Introduced in This Chapter	553	(1)
Self-Test	553	(1)
Review Questions	554	(1)
Build Your Communication Skills	554	(1)
Problems	554	(6)
Answers to Self-Test	560	(4)
Short-Term Financing	564	(24)
The Need for Short-Term Financing	566	(1)
Short-Term Financing Versus Long-Term Financing	566	(2)
Short-Term Financing Alternatives	568	(4)
Short-Term Loans from Banks and Other Institutions	568	(1)
Trade Credit	568	(2)
Commercial Paper	570	(2)
How Loan Terms Affect the Effective Interest Rate of a Loan	572	(6)
The Effective Interest Rate	572	(1)
Discount Loans	573	(1)
Compensating Balances	573	(2)
Loan Maturities Shorter Than One Year	575	(2)
A Comprehensive Example	577	(1)
Computing the Amount to Borrow	577	(1)
Collateral for Short-Term Loans	578	(3)
Accounts Receivable as Collateral	578	(1)
Inventory as Collateral	579	(1)
Financial Management and You: APR, APY and EAR	580	(1)
What's Next	581	(7)
Summary	581	(1)
Equations Introduced in This Chapter	582	(1)
Self-Test	583	(1)
Review Questions	583	(1)
Build Your Communication Skills	583	(1)
Problems	584	(2)
Answers to Self-Test	586	(2)
Part VI FINANCE IN THE GLOBAL ECONOMY	588
International Finance	590
Multinational Corporations	592	(2)
Financial Advantages of Foreign Operations	592	(1)
Ethical Issues Facing Multinational Corporations	593	(1)
Comparative Advantage	594	(1)
Exchange Rates and Their Effects	594	(5)
Fluctuating Exchange Rates	595	(1)
Cross Rates	596	(2)
Exchange Rate Effects on MNCS	598	(1)
Exchange Rate Effects on Foreign Stock and Bond Investments	598	(1)
Managing Risk	599	(2)
Hedging	599	(1)
Diversification Benefits of Foreign Investments	599	(1)
American Depository Receipts	600	(1)
Finance at Work: Interview with Don Burton, International Import-Export Institute	601	(1)
Exchange Rate Theories	601	(3)
Purchasing Power Parity Theory	602	(1)
International Fisher Effect	602	(1)
Interest Rate Parity Theory	602	(1)
Other Factors Affecting Exchange Rates	603	(1)
Government Intervention in Foreign Exchange Markets	604	(1)
Political and Cultural Risks Facing MNCs	604	(2)
Political Risk	604	(1)
Cultural Risk	605	(1)
International Trade Agreements	606
NAFTA	606	(1)
GATT	606	(1)
European Union	607	(1)
Free Trade versus Fair Trade	607	(1)
Summary	608	(1)
Equations Introduced in This Chapter	609	(1)
Self-Test	609	(1)
Review Questions	609	(1)
Build Your Communication Skills	610	(1)
Problems	610	(2)
Answers to Self-Test	612
Appendix	1	(1)
Glossary	1	(1)
Index	1

Excerpts

THE CHALLENGE Finance scares some students. There is a fear of numbers in some students 9~ud a mistaken belief that an introductory finance course requires high-level Mathematics. Also, some students mistakenly believe finance is an area in Which they will not need competency. Finance concepts often seem far removed from daily life. In spite of this, almost every major in a college of Business and many majors in other colleges require a principles-of-finance course. As a result, many students who find themselves sitting in finance class in the first day of a semester do not want to be there. We do not believe that this needs to be the case. Finance is important, dynamic, interesting, and fun. The challenge we take head-on inFinancial Management: Principles and Practiceis to convince students of this. In order to learn, students must want to learn. If they can see the usefulness of what is presented to them, they will work hard and they will learn. Our many years of teaching experience have taught us that an introductory financial management course can be one that students enjoy and see as having added considerable value to their educational experiences. Finance is, after all, central to any business entity. More CEOs have come up through the finance ranks than any other discipline. Students need to know that the principles and practices of financial management apply to any business unit, from the very largest multinational corporation to the very smallest proprietorship, including the family. Financial ratios tell a story: They are not numbers to be calculated as ends unto themselves. Risk is important and can be managed. Time value of money has meaning and is understood as the central tool of valuation. Funds have a cost, and different sources of funds have different costs. Financial performance and condition can be assessed. Amortized loan payments, rates of return on investment, future value of investment programs, and present value of payments to be received from bonds and stocks can be calculated. The opportunities and special challenges of international operations can be understood. OUR APPROACH We believe that students should walk out of the room after taking the final exam for a finance course believing that they have learned something useful. They should see a direct benefit to themselves personally, rather than just the belief that some set of necessary job skills has been mastered, although the latter will be true if the material is mastered. InFinancial Management: Principles and Practice,we start with the student in mind and then package finance material so students (1) want to learn and (2) learn the necessary material. We do this because finance is not medicine, and it cannot be administered as such. Instead, we believe students must be engaged in such a way that they develop the desire to learn. There are those who approach the task of teaching finance with the philosophy, "Here is the finance knowledge you need. Learn it!" These are not the people we had in mind when we wrote this book. In the third edition, we have further integrated the text with the Internet and with multimedia material. We did this to facilitate the learning experience, not to have bells and whistles we could point to. There are Interactive Modules that directly tie material in the text to visually rich interactive material on the Web. These are not just links. The Mastering Finance CD-ROM that comes with the book has an abundance of multimedia material that relates the chapters to case studies, complete with videos and interactive quizzes. Two key characteristics ofFinancial Management: Principles and Practiceare currency and relevance. One of the authors of the text is an academic with more than 20 years of teaching experience, and the other is a full-time financial practitioner. This combination of backgrounds results in a text that presents the latest in financ