Principles of managerial finance.

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Cover Title Page Copyright Page Dedication Brief Contents Contents About the Authors Preface Acknowledgments About the Authors Preface Acknowledgments Part 1: Introduction to Managerial Finance 1. The Role of Managerial Finance Brookdale Senior Living––Is Brookdale’s Management About to Be Retired? 1.1. Finance and the Firm What Is Finance? What Is a Firm? What Is the Goal of the Firm? In Practice: Focus on Ethics: Do Corporate Executives Have a Social Responsibility? The Role of Business Ethics Review Questions In Practice: Focus on Practice: Must Search Engines Screen Out Fake News? 1.2. Managing the Firm The Managerial Finance Function Review Questions 1.3. Organization Forms, Taxation, and the Principal-Agent Relationship Legal Forms of Business Organization Agency Problems and Agency Costs Corporate Governance Review Questions 1.4. Developing Skills for Your Career Critical Thinking Communication and Collaboration Financial Computing Skills Summary Opener-In-Review Self-Test Problem Warm-Up Exercises Problems Spreadsheet Exercise 2. The Financial Market Environment Airbnb––Billions of VC Funding Gives Airbnb Plenty of Room 2.1. Financial Institutions Commercial Banks, Investment Banks, and the Shadow Banking System Review Questions 2.2. Financial Markets The Relationship Between Institutions and Markets The Money Market The Capital Market In Practice: Focus on Practice: Berkshire Hathaway: Can Buffett Be Replaced? The Role of Capital Markets In Practice: Focus on Ethics: Should Insider Trading Be Legal? Review Questions 2.3. Regulation of Financial Markets and Institutions Regulations Governing Financial Institutions Regulations Governing Financial Markets Review Questions 2.4. The Securities Issuing Process Issuing Common Stock Review Questions 2.5. Financial Markets in Crisis Financial Institutions and Real Estate Finance Spillover Effects and Recovery from the Great Recession Review Questions Summary Opener-In-Review Self-Test Problem Warm-Up Exercises Problems Spreadsheet Exercise Integrative Case 1: Merit Enterprise Corp. Part 2: Financial Tools 3. Financial Statements and Ratio Analysis Kroger––Ratios Point to Trouble at Kroger 3.1. The Stockholders’ Report The Letter to Stockholders In Practice: Global Focus: More Countries Adopt International Financial Reporting Standards The Four Key Financial Statements In Practice: Focus on Ethics: Earnings Shenanigans Notes to the Financial Statements Consolidating International Financial Statements Review Questions 3.2. Using Financial Ratios Interested Parties Types of Ratio Comparisons Cautions About Using Ratio Analysis Review Questions 3.3. Liquidity Ratios Current Ratio Quick (Acid-Test) Ratio Review Questions 3.4. Activity Ratios Inventory Turnover Average Collection Period Average Payment Period Total Asset Turnover Review Question 3.5. Debt Ratios Debt Ratio Debt-to-Equity Ratio Times Interest Earned Ratio Fixed-Payment Coverage Ratio Review Questions 3.6. Profitability Ratios Common-Size Income Statements Gross Profit Margin Operating Profit Margin Net Profit Margin Earnings Per Share (EPS) Return on Total Assets (ROA) Return on Equity (ROE) Review Questions 3.7. Market Ratios Price/Earnings (P/E) Ratio Market/Book (M/B) Ratio Review Question 3.8. A Complete Ratio Analysis Summary of Whole Foods’ Financial Condition DuPont System of Analysis Review Questions Summary Opener-In-Review Self-Test Problems Warm-Up Exercises Problems Spreadsheet Exercise 4. Long- and Short- Term Financial Planning Netflix Inc.––Not Streaming at Netflix— Cash Flow 4.1. The Financial Planning Process Long-Term Strategic Financial Plans Short-Term (Operating) Financial Plans Review Questions 4.2. Measuring the Firm’s Cash Flow Depreciation Depreciation Methods Developing the Statement of Cash Flows Free Cash Flow In Practice: Focus on Ethics: Is Excess Cash Always a Good Thing? In Practice: Focus on Practice: Free Cash Flow at LinkedIn Review Questions 4.3. Cash Planning: Cash Budgets The Sales Forecast Preparing the Cash Budget Evaluating the Cash Budget Coping with Uncertainty in the Cash Budget Cash Flow within the Month Review Questions 4.4. Profit Planning: Pro Forma Statements Preceding Year’s Financial Statements Sales Forecast Review Question 4.5. Preparing the Pro Forma Income Statement Considering Types of Costs and Expenses Review Questions 4.6. Preparing the Pro Forma Balance Sheet Review Questions 4.7. Evaluation of Pro Forma Statements Review Questions Summary Opener-In-Review Self-Test Problems Warm-Up Exercises Problems Spreadsheet Exercise 5. Time Value of Money Mega Millions Jackpot–– Pay Me Now or Pay Me Later 5.1. The Role of Time Value in Finance Future Value Versus Present Value Computational Tools Basic Patterns of Cash Flow Review Questions 5.2. Single Amounts Future Value of a Single Amount Present Value of a Single Amount Review Questions Excel Review Questionss 5.3. Annuities Types of Annuities Finding the Future Value of an Ordinary Annuity Finding the Present Value of an Ordinary Annuity Finding the Future Value of an Annuity Due Finding the Present Value of an Annuity Due Finding the Present Value of a Perpetuity Review Questions Excel Review Questionss 5.4. Mixed Streams Future Value of a Mixed Stream Present Value of a Mixed Stream Review Question Excel Review Questions 5.5. Compounding Interest More Frequently than Annually Semiannual Compounding Quarterly Compounding A General Equation for Compounding Using Computational Tools for Compounding Continuous Compounding Nominal and Effective Annual Rates of Interest Review Questions In Practice: Focus on Ethics: Was the Deal for Manhattan a Swindle? Excel Review Questionss 5.6. Special Applications of Time Value Determining Deposits Needed to Accumulate a Future Sum Loan Amortization Finding Interest or Growth Rates In Practice: Focus on Practice: New Century Brings Trouble for Subprime Mortgages Finding an Unknown Number of Periods Review Questions Excel Review Questionss Summary Opener-In-Review Self-Test Problems Warm-Up Exercises Problems Spreadsheet Exercise Integrative Case 2: Track Software, Inc. Part 3: Valuation of Securities 6. Interest Rates and Bond Valuation Aston Martin Bond Issue––The Name Is Bond—Junk Bond 6.1. Interest Rates and Required Returns Interest Rate Fundamentals Term Structure of Interest Rates In Practice: Focus on Practice: I-Bonds Adjust for Inflation Risk Premiums: Issuer and Issue Characteristics Review Questions 6.2. Government and Corporate Bonds Legal Aspects of Corporate Bonds Cost of Bonds to the Issuer General Features of a Bond Issue Bond Yields Bond Prices Bond Ratings Common Types of Bonds International Bond Issues In Practice: Focus on Ethics: “Can Bond Ratings Be Trusted?” Review Questions 6.3. Valuation Fundamentals Key Inputs Basic Valuation Model Review Questions 6.4. Bond Valuation Bond Fundamentals Bond Valuation Semiannual Interest Rates and Bond Values Changes in Bond Values Yield to Maturity (YTM) Review Questions Excel Review Questionss Summary Opener-In-Review Self-Test Problems Warm-Up Exercises Problems Spreadsheet Exercise 7. Stock Valuation Tesla Inc.––Stock Prices Are All About the Future 7.1. Differences Between Debt and Equity Voice in Management Claims on Income and Assets Maturity Tax Treatment Review Question 7.2. Common and Preferred Stock Common Stock Preferred Stock Review Questions 7.3. Common Stock Valuation Market Efficiency and Stock Valuation Common Stock Dividend Valuation Model In Practice: Focus on Practice: Understanding Human Behavior Helps Us Understand Investor Behavior Free Cash Flow Valuation Model Other Approaches to Common Stock Valuation In Practice: Focus on Ethics: Index Funds and Corporate Governance Review Questions 7.4. Decision Making and Common Stock Value Changes in Expected Dividends Changes in Risk Combined Effect Review Questions Summary Opener-In-Review Self-Test Problems Warm-Up Exercises Problems Spreadsheet Exercise Integrative Case 3: Encore International Part 4: Risk and the Required Rate of Return 8. Risk and Return Legg Mason Global Asset Management–– Miller’s Time 8.1. Risk and Return Fundamentals What Is Risk? What Is Return? In Practice: Focus on Ethics: If It Seems Too Good to Be True, It Probably Is Risk Preferences Review Questions 8.2. Risk of a Single Asset Risk Assessment Risk Measurement Review Questions 8.3. Risk of a Portfolio Portfolio Return and Standard Deviation Correlation Diversification Correlation, Diversification, Risk, and Return International Diversification In Practice: Global Focus: An International Flavor to Risk Reduction Review Questions 8.4. Risk and Return: The Capital Asset Pricing Model (CAPM) Types of Risk The Model: CAPM Review Questions Summary Opener-In-Review Self-Test Problems Warm-Up Exercises Problems Spreadsheet Exercise 9. The Cost of Capital J&J––Exceeding Expectations 9.1. Overview of the Cost of Capital In Practice: Focus on Ethics: The Cost of Capital Also Rises The Basic Concept Sources of Long-Term Capital Review Questions 9.2. Cost of Long-Term Debt Net Proceeds Before-Tax Cost of Debt After-Tax Cost of Debt Review Questions Excel Review Questions 9.3. Cost of Preferred Stock Preferred Stock Dividends Calculating the Cost of Preferred Stock Review Question 9.4. Cost of Common Stock Finding the Cost of Common Stock Equity Cost of Retained Earnings Review Questions 9.5. Weighted Average Cost of Capital Calculating Weighted Average Cost of Capital (WACC) In Practice: Focus on Practice: Uncertain Times Make for an Uncertain Weighted Average Cost of Capital Capital Structure Weights Review Questions Summary Opener-In-Review Self-Test Problem Warm-Up Exercises Problems Spreadsheet Exercise Integrative Case 4: Eco Plastics Company Part 5: Long-Term Investment Decisions 10. Capital Budgeting Techniques Maritime Resources Corp.––The Gold Standard for Evaluating Gold Mines 10.1. Overview of Capital Budgeting Motives for Capital Expenditure Steps in the Process Basic Terminology Capital Budgeting Techniques Review Question 10.2. Payback Period Decision Criteria Pros and Cons of Payback Analysis In Practice: Focus on Practice: Limits on Payback Analysis Review Questions 10.3. Net Present Value (NPV) Decision Criteria NPV and the Profitability Index NPV and Economic Value Added Review Questions Excel Review Questions 10.4. Internal Rate of Return (IRR) Decision Criteria Calculating the IRR Review Questions Excel Review Questions 10.5. Comparing NPV and IRR Techniques Net Present Value Profiles Conflicting Rankings Which Approach is Better? In Practice: Focus on Ethics: Baby You Can Drive My Car—Just Not a VW Diesel Review Questions Summary Opener-In-Review Self-Test Problem Warm-Up Exercises Problems Spreadsheet Exercise 11. Capital Budgeting Cash Flows Molson Coors Brewing Company––Brewing Up a Deal 11.1. Project Cash Flows Major Cash Flow Types Replacement Versus Expansion Decisions Sunk Costs and Opportunity Costs In Practice: Focus on Ethics: Fumbling Sunk Costs International Capital Budgeting and Long-Term Investments Review Questions In Practice: Global Focus: Changes May Influence Future Investments in China 11.2. Finding the Initial Investment Installed Cost of the New Asset After-Tax Proceeds from the Sale of the Old Asset Change in Net Working Capital Calculating the Initial Investment Review Questions 11.3. Finding the Operating Cash Flows Interpreting the Term Cash Flows Interpreting the Term After-Tax Interpreting the Term Incremental Review Questions 11.4. Finding the Terminal Cash Flow After-Tax Proceeds from the Sale of New and Old Assets Change in Net Working Capital Review Question 11.5. Summarizing the Net Cash Flows Review Question Summary Opener-In-Review Self-Test Problems Warm-Up Exercises Problems Spreadsheet Exercise 12. Risk and Refinements in Capital Budgeting General Motors–– Venezuelan Government Seizes Factory Owned by GM 12.1. Introduction to Risk in Capital Budgeting Review Question 12.2. Behavioral Approaches for Dealing with Risk Breakeven Analysis Scenario Analysis Simulation In Practice: Focus on Practice: The Monte Carlo Method: The Forecast Is for Less Uncertainty Review Questions Excel Review Questions 12.3. International Risk Considerations Review Question 12.4. Risk-Adjusted Discount Rates Determining Risk-Adjusted Discount Rates (RADRs) In Practice: Focus on Ethics: Remain Calm—All Is Well Applying RADRs Portfolio Effects RADRs In Practice Review Questions 12.5. Capital Budgeting Refinements Comparing Projects with Unequal Lives Recognizing Real Options Capital Rationing Review Questions Excel Review Questions Summary Opener-In-Review Self-Test Problem Warm-Up Exercises Problems Spreadsheet Exercise Integrative Case 5: Lasting Impressions Company Part 6: Long-Term Financial Decisions 13. Leverage and Capital Structure Apple Inc.—Apple Leverages Its Brand 13.1. Leverage Breakeven Analysis Operating Leverage In Practice: Focus on Practice: Qualcomm’s Leverage Financial Leverage Total Leverage In Practice: Focus on Ethics: Repo 105 Man Review Questions 13.2. The Firm’s Capital Structure Types of Capital External Assessment of Capital Structure Capital Structure of Non–U.S. Firms Capital Structure Theory Optimal Capital Structure Review Questions 13.3. EBIT–EPS Approach to Capital Structure Presenting a Financing Plan Graphically Comparing Alternative Capital Structures Considering Risk in EBIT–EPS Analysis Basic Shortcoming of EBIT–EPS Analysis Review Question 13.4. Choosing the Optimal Capital Structure Linkage Estimating Value Maximizing Value Versus Maximizing EPS Some Other Important Considerations Review Questions Summary Opener-In-Review Self-Test Problems Warm-Up Exercises Problems Spreadsheet Exercise 14. Payout Policy Whirlpool Corporation–– Increasing Dividends 14.1. The Basics of Payout Policy Elements of Payout Policy Trends in Earnings and Dividends Trends in Dividends and Share Repurchases In Practice: Focus on Ethics: Buyback Mountain Review Questions 14.2. The Mechanics of Payout Policy Cash Dividend Payment Procedures Share Repurchase Procedures Tax Treatment of Dividends and Repurchases In Practice: Focus on Practice: Capital Gains and Dividend Tax Treatment Extended to 2012 and Beyond for Some Dividend Reinvestment Plans Stock Price Reactions to Corporate Payouts Review Questions 14.3. Relevance of Payout Policy Residual Theory of Dividends The Dividend Irrelevance Theory Arguments for Dividend Relevance Review Questions 14.4. Factors Affecting Dividend Policy Legal Constraints Contractual Constraints Growth Prospects Owner Considerations Market Considerations Review Question 14.5. Types of Dividend Policies Constant-Payout-Ratio Dividend Policy Regular Dividend Policy Low-Regular-and-Extra Dividend Policy Review Question 14.6. Other Forms of Dividends Stock Dividends Stock Splits Review Questions Summary Opener-In-Review Self-Test Problems Warm-Up Exercises Problems Spreadsheet Exercise Integrative Case 6 O’Grady Apparel Company Part 7: Short-Term Financial Decisions 15. Working Capital and Current Assets Management The Hackett Group Survey––Are CFOs Afraid of the Ghost of Financial Crisis Past? 15.1. Net Working Capital Fundamentals Working Capital Management Net Working Capital Trade Off between Profitability and Risk Review Questions 15.2. Cash Conversion Cycle Calculating the Cash Conversion Cycle Funding Requirements of the Cash Conversion Cycle Strategies for Managing the Cash Conversion Cycle Review Questions 15.3. Inventory Management Differing Viewpoints about Inventory Level Common Techniques for Managing Inventory In Practice: Focus on Practice: In Bed with RFID International Inventory Management Review Questions 15.4. Accounts Receivable Management Credit Selection and Standards In Practice: Focus on Ethics: If You Can Bilk It, They Will Come Credit Terms Credit Monitoring Review Questions 15.5. Management of Receipts and Disbursements Float Speeding Up Collections Slowing Down Payments Cash Concentration Zero-Balance Accounts Investing in Marketable Securities Review Questions Summary Opener-In-Review Self-Test Problems Warm-Up Exercises Problems Spreadsheet Exercise 16. Current Liabilities Management FastPay––Getting Cash into the Hands of Online Media Companies 16.1. Spontaneous Liabilities Accounts Payable Management Accruals Review Questions 16.2. Unsecured Sources of Short-Term Loans In Practice: Focus on Ethics: Bank Loans and Shareholder Wealth Bank Loans Commercial Paper In Practice: Focus on Practice: The Ebb and Flow of Commercial Paper International Loans Review Questions 16.3. Secured Sources of Short-Term Loans Characteristics of Secured Short-Term Loans Use of Accounts Receivable as Collateral Use of Inventory as Collateral Review Questions Summary Opener-In-Review Self-Test Problem Warm-Up Exercises Problems Spreadsheet Exercise Integrative Case 7: Casa de Diseño Part 8: Special Topics in Managerial Finance 17. Hybrid and Derivative Securities Advanced Micro Devices––AMD Taps the Bond Market for Cash 17.1. Overview of Hybrids and Derivatives Review Question 17.2. Leasing Types of Leases Leasing Arrangements In Practice: Focus on Practice: I’d Like to Return This (Entire Store), Please Lease-Versus-Purchase Decision Effects of Leasing on Future Financing Advantages and Disadvantages of Leasing Review Questions 17.3. Convertible Securities Types of Convertible Securities General Features of Convertibles Financing with Convertibles Determining the Value of a Convertible Bond Review Questions 17.4. Stock Purchase Warrants Key Characteristics Implied Price of an Attached Warrant Values of Warrants Review Questions 17.5. Options Calls and Puts Options Markets Options Trading Role of Call and Put Options in Fund Raising Hedging Foreign-Currency Exposures with Options In Practice: Focus on Ethics: Banking on Options Review Questions Summary Opener-In-Review Self-Test Problems Warm-Up Exercises Problems Spreadsheet Exercise 18. Mergers, LBOs, Divestitures, and Business Failure Dell, Inc.––Carl Icahn and Founder Michael Dell Fight for Computer Maker 18.1. Merger Fundamentals Terminology Motives for Merging In Practice: Focus on Ethics: Is There Any Good in Greed? Types of Mergers Review Questions 18.2. LBOs and Divestitures Leveraged Buyouts (LBOs) Divestitures Review Questions 18.3. Analyzing and Negotiating Mergers Valuing the Target Company Stock Swap Transactions Merger Negotiation Process Holding Companies International Mergers Review Questions In Practice: Global Focus: International Mergers 18.4. Business Failure Fundamentals Types of Business Failure Major Causes of Business Failure Voluntary Settlements Review Questions 18.5. Reorganization and Liquidation in Bankruptcy Bankruptcy Legislation Reorganization in Bankruptcy (Chapter 11) Liquidation in Bankruptcy (Chapter 7) Review Questions Summary Opener-In-Review Self-Test Problems Warm-Up Exercises Problems Spreadsheet Exercise 19. International Managerial Finance Mazda Motor Corp.–– Selling More Cars and Making Less Money 19.1. The Multinational Company and Its Environment Key Trading Blocs GATT and the WTO Legal Forms of Business Organization Taxes Financial Markets Review Questions 19.2. Financial Statements Subsidiary Characterization and Functional Currency Translation of Individual Accounts Review Question 19.3. Risk Exchange Rate Risks Political Risks In Practice: Focus on Ethics: Is Fair-Trade Coffee Fair? Review Questions 19.4. Long-Term Investment and Financing Decisions Foreign Direct Investment Investment Cash Flows and Decisions Capital Structure Long-Term Debt In Practice: Global Focus: Take an Overseas Assignment to Take a Step Up the Corporate Ladder Equity Capital Review Questions 19.5. Short-Term Financial Decisions Cash Management Credit and Inventory Management Review Questions 19.6. Mergers and Joint Ventures Review Question Summary Opener-In-Review Self-Test Problem Warm-Up Exercises Problems Spreadsheet Exercise Integrative Case 8 Organic Solutions Appendix Glossary Index Back Cover