Preface | p. v |
General Finance Concepts | |
An Overview of Finance | p. 3 |
A Managerial Perspective | p. 3 |
Career Opportunities in Finance | p. 4 |
The Importance of Finance in Nonfinance Careers | p. 6 |
Finance in the Twentieth Century | p. 7 |
The Importance of Managerial Finance | p. 13 |
The Financial Manager's Responsibilities | p. 14 |
Organization of the Book | p. 15 |
Summary | p. 16 |
Financial Assets (Instruments) | p. 17 |
A Managerial Perspective | p. 17 |
Financial Instruments and the Firm's Balance Sheet | p. 20 |
Debt | p. 22 |
Bond Contract Features | p. 28 |
Bond Ratings | p. 30 |
Stock (Equity) | p. 34 |
Derivatives | p. 39 |
Rationale for Different Types of Securities | p. 42 |
Which Financial Instrument Is Best? | p. 42 |
Financial Instruments in International Markets | p. 47 |
Summary | p. 49 |
Financial Markets and the Investment Banking Process | p. 59 |
A Managerial Perspective | p. 59 |
What Are Financial Markets? | p. 60 |
Importance of Financial Markets | p. 61 |
Types of Financial Markets | p. 65 |
Stock Markets | p. 68 |
The Investment Banking Process | p. 73 |
Regulation of Securities Markets | p. 78 |
International Financial Markets | p. 79 |
Small Business: Why Go Public for Less Than You're Worth? | p. 82 |
Summary | p. 82 |
Financial Intermediaries and the Banking System | p. 89 |
A Managerial Perspective | p. 89 |
Roles of Financial Intermediaries | p. 90 |
Types of Financial Intermediaries | p. 93 |
Safety (Risk) of Financial Institutions | p. 102 |
Banking Systems | p. 104 |
International Banking | p. 114 |
Summary | p. 117 |
The Cost of Money (Interest Rates) | p. 121 |
A Managerial Perspective | p. 121 |
Realized Returns (Yields) | p. 122 |
Factors That Affect the Cost of Money | p. 123 |
Interest Rate Levels | p. 124 |
The Determinants of Market Interest Rates | p. 128 |
The Term Structure of Interest Rates | p. 132 |
Other Factors That Influence Interest Rate Levels | p. 136 |
Interest Rate Levels and Stock Prices | p. 138 |
Summary | p. 138 |
General Business Concepts | |
Business Organizations and the Tax Environment | p. 147 |
A Managerial Perspective | p. 147 |
Alternative Forms of Business Organization | p. 149 |
Finance in the Organizational Structure of the Firm | p. 152 |
The Goals of the Corporation | p. 153 |
Managerial Actions to Maximize Shareholder Wealth | p. 156 |
Agency Relationships | p. 157 |
The External Environment | p. 161 |
Business Ethics | p. 162 |
Forms of Businesses in Other Countries | p. 162 |
Multinational Corporations | p. 164 |
Multinational Versus Domestic Managerial Finance | p. 166 |
The Federal Income Tax System | p. 168 |
Corporate Tax Rates in Other Countries | p. 175 |
Small Business: Goals and Resources in the Small Firm | p. 177 |
Ethical Dilemma: Chances Are That What They Don't Know Won't Hurt Them! | p. 178 |
Summary | p. 178 |
2002 Tax Rate Schedules | p. 184 |
Analysis of Financial Statements | p. 187 |
A Managerial Perspective | p. 187 |
Financial Statements and Reports | p. 188 |
Ratio Analysis | p. 198 |
Comparative Ratios (Benchmarking) | p. 214 |
Uses and Limitations of Ratio Analysis | p. 216 |
Small Business: Financial Analysis in the Small Firm | p. 218 |
Ethical Dilemma: Hocus Pocus--Look, an Increase in Sales! | p. 218 |
Summary | p. 219 |
Financial Planning and Control | p. 233 |
A Managerial Perspective | p. 233 |
Sales Forecasts | p. 235 |
Projected (Pro Forma) Financial Statements | p. 236 |
Other Considerations in Forecasting | p. 243 |
Financial Control--Budgeting and Leverage | p. 245 |
Breakeven Analysis | p. 245 |
Degree of Leverage | p. 250 |
Using Leverage and Forecasting for Control | p. 258 |
Cash Budget Budgeting | p. 259 |
Ethical Dilemma: Competition-Based Planning--Promotion or Payoff? | p. 265 |
Summary | p. 265 |
Projected Financial Statements--Including Financing Feedbacks | p. 278 |
Fundamentals of Valuation | |
The Time Value of Money | p. 283 |
A Managerial Perspective | p. 283 |
Cash Flow Time Lines | p. 285 |
Future Value | p. 286 |
Present Value | p. 293 |
Solving for Time and Interest Rates | p. 295 |
Future Value of an Annuity | p. 298 |
Present Value of an Annuity | p. 301 |
Solving for Interest Rates and Time with Annuities | p. 304 |
Perpetuities | p. 307 |
Uneven Cash Flow Streams | p. 308 |
Semiannual and Other Compounding Periods | p. 311 |
Amortized Loans | p. 315 |
Comparison of Different Types of Interest Rates | p. 319 |
Summary | p. 321 |
Using Interest Tables to Solve Time Value of Money Problems | p. 333 |
Computing the Present Value of an Uneven Cash Flow Stream Using a Financial Calculator | p. 336 |
Generating an Amortization Schedule for a Loan Using a Financial Calculator | p. 337 |
Valuation Concepts | p. 339 |
A Managerial Perspective | p. 339 |
Basic Valuation | p. 340 |
Valuation of Financial Assets--Bonds | p. 341 |
Valuation of Financial Assets--Equity (Stock) | p. 357 |
Valuation of Real (Tangible) Assets | p. 370 |
Small Business: Valuation of Small Firms | p. 372 |
Summary | p. 372 |
Risk and Rates of Return | p. 383 |
A Managerial Perspective | p. 383 |
Defining and Measuring Risk | p. 384 |
Expected Rate of Return | p. 387 |
Portfolio Risk--Holding Combinations of Assets | p. 395 |
The Relationship between Risk and Rates of Return | p. 408 |
Stock Market Equilibrium | p. 414 |
Physical Assets versus Securities | p. 418 |
A Word of Caution | p. 419 |
Ethical Dilemma: RIP--Retire in Peace | p. 420 |
Summary | p. 420 |
Calculating Beta Coefficients | p. 428 |
Corporate Decision Making | |
The Cost of Capital | p. 433 |
A Managerial Perspective | p. 433 |
The Logic of the Weighted Average Cost of Capital | p. 434 |
Basic Definitions | p. 435 |
Cost of Debt, k[subscript dT] | p. 436 |
Cost of Preferred Stock, k[subscript ps] | p. 438 |
Cost of Retained Earnings, k[subscript s] | p. 439 |
Cost of Newly Issued Common Stock, or External Equity, k[subscript e] | p. 443 |
Weighted Average Cost of Capital, WACC | p. 445 |
Marginal Cost of Capital, MCC | p. 446 |
Combining the MCC and Investment Opportunity Schedules | p. 457 |
Project Risk and WACC | p. 460 |
Small Business: The Cost of Equity Capital for Small Firms | p. 461 |
Summary | p. 462 |
Capital Budgeting | p. 473 |
A Managerial Perspective | p. 473 |
The Importance of Capital Budgeting | p. 474 |
Generating Ideas for Capital Projects | p. 475 |
Project Classifications | p. 475 |
Steps in the Valuation Process | p. 476 |
Estimating a Project's Cash Flows | p. 476 |
Cash Flow Estimation--Illustrations of Expansion Projects and Replacement Projects | p. 482 |
Capital Budgeting Evaluation Techniques | p. 488 |
Comparison of the NPV and IRR Methods | p. 495 |
Conclusions on the Capital Budgeting Decision Methods | p. 500 |
Incorporating Risk in Capital Budgeting Analysis | p. 502 |
How Project Risk Is Considered in Capital Budgeting Decisions | p. 505 |
Capital Rationing | p. 506 |
Multinational Capital Budgeting | p. 506 |
Small Business: Capital Budgeting in the Small Firm | p. 508 |
Ethical Dilemma: This Is a Good Investment--Be Sure the Numbers Show That It Is! | p. 510 |
Summary | p. 510 |
Depreciation | p. 522 |
Capital Structure and Dividend Policy Decisions | p. 525 |
A Managerial Perspective | p. 525 |
The Target Capital Structure | p. 526 |
Business and Financial Risk | p. 528 |
Determining the Optimal Capital Structure | p. 531 |
Liquidity and Capital Structure | p. 541 |
Capital Structure Theory | p. 542 |
Variations in Capital Structures among Firms | p. 546 |
Dividend Policy | p. 547 |
Investors and Dividend Policy | p. 548 |
Dividend Policy in Practice | p. 550 |
Factors Influencing Dividend Policy | p. 554 |
Stock Dividends and Stock Splits | p. 556 |
Capital Structures and Dividend Policies Around the World | p. 558 |
Small Business: Dividend Policy for Small Businesses | p. 560 |
Summary | p. 561 |
Working Capital Management | p. 573 |
A Managerial Perspective | p. 573 |
Working Capital Terminology | p. 574 |
The Requirement for External Working Capital Financing | p. 575 |
The Cash Conversion Cycle | p. 576 |
Working Capital Investment and Financing Polices | p. 580 |
Advantages and Disadvantages of Short-Term Financing | p. 583 |
Sources of Short-Term Financing | p. 584 |
Computing the Cost of Short-Term Credit | p. 587 |
Managing Cash and Marketable Securities | p. 590 |
Credit Management | p. 594 |
Inventory Management | p. 599 |
Multinational Working Capital Management | p. 605 |
Small Business: Growth and Working Capital Needs | p. 608 |
Ethical Dilemma: Money Back Guarantee, No Questions Asked | p. 609 |
Summary | p. 609 |
Investor Decision Making | |
Investment Concepts | p. 623 |
A Managerial Perspective | p. 623 |
The Investment Process | p. 624 |
Investment Alternatives | p. 628 |
Securities Transactions | p. 629 |
Investment Information | p. 632 |
Computing Investment Returns | p. 639 |
Indexes--Measuring Market Returns | p. 645 |
Alternative Investment Strategies | p. 651 |
Summary | p. 657 |
Security Valuation and Selection | p. 667 |
A Managerial Perspective | p. 667 |
Fundamental Analysis versus Technical Analysis | p. 669 |
Economic Analysis | p. 670 |
Industry Analysis | p. 676 |
Evaluating the Firm's Financial Position | p. 679 |
Stock Valuation Techniques | p. 680 |
Technical Analysis | p. 687 |
Stock Selection Criteria | p. 691 |
Investment Selection in Efficient Markets | p. 695 |
Summary | p. 696 |
Mathematical Tables | p. 1 |
Solutions to Self-Test Problems | p. 1 |
Answers to End-of-Chapter Problems | p. 1 |
Selected Equations | p. 1 |
Index | p. 1 |
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