Fundamentals of Financial Management (with Thomson ONE - Business School Edition)

by Brigham, Eugene F.; Houston, Joel F.

• ISBN13: 9780324319804
• ISBN10: 0324319800
• Edition: 11th
• Format: Hardcover
• Copyright: 2006-03-03
• Publisher: Thomson South-Western

Summary

"Brigham/Houston: A Classic, redefined...because a classic never goes out of style." The market leader, Brigham/Houston, continues to grow in reputation and amount of users as the most effective approach for teaching the first undergraduate corporate finance course. The seamless, integrated ancillary package, still painstakingly prepared by the authors, is a hallmark of the Brigham/Houston package which reduces course preparation time for instructors and makes the subject more accessible for learners. New for this edition is the addition of iLrn Finance, an online student assessment and tutorial resource to help improve student performance. Additionally, access to Thomson ONE - Business School Edition, an online financial database that students can use to complete projects or select end of chapter exercises, is included with each new text.

Table of Contents

PREFACE	iii
Part 1 Introduction to Financial Management	1	(22)
An Overview of Financial Management	2	(21)
Striking the Right Balance	2	(1)
Putting Things in Perspective	3	(1)
Forms of Business Organization	4	(2)
Stock Prices and Shareholder Value	6	(2)
Intrinsic Values, Stock Prices, and Compensation Plans	8	(3)
Some Important Trends	11	(1)
Is Shareholder Wealth Maximization a Worldwide Goal?	12	(1)
Business Ethics	12	(4)
What Companies Are Doing	13	(1)
Consequences of Unethical Behavior	13	(1)
How Should Employees Deal with Unethical Behavior?	14	(1)
Protection for Whistle-Blowers	15	(1)
Conflicts between Managers and Stockholders	16	(1)
The Role of Finance in the Organization	17	(6)
Tying it all Together	18	(5)
Part 2 Fundamental Concepts in Financial Management	23	(150)
Time Value of Money	24	(40)
Will You Be Able to Retire?	24	(1)
Putting Things in Perspective	24	(1)
Time Lines	25	(1)
Future Values	26	(5)
Step-by-Step Approach	27	(1)
Formula Approach	27	(1)
Simple versus Compound Interest	27	(1)
Financial Calculators	28	(1)
Spreadsheets	28	(1)
Hints on Using Financial Calculators	29	(1)
Graphic View of the Compounding Process	30	(1)
Present Values	31	(3)
Graphic View of the Discounting Process	33	(1)
Finding the Interest Rate, I	34	(1)
Finding the Number of Years, N	35	(1)
Annuities	35	(1)
Future Value of an Ordinary Annuity	36	(2)
Future Value of an Annuity Due	38	(1)
Present Value of an Ordinary Annuity	39	(1)
Finding Annuity Payments, Periods, and Interest Rates	40	(2)
Finding Annuity Payments, PMT	40	(1)
Finding the Number of Periods, N	41	(1)
Finding the Interest Rate, I	41	(1)
Perpetuities	42	(2)
Uneven Cash Flows	44	(2)
Future Value of an Uneven Cash Flow Stream	46	(1)
Solving for I with Uneven Cash Flows	47	(1)
Semiannual and Other Compounding Periods	48	(2)
Comparing Interest Rates	50	(2)
Fractional Time Periods	52	(1)
Amortized Loans	52	(12)
Tying it all Together	54	(8)
Integrated Case First National Bank	62	(2)
Web Appendix 2A Continuous Compounding and Discounting
Financial Statements, Cash Flow, and Taxes	64	(36)
Doing Your Homework with Financial Statements	64	(1)
Putting Things in Perspective	65	(1)
A Brief History of Accounting and Financial Statements	65	(1)
Financial Statements and Reports	66	(2)
The Balance Sheet	68	(4)
The Income Statement	72	(3)
Net Cash Flow	75	(1)
Statement of Cash Flows	75	(3)
Massaging the Cash Flow Statement	78	(1)
Statement of Retained Earnings	78	(1)
Uses and Limitations of Financial Statements	79	(2)
Financial Analysis on the Internet	80	(1)
Modifying Accounting Data for Investor and Managerial Decisions	81	(5)
Operating Assets and Operating Capital	81	(3)
Operating Cash Flows	84	(1)
Free Cash Flow	84	(2)
Mva and Eva	86	(1)
The Federal Income Tax System	87	(13)
Corporate Taxes	87	(1)
Personal Taxes	87	(1)
Interest Paid	87	(1)
Interest Earned	88	(1)
Dividends Paid	88	(1)
Dividends Received	88	(1)
Tax Loss Carry-Back and Carry-Forward	88	(1)
Capital Gains	88	(1)
Depreciation	89	(1)
Small Businesses	89	(1)
Tying it all Together	89	(6)
INTEGRATED CASE D'Leon Inc., Part I	95	(5)
Web Appendix 3A The Federal Income Tax System
Analysis of Financial Statements	100	(41)
Lessons Learned from Enron and WorldCom	100	(2)
Putting Things in Perspective	102	(1)
Ratio Analysis	102	(1)
Liquidity Ratios	103	(1)
Current Ratio	103	(1)
Quick, or Acid Test, Ratio	104	(1)
Asset Management Ratios	104	(4)
Inventory Turnover Ratio	105	(1)
Days Sales Outstanding	106	(1)
Fixed Assets Turnover Ratio	106	(1)
Total Assets Turnover Ratio	107	(1)
Debt Management Ratios	108	(4)
Total Debt to Total Assets	110	(1)
Times-Interest-Earned Ratio	110	(1)
EBITDA Coverage Ratio	111	(1)
Profitability Ratios	112	(3)
Profit Margin on Sales	112	(1)
Global Perspectives: Global Accounting Standards: Can One Size Fit All?	113	(1)
Return on Total Assets	114	(1)
Basic Earning Power (BEP) Ratio	114	(1)
Return on Common Equity	115	(1)
Market Value Ratios	115	(3)
Price/Earnings Ratio	116	(1)
Price/Cash Flow Ratio	116	(1)
Market/Book Ratio	116	(2)
Trend Analysis	118	(1)
Tying the Ratios Together: The Du Pont Equations	118	(3)
Comparative Ratios and ``Benchmarking''	121	(3)
Looking for Warning Signs within the Financial Statements	123	(1)
Uses and Limitations of Ratio Analysis	124	(1)
Problems with Roe	125	(3)
Eva and Roe	126	(2)
Looking Beyond the Numbers	128	(13)
Tying it all Together	129	(7)
INTEGRATED CASE D'Leon Inc., Part II	136	(5)
Financial Markets and Institutions	141	(32)
A Strong Financial System Is Necessary for a Growing and Prosperous Economy	141	(1)
Putting Things in Perspective	142	(1)
An Overview of the Capital Allocation Process	143	(2)
Financial Markets	145	(3)
Types of Markets	145	(1)
Recent Trends	146	(2)
Financial Institutions	148	(5)
The Stock Market	153	(4)
Citigroup Built to Compete in a Changing Environment	154	(1)
The Physical Location Stock Exchanges	154	(1)
The NYSE and Nasdaq Combine Forces with the Leading Online Trading Systems	155	(1)
The Over-the-Counter and the Nasdaq Stock Markets	156	(1)
The Market for Common Stock	157	(3)
Types of Stock Market Transactions	157	(3)
Stock Markets and Returns	160	(3)
Stock Market Reporting	160	(2)
Stock Market Returns	162	(1)
Stock Market Efficiency	163	(10)
Levels of Market Efficiency	163	(1)
Measuring the Market	164	(2)
Implications of Market Efficiency	166	(1)
Is the Stock Market Efficient?	167	(1)
A Closer Look at Behavioral Finance Theory	168	(1)
Tying it all Together	169	(1)
Integrated Case Smyth Barry & Company, Part I	170	(3)
Part 3 Financial Assets	173	(154)
Interest Rates	174	(33)
Low Interest Rates Encourage Investment and Stimulate Consumer Spending	174	(1)
Putting Things in Perspective	175	(1)
The Cost of Money	175	(1)
Interest Rate Levels	176	(4)
The Determinants of Market Interest Rates	180	(7)
The Real Risk-Free Rate of Interest, r*	181	(1)
The Nominal, or Quoted, Risk-Free Rate of Interest, rRF	182	(1)
Inflation Premium (IP)	182	(1)
Default Risk Premium (DRP)	183	(1)
An Almost Riskless Treasury Bond	184	(2)
Liquidity Premium (LP) 186 Maturity Risk Premium (MRP)	186	(1)
The Term Structure of Interest Rates	187	(2)
What Determines the Shape of the Yield Curve?	189	(4)
The Links between Expected Inflation and Interest Rates: A Closer Look	192	(1)
Using the Yield Curve to Estimate Future Interest Rates	193	(3)
Other Factors that Influence Interest Rate Levels	196	(3)
Federal Reserve Policy	196	(1)
Federal Budget Deficits or Surpluses	196	(1)
International Factors	197	(1)
Business Activity	197	(1)
Global Perspectives: Measuring Country Risk	198	(1)
Investing Overseas	199	(1)
Interest Rates and Business Decisions	199	(8)
Tying it all Together	201	(5)
Integrated Case Smyth Barry & Company, Part II	206	(1)
Bonds and Their Valuation	207	(37)
Sizing Up Risk in the Bond Market	207	(1)
Putting Things in Perspective	208	(1)
Who Issues Bonds?	208	(1)
Key Characteristics of Bonds	209	(4)
Par Value	210	(1)
Coupon Interest Rate	210	(1)
Maturity Date	210	(1)
Call Provisions	211	(1)
Sinking Funds	211	(1)
Other Features	212	(1)
Bond Valuation	213	(3)
Bond Yields	216	(2)
Yield to Maturity	216	(1)
Yield to Call	217	(1)
Current Yield	218	(1)
Changes in Bond Values Over Time	218	(4)
Bonds with Semiannual Coupons	222	(1)
Assessing a Bond's Riskiness	223	(4)
Interest Rate Risk	223	(2)
Reinvestment Rate Risk	225	(1)
Comparing Interest Rate and Reinvestment Rate Risk	226	(1)
Default Risk	227	(7)
Various Types of Corporate Bonds	228	(1)
Bond Ratings	229	(4)
Bankruptcy and Reorganization	233	(1)
Bond Markets	234	(10)
Tying it all Together	236	(7)
Integrated Case Western Money Management Inc.	243	(1)
Web Appendix 7A Zero Coupon Bonds
Web Appendix 7B Bankruptcy and Reorganization
Risk and Rates of Return	244	(45)
No Pain No Gain	244	(1)
Putting Things in Perspective	245	(1)
Stand-Alone Risk	246	(11)
Probability Distributions	247	(1)
Expected Rate of Return	248	(2)
Measuring Stand-Alone Risk: The Standard Deviation	250	(2)
Using Historical Data to Measure Risk	252	(2)
Measuring Stand-Alone Risk: The Coefficient of Variation	254	(1)
Risk Aversion and Required Returns	255	(1)
The Trade-Off between Risk and Return	256	(1)
Risk in a Portfolio Context	257	(14)
Expected Portfolio Returns, r	258	(1)
Portfolio Risk	259	(4)
The Benefits of Diversification Are More Important Than Ever	263	(1)
Diversifiable Risk versus Market Risk	263	(3)
The Concept of Beta	266	(4)
Global Perspectives: The Benefits of Diversifying Overseas	270	(1)
The Relationship between Risk and Rates of Return	271	(6)
Estimating the Market Risk Premium	272	(3)
The Impact of Inflation	275	(1)
Changes in Risk Aversion	275	(2)
Changes in a Stock's Beta Coefficient	277	(1)
Some Concerns about Beta and the CAPM	277	(1)
Some Concluding Thoughts: Implications for Corporate Managers and Investors	278	(11)
Tying it all Together	280	(6)
Integrated Case Merrill Finch Inc.	286	(3)
Web Appendix 8A Calculating Beta Coefficients
Stocks and Their Valuation	289	(38)
Searching for the Right Stock	289	(1)
Putting Things in Perspective	290	(1)
Legal Rights and Privileges of Common Stockholders	290	(2)
Control of the Firm	290	(1)
The Preemptive Right	291	(1)
Types of Common Stock	292	(1)
Common Stock Valuation	292	(4)
Definitions of Terms Used in Stock Valuation Models	293	(1)
Expected Dividends as the Basis for Stock Values	294	(2)
Constant Growth Stocks	296	(3)
Illustration of a Constant Growth Stock	296	(1)
Dividend and Earnings Growth	297	(1)
When Can the Constant Growth Model Be Used?	298	(1)
Expected Rate of Return on a Constant Growth Stock	299	(1)
Valuing Stocks Expected to Grow at a Nonconstant Rate	300	(5)
Evaluating Stocks That Don't Pay Dividends	304	(1)
Valuing the Entire Corporation	305	(5)
The Corporate Valuation Model	306	(2)
Other Approaches to Valuing Common Stocks	308	(1)
Comparing the Total Company and Dividend Growth Models	308	(2)
Stock Market Equilibrium	310	(3)
Changes in Equilibrium Stock Prices	311	(2)
Investing in International Stocks	313	(2)
Preferred Stock	315	(12)
Global Perspectives: Investing in Emerging Markets	316	(1)
Tying it all Together	316	(6)
Integrated Case Mutual of Chicago Insurance Company	322	(5)
Part 4 Investing in Long-Term Assets: Capital Budgeting	327	(108)
The Cost of Capital	328	(29)
Creating Value at GE	328	(1)
Putting Things in Perspective	329	(1)
An Overview of the Weighted Average Cost of Capital	329	(2)
Basic Definitions	331	(1)
Cost of Debt, rd(1 - T)	332	(1)
Cost of Preferred Stock, rp	333	(2)
Funny-Named Preferred-Like Securities	334	(1)
Cost of Retained Earnings, rs	335	(5)
The Capm Approach	336	(1)
Dividend-Yield-plus-Growth-Rate, or Discounted Cash Flow (DCF), Approach	336	(3)
Bond-Yield-plus-Risk-Premium Approach	339	(1)
How Much Does It Cost to Raise External Capital?	340	(1)
Cost of New Common Stock, re	340	(3)
Add Flotation Costs to a Project's Cost	341	(1)
Increase the Cost of Capital	341	(1)
When Must External Equity Be Used?	342	(1)
Composite, or Weighted Average, Cost of Capital, WACC	343	(1)
Factors That Affect the WACC	344	(2)
Factors the Firm Cannot Control	344	(1)
Factors the Firm Can Control	344	(1)
Global Perspectives: Global Variations in the Cost of Capital	345	(1)
Adjusting the Cost of Capital for Risk	346	(2)
Some Other Problems with Cost of Capital Estimates	348	(9)
Tying it all Together	349	(6)
Integrated Case Coleman Technologies Inc.	355	(2)
Web Appendix 10A The Cost of New Common Stock and the WACC
The Basics of Capital Budgeting	357	(30)
Competition in the Aircraft Industry	357	(1)
Putting Things in Perspective	358	(1)
Generating Ideas for Capital Projects	358	(1)
Project Classifications	359	(1)
The Net Present Value (NPV) Criterion	360	(3)
Internal Rate of Return (IRR)	363	(1)
Comparison of the NPV and IRR Methods	364	(5)
Npv Profiles	364	(1)
Npv Rankings Depend on the Cost of Capital	365	(2)
Independent Projects	367	(1)
Mutually Exclusive Projects	367	(2)
Multiple IRRs	369	(2)
Modified Internal Rate of Return (MIRR)	371	(2)
Payback Period	373	(2)
Conclusions on Capital Budgeting Methods	375	(1)
Decision Criteria Used in Practice	376	(1)
Using Capital Budgeting Techniques in Other Contexts	377	(1)
The Post-Audit	378	(9)
Tying it all Together	379	(6)
Integrated Case Allied Components Company	385	(2)
Cash Flow Estimation and Risk Analysis	387	(28)
Home Depot Keeps Growing	387	(1)
Putting Things in Perspective	388	(1)
Background on the Project	388	(2)
Project Analysis	390	(4)
Input Data, Part 1	390	(1)
Depreciation Schedule, Part 2	390	(1)
Salvage Value Calculations, Part 3	391	(1)
Projected Cash Flows, Part 4	392	(1)
Appraisal of the Proposed Project, Part 5	393	(1)
Other Points on Cash Flow Analysis	394	(3)
Cash Flow versus Accounting Income	394	(1)
Timing of Cash Flows	395	(1)
Incremental Cash Flows	395	(1)
Replacement Projects	395	(1)
Sunk Costs	395	(1)
Opportunity Costs	396	(1)
Externalities	396	(1)
Estimating Project Risk	397	(1)
Measuring Stand-Alone Risk	398	(5)
Sensitivity Analysis	398	(2)
Scenario Analysis	400	(1)
Monte Carlo Simulation	401	(1)
Global Perspectives: Capital Budgeting Practices in the Asian/Pacific Region	402	(1)
Different Capital Structures	403	(1)
Incorporating Risk into Capital Budgeting	403	(12)
Tying it all Together	404	(5)
Integrated Case Allied Food Products	409	(4)
APPENDIX 12A Tax Depredation	413	(2)
Web APPENDIX 12B Replacement Project Analysis
Web APPENDIX 12C Refunding Operations
Web APPENDIX 12D Using the CAPM to Estimate the Risk-Adjusted Cost of Capital
Web APPENDIX 12E Techniques for Measuring Beta Risk
Real Options and Other Topics in Capital Budgeting	415	(20)
Keeping Your Options Open	415	(1)
Putting Things in Perspective	416	(1)
Introduction to Real Options	416	(1)
Abandonment/Shutdown Options	417	(2)
Investment Timing Options	419	(1)
Growth Options	420	(1)
Flexibility Options	421	(1)
Comparing Mutually Exclusive Projects with Unequal Lives	422	(2)
Replacement Chains	422	(1)
Equivalent Annual Annuities (EAA)	423	(1)
Conclusions about Unequal Lives	424	(1)
The Optimal Capital Budget	424	(11)
Tying it all Together	426	(5)
Integrated Case
21st Century Educational Products	431	(4)
Part 5 Capital Structure and Dividend Policy	435	(76)
Capital Structure and Leverage	436	(1)
Debt; Rocket Booster or Anchor?	436	(1)
Putting Things in Perspective	437	(1)
The Target Capital Structure	437	(2)
Business and Financial Risk	439	(11)
Business Risk	439	(2)
Operating Leverage	441	(3)
Financial Risk	444	(6)
Determining the Optimal Capital Structure	450	(6)
Wacc and Capital Structure Changes	450	(2)
The Hamada Equation	452	(1)
The Optimal Capital Structure	453	(3)
Capital Structure Theory	456	(6)
Yogi Berra on the M&M Proposition	457	(1)
The Effect of Taxes	457	(1)
The Effect of Potential Bankruptcy	458	(1)
Trade-Off Theory	459	(1)
Signaling Theory	460	(1)
Using Debt Financing to Constrain Managers	461	(1)
Checklist for Capital Structure Decisions	462	(3)
Global Perspectives: Taking a Look at Global Capital Structures	465	(1)
Variations in Capital Structures	465	(13)
Tying it all Together	466	(6)
Integrated Case Campus Deli Inc.	472	(6)
Web APPENDIX 14A Degree of Leverage
Distributions to Shareholders: Dividends and Share Repurchases	478	(33)
Microsoft Shifts Gears and Begins to Unload Part of Its Vast Cash Hoard	478	(1)
Putting Things in Perspective	479	(1)
Dividends versus Capital Gains: What Do Investors Prefer?	479	(3)
Dividend Irrelevance Theory	480	(1)
Reasons Some Investors Prefer Dividends	480	(1)
Reasons Some Investors May Prefer Capital Gains	481	(1)
Other Dividend Policy Issues	482	(1)
Information Content, or Signaling, Hypothesis	482	(1)
Clientele Effect	482	(1)
Establishing the Dividend Policy in Practice	483	(10)
Setting the Target Payout Ratio: The Residual Dividend Model	483	(5)
Global Perspectives: Dividend Yields Around the World	488	(1)
Earnings, Cash Flows, and Dividends	489	(1)
Payment Procedures	490	(3)
Dividend Reinvestment Plans	493	(1)
Summary of Factors Influencing Dividend Policy	494	(1)
Constraints	494	(1)
Investment Opportunities	494	(1)
Alternative Sources of Capital	495	(1)
Effects of Dividend Policy on rs	495	(1)
Stock Dividends and Stock Splits	495	(3)
Stock Splits	496	(1)
Stock Dividends	496	(1)
Effect on Stock Prices	497	(1)
Stock Repurchases	498	(13)
The Effects of Stock Repurchases	498	(1)
Stock Repurchases Soar in 2004	499	(1)
Advantages of Repurchases	500	(1)
Disadvantages of Repurchases	501	(1)
Conclusions on Stock Repurchases	501	(1)
Tying it all Together	502	(6)
Integrated Case Southeastern Steel Company	508	(3)
Web APPENDIX 15A An Example: The Residual Dividend Model
Part 6 Working Capital and Financial Planning	511	(66)
Working Capital Management	512	(40)
Best Buy Successfully Manages its Working Capital	512	(1)
Putting Things in Perspective	512	(1)
Working Capital Terminology	513	(1)
The Cash Conversion Cycle	513	(4)
Calculating the Targeted CCC	514	(1)
Calculating the Actual CCC	515	(1)
Some Firms Operate with Negative Working Capital!	516	(1)
Alternative Current Asset Investment Policies	517	(1)
Alternative Current Asset Financing Policies	518	(3)
Maturity Matching, or ``Self-Liquidating,'' Approach	519	(1)
Aggressive Approach	519	(1)
Conservative Approach	519	(2)
Choosing between the Approaches	521	(1)
The Cash Budget	521	(4)
Cash and Marketable Securities	525	(3)
Currency	526	(1)
Demand Deposits	526	(1)
Marketable Securities	527	(1)
Inventories	528	(2)
Supply Chain Management	529	(1)
Accounts Receivable	530	(4)
Credit Policy	530	(1)
Setting and Implementing the Credit Policy	531	(1)
Monitoring Accounts Receivable	532	(2)
Accounts Payable (Trade Credit)	534	(3)
Bank Loans	537	(4)
Promissory Note	537	(1)
Line of Credit	538	(1)
Revolving Credit Agreement	538	(1)
Costs of Bank Loans	539	(2)
Commercial Paper	541	(1)
Accruals (Accrued Liabilities)	542	(1)
Use of Security in Short-Term Financing	542	(10)
Tying it all Together	543	(5)
Integrated Case Ski Equipment Inc.	548	(4)
Web APPENDIX 16A Inventory Management
Web APPENDIX 16B Short-Term Loans and Bank Financing
Financial Planning and Forecasting	552	(25)
Forecasting Apple's Future	552	(1)
Putting Things in Perspective	553	(1)
Strategic Planning	553	(2)
The Sales Forecast	555	(1)
The AFN Equation	556	(4)
Key Determinants of External Funds Requirements	558	(1)
Excess Capacity Adjustments	558	(2)
Forecasted Financial Statements	560	(3)
Initial Forecast: ``Business as Usual''	560	(3)
Using Regression to Improve Financial Forecasts	563	(2)
Using Individual Ratios in the Forecasting Process	565	(12)
Modifying Accounts Receivable	565	(1)
Modifying Inventories	566	(1)
Other ``Special Studies''	566	(1)
Tying it all Together	567	(5)
Integrated Case New World Chemicals Inc.	572	(5)
Web APPENDIX 17A Forecasting Financial Requirements When Financial Ratios Change
Part 7 Special Topics in Financial Management	577
Derivatives and Risk Management	578	(38)
Using Derivatives to Manage Risk	578	(1)
Putting Things in Perspective	579	(1)
Reasons to Manage Risk	579	(3)
Background on Derivatives	582	(2)
Global Perspectives: Barings and Sumitomo Suffer Large Losses in the Derivatives Market	583	(1)
Options	584	(5)
Option Types and Markets	584	(2)
Factors That Affect the Value of a Call Option	586	(1)
Exercise Value versus Option Price	586	(3)
Introduction to Option Pricing Models	589	(3)
Expensing Executive Stock Options	590	(2)
The Black-Scholes Option Pricing Model (OPM)	592	(4)
Opm Assumptions and Equations	592	(2)
Opm Illustration	594	(2)
Forward and Futures Contracts	596	(4)
Other Types of Derivatives	600	(3)
Swaps	600	(1)
Structured Notes	601	(1)
Inverse Floaters	602	(1)
Credit Instruments Create New Opportunities and Risks	603	(1)
Risk Management	603	(4)
An Approach to Risk Management	605	(1)
Microsoft's Goal: Manage Every Risk!	606	(1)
Using Derivatives to Reduce Risks	607	(9)
Security Price Exposure	607	(3)
Commodity Price Exposure	610	(1)
The Use and Misuse of Derivatives	610	(1)
Tying it all Together	611	(2)
Integrated Case Tropical Sweets Inc.	613	(2)
Multinational Financial Management	615	(1)
U.S. Firms Look Overseas to Enhance Shareholder Value	615	(1)
Putting Things in Perspective	616	(1)
Multinational or Global Corporations	616	(32)
Multinational versus Domestic Financial Management	619	(2)
The International Monetary System	621	(2)
International Monetary Terminology	621	(1)
Current Monetary Arrangements	622	(1)
Foreign Exchange Rate Quotations	623	(3)
Cross Rates	624	(1)
Interbank Foreign Currency Quotations	625	(1)
Trading in Foreign Exchange	626	(1)
Spot Rates and Forward Rates	626	(1)
Interest Rate Parity	627	(2)
Purchasing Power Parity	629	(1)
Inflation, Interest Rates, and Exchange Rates	630	(1)
International Money and Capital Markets	631	(5)
International Credit Markets	631	(1)
Hungry for a Big Mac? Go to China!	632	(2)
Stock Market Indices Around the World	634	(1)
International Stock Markets	635	(1)
International Capital Budgeting	636	(2)
International Capital Structures	638	(1)
Multinational Working Capital Management	639	(9)
Cash Management	639	(1)
Credit Management	640	(1)
Inventory Management	641	(1)
Tying it all Together	642	(4)
Integrated Case Citrus Products Inc.	646	(2)
Hybrid Financing: Preferred Stock, Leasing, Warrants, and Convertibles	648	(35)
Taking a Wild Ride with Amazon's Convertible Debt	648	(1)
Putting Things in Perspective	649	(1)
Preferred Stock	650	(3)
Basic Features	650	(2)
Other Types of Preferred Stock	652	(1)
Advantages and Disadvantages of Preferred Stock	652	(1)
Leasing	653	(8)
Types of Leases	653	(1)
Funny-Named Preferred-Like Securities	654	(2)
Financial Statement Effects	656	(1)
Evaluation by the Lessee	657	(3)
Factors That Affect Leasing Decisions	660	(1)
Warrants	661	(6)
Initial Market Price of a Bond with Warrants	662	(1)
Use of Warrants in Financing	663	(1)
Wealth Effects and Dilution Due to Warrants	664	(2)
The Component Cost of Bonds with Warrants	666	(1)
Problems with Warrant Issues	666	(1)
Convertibles	667	(6)
Conversion Ratio and Conversion Price	667	(1)
The Component Cost of Convertibles	668	(4)
Use of Convertibles in Financing	672	(1)
Convertibles and Conflicts of Interest	673	(1)
A Final Comparison of Warrants and Convertibles	673	(1)
Reporting Earnings When Warrants or Convertibles Are Outstanding	674	(9)
Tying it all Together	675	(6)
Integrated Case Fish & Chips. Inc., Part I	681	(1)
Fish & Chips, Inc., Part II	681	(2)
Mergers and Acquisitions	683
Procter & Gamble Acquires Gillette	683	(1)
Putting Things in Perspective	684	(1)
Rationale for Mergers	685	(2)
Synergy	685	(1)
Tax Considerations	685	(1)
Purchase of Assets below Their Replacement Cost	686	(1)
Diversification	686	(1)
Managers' Personal Incentives	686	(1)
Breakup Value	687	(1)
Types of Mergers	687	(1)
Level of Merger Activity	687	(2)
Hostile versus Friendly Takeovers	689	(1)
Merger Regulation	690	(1)
Merger Analysis	691	(8)
Valuing the Target Firm	692	(3)
Setting the Bid Price	695	(2)
More Than Just Financial Statements	697	(1)
Post-Merger Control	698	(1)
Financial Reporting for Mergers	699	(3)
Purchase Accounting	699	(1)
Income Statement Effects	700	(1)
Tempest in a Teapot?	701	(1)
The Role of Investment Bankers	702	(2)
Arranging Mergers	702	(1)
Developing Defensive Tactics	702	(1)
Establishing a Fair Value	703	(1)
Financing Mergers	703	(1)
Arbitrage Operations	704	(1)
Do Mergers Create Value? The Empirical Evidence	704	(2)
The Track Record of Recent Large Mergers	705	(1)
Corporate Alliances	706	(1)
Leveraged Buyouts	706	(1)
Divestitures	707
Types of Divestitures	707	(1)
Divestiture Illustrations	707	(1)
Global Perspectives: Governments Are Divesting State-Owned Businesses to Spur Economic Efficiency	708	(2)
Tying it all Together	710	(3)
Integrated Case Smitty's Home Repair Company	713
Web APPENDIX 21A Holding Companies
Appendixes
Appendix A Solutions to Self-Test Questions and Problems	1	(1)
Appendix B Answers to Selected End-of-Chapter Problems	27	(1)
Appendix C Selected Equations and Data	30	(1)
Web APPENDIX C Selected Equations and Data
Index	1	(1)