Financial Management Theory and Practice (with Thomson ONE),9780324259681

Financial Management Theory and Practice (with Thomson ONE)

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Edition: 11th
ISBN13: 9780324259681
ISBN10: 0324259689
Format: Hardcover
Pub. Date: 2004-03-12
Publisher(s): South-Western College Pub
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Summary

This text remains the only text in the market that presents a balance of financial theory and applications. The authors maintain the same four goals as with the first edition: helping learners to make good financial decisions, providing a solid text for the introductory MBA course, motivating learners by demonstrating finance is relevant and interesting, and presenting the material clearly.

Table of Contents

Preface iii
PART 1 Fundamental Concepts of Financial Management
1(208)
An Overview of Financial Management and the Financial Environment
2(44)
The Five-Minute MBA
3(1)
The Corporate Life Cycle
4(3)
The Primary Objective of the Corporation: Value Maximization
7(4)
Box: Corporate Scandals and Maximizing Stock Price
11(1)
The Financial Markets
12(4)
Financial Institutions
16(3)
Box: Online Trading Systems
19(2)
Secondary Markets
21(1)
The Stock Market
22(1)
Box: Measuring the Market
23(1)
The Cost of Money and Interest Rate Levels
24(2)
The Determinants of Market Interest Rates
26(5)
The Term Structure of Interest Rates
31(2)
What Determines the Shape of the Yield Curve?
33(2)
International Risk Factors
35(1)
Economic Factors That Influence Interest Rate Levels
36(2)
A Preview of What Is Ahead
38(1)
e-Resources
39(1)
Summary
39(7)
Web Extension: The Pure Expectations Theory and Estimation of Forward Rates
Time Value of Money
46(45)
Time Lines
47(1)
Box: Corporate Valuation and the Time Value of Money
48(1)
Future Value
48(5)
Box: The Power of Compound Interest
53(1)
Present Value
54(2)
Solving for Interest Rate and Time
56(3)
Future Value of an Annuity
59(3)
Present Value of an Annuity
62(4)
Annuities: Solving for Interest Rate, Number of Periods, or Payment
66(1)
Perpetuities
67(1)
Uneven Cash Flow Streams
68(3)
Growing Annuities
71(1)
Semiannual and Other Compounding Periods
72(4)
Fractional Time Periods
76(1)
Box: Using the Internet for Personal Financial Planning
77(1)
Amortized Loans
77(2)
Summary
79(12)
Web Extension: The Tabular Approach and Continuous Compounding
Financial Statements, Cash Flow, and Taxes
91(35)
Financial Statements and Reports
92(1)
Box: Corporate Valuation and Financial Statements
93(1)
The Balance Sheet
93(3)
The Income Statement
96(1)
Statement of Retained Earnings
97(1)
Net Cash Flow
98(1)
Box: Financial Analysis on the Internet
99(1)
Statement of Cash Flows
100(2)
Modifying Accounting Data for Managerial Decisions
102(4)
Box: Financial Bamboozling: How to Spot It
106(3)
MVA and EVA
109(3)
The Federal Income Tax System
112(5)
Summary
117(9)
Web Extension: Individual Taxes
Risk and Return: The Basics
126(46)
Investment Returns
127(1)
Box: Corporate Valuation and Risk
128(1)
Stand-Alone Risk
129(10)
Box: The Trade-Off Between Risk and Return
139(1)
Risk in a Portfolio Context
139(9)
Box: The Benefits of Diversifying Overseas
148(4)
Calculating Beta Coefficients
152(3)
The Relationship between Risk and Rates of Return
155(6)
Projects versus Securities
161(1)
Some Concerns about Beta and the CAPM
161(1)
Volatility versus Risk
162(1)
Summary
163(9)
Web Extension: Continuous Distributions and Estimating Beta with a Calculator
Risk and Return: Portfolio Theory and Asset Pricing Models
172(37)
Measuring Portfolio Risk
173(1)
Box: Corporate Valuation and Risk
174(2)
Efficient Portfolios
176(3)
Choosing the Optimal Portfolio
179(3)
The Basic Assumptions of the Capital Asset Pricing Model
182(1)
The Capital Market Line and the Security Market Line
183(4)
Calculating Beta Coefficients
187(8)
Empirical Tests of the CAPM
195(2)
Arbitrage Pricing Theory
197(3)
The Fama-French Three-Factor Model
200(2)
An Alternative Theory of Risk and Return: Behavioral Finance
202(1)
Summary
203(6)
PART 2 Securities and Their Valuation
209(96)
Bonds and Their Valuation
210(38)
Box: Corporate Valuation and Risk
212(1)
Who Issues Bonds?
212(1)
Key Characteristics of Bonds
213(5)
Bond Valuation
218(6)
Bond Yields
224(2)
Bonds with Semiannual Coupons
226(1)
Box: Drinking Your Coupons
227(1)
Assessing the Risk of a Bond
228(2)
Default Risk
230(8)
Box: Santa Fe Bonds Finally Mature After 114 Years
238(1)
Bond Markets
239(2)
Summary
241(7)
Stocks and Their Valuation
248(36)
Legal Rights and Privileges of Common Stockholders
249(1)
Box: Corporate Valuation and Risk
250(1)
Types of Common Stock
251(1)
The Market for Common Stock
252(2)
Common Stock Valuation
254(1)
Box: Australian Bordello's IPO: First Day Performance Is Up
255(3)
Constant Growth Stocks
258(3)
Expected Rate of Return on a Constant Growth Stock
261(2)
Valuing Stocks That Have a Nonconstant Growth Rate
263(3)
Market Multiple Analysis
266(1)
Stock Market Equilibrium
266(6)
Actual Stock Prices and Returns
272(3)
Preferred Stock
275(1)
Box: A Nation of Traders
276(1)
Summary
277(7)
Web Extension: Derivation of Valuation Equations
Financial Options and Their Valuation
284(21)
Financial Options
285(1)
Box: Corporate Valuation and Financial Options
286(5)
Box: Using Options in Compensation Plans
291(1)
Introduction to Option Pricing Models: The Binomial Approach
291(4)
The Black-Scholes Option Pricing Model (OPM)
295(4)
The Valuation of Put Options
299(1)
Summary
300(5)
Web Extension: The Binomial Approach
PART 3 Projects and Their Valuation
305(136)
The Cost of Capital
306(37)
The Weighted Average Cost of Capital
307(1)
Box: Corporate Valuation and the Cost of Capital
308(1)
Cost of Debt, rd(1 -- T)
308(2)
Cost of Preferred Stock, rps
310(1)
Cost of Common Stock, rs
310(2)
The CAPM Approach
312(5)
Dividend-Yield-plus-Growth-Rate, or Discounted Cash Flow (DCF), Approach
317(2)
Bond-Yield-plus-Risk-Premium Approach
319(1)
Comparison of the CAPM, DCF, and Bond-Yield-plus-Risk-Premium Methods
320(1)
Composite, or Weighted Average, Cost of Capital, WACC
320(1)
Box: Stern Stewart's WACC Estimates for Some Large U.S. Corporations
321(2)
Factors That Affect the Weighted Average Cost of Capital
323(1)
Box: Global Variations in the Cost of Capital
324(1)
Adjusting the Cost of Capital for Risk
324(3)
Techniques for Measuring Divisional Betas
327(1)
Estimating the Cost of Capital for Individual Projects
328(1)
Adjusting the Cost of Capital for Flotation Costs
329(2)
Some Problem Areas in Cost of Capital
331(1)
Four Mistakes to Avoid
332(1)
Summary
333(10)
Web Extension: Estimation Issues: Growth Rates and the Nonconstant Growth Model
The Basics of Capital Budgeting: Evaluating Cash Flows
343(36)
Box: Corporate Valuation and Capital Budgeting
344(1)
Overview of Capital Budgeting
344(1)
Project Classifications
345(1)
Capital Budgeting Decision Rules
346(7)
Comparison of the NPV and IRR Methods
353(4)
Modified Internal Rate of Return (MIRR)
357(2)
Profitability Index
359(1)
Conclusions on Capital Budgeting Methods
359(2)
Business Practices
361(1)
The Post-Audit
362(1)
Box: How Does Industry Evaluate Projects?
363(1)
Special Applications of Cash Flow Evaluation
364(3)
The Optimal Capital Budget
367(1)
Summary
368(11)
Web Extension: The AAR Method, the EAA Approach, and the Marginal WACC
Cash Flow Estimation and Risk Analysis
379(40)
Box: Corporate Valuation, Cash Flows, and Risk Analysis
380(1)
Estimating Cash Flows
380(1)
Identifying the Relevant Cash Flows
381(4)
Tax Effects
385(4)
Evaluating Capital Budgeting Projects
389(6)
Adjusting for Inflation
395(2)
Project Risk Analysis: Techniques for Measuring Stand-Alone Risk
397(4)
Box: Capital Budgeting Practices in the Asia/Pacific Region
401(1)
Box: High-Tech CFOs
402(4)
Project Risk Conclusions
406(1)
Incorporating Project Risk into Capital Budgeting
406(1)
Managing Risk through Phased Decisions: Decision Trees
407(2)
Summary
409(10)
Web Extension: Replacement Project Analysis
Real Options
419(22)
Box: Corporate Valuation and Real Options
420(1)
Introduction to Real Options
421(2)
Valuing Real Options
423(1)
The Investment Timing Option: An Illustration
423(10)
Concluding Thoughts on Real Options
433(1)
Box: Growth Options at Dot-Com Companies
434(1)
Summary
435(6)
Web Extension: Growth Options, Abandonment Options, and Risk-Neutral Valuation
PART 4 Corporate Valuation
441(104)
Analysis of Financial Statements
442(34)
Box: Corporate Valuation and Analysis of Financial Statements
443(1)
Ratio Analysis
443(1)
Liquidity Ratios
444(3)
Asset Management Ratios
447(2)
Debt Management Ratios
449(3)
Profitability Ratios
452(1)
Box: International Accounting Differences Create Headaches for Investors
453(1)
Market Value Ratios
454(2)
Trend Analysis, Common Size Analysis, and Percent Change Analysis
456(4)
Tying the Ratios Together: The Du Pont Chart and Equation
460(2)
Comparative Ratios and ``Benchmarking''
462(1)
Uses and Limitations of Ratio Analysis
463(2)
Box: Ratio Analysis in the Internet Age
465(1)
Problems with ROE
466(1)
Looking Beyond the Numbers
466(1)
Summary
467(9)
Financial Planning and Forecasting Pro Forma Financial Statements
476(30)
Overview of Financial Planning
477(1)
Box: Corporate Valuation and Financial Planning
478(2)
Sales Forecast
480(2)
Financial Statement Forecasting: The Percent of Sales Method
482(11)
The AFN Formula
493(1)
Forecasting Financial Requirements When the Balance Sheet Ratios Are Subject to Change
494(3)
Summary
497(9)
Web Extension: Financing Feedbacks and Alternative Forecasting Techniques
Corporate Valuation, Value-Based Management, and Corporate Governance
506(39)
Overview of Corporate Valuation
507(1)
Box: Corporate Valuation: Putting the Pieces Together
508(1)
The Corporate Valuation Model
509(7)
Value-Based Management
516(7)
Box: Who Is Creating Wealth?
523(1)
Box: Value-Based Management in Practice
524(1)
Corporate Governance and Shareholder Wealth
525(5)
Box: International Corporate Governance
530(4)
Summary
534(11)
PART 5 Strategic Financing Decisions
545(102)
Capital Structure Decisions: The Basics
546(36)
Preview of Capital Structure Issues
547(1)
Box: Corporate Valuation and the Cost of Capital
548(1)
Business and Financial Risk
549(7)
Capital Structure Theory
556(2)
Box: Yogi Berra on the MM Proposition
558(6)
Estimating the Optimal Capital Structure
564(1)
Box: Taking a Look at Global Capital Structures
565(7)
Checklist for Capital Structure Decisions
572(3)
Summary
575(7)
Web Extension: Degree of Leverage
Capital Structure Decisions: Extensions
582(31)
Box: Corporate Valuation: Capital Structure Decisions
583(1)
Capital Structure Theory: Arbitrage Proofs of the Modigliani-Miller Models
583(9)
Introducing Personal Taxes: The Miller Model
592(3)
Criticisms of the MM and Miller Models
595(2)
An Extension to the MM Model
597(3)
Risky Debt and Equity as an Option
600(4)
Capital Structure Theory: Our View
604(2)
Summary
606(7)
Distributions to Shareholders: Dividends and Repurchases
613(34)
The Level of Distributions and Firm Value
614(1)
Box: Corporate Valuation and Distributions to Shareholders
615(3)
Clientele Effect
618(1)
Box: Dividend Yields Around the World
619(1)
Information Content, or Signaling, Hypothesis
619(2)
Implications for Dividend Stability
621(1)
Setting the Target Distribution Level: The Residual Distribution Model
621(3)
Distributions in the Form of Dividends
624(2)
Distributions through Stock Repurchases
626(4)
Comparison of Dividends and Repurchases
630(1)
Other Factors Influencing Distributions
631(1)
Overview of the Distribution Policy Decision
632(2)
Stock Splits and Stock Dividends
634(2)
Dividend Reinvestment Plans
636(1)
Summary
637(10)
PART 6 Tactical Financing Decisions
647(94)
Initial Public Offerings, Investment Banking, and Financial Restructuring
648(38)
Box: Corporate Valuation, IPOs, and Financial Restructuring
649(1)
The Financial Life Cycle of a Startup Company
649(1)
The Decision to Go Public: Initial Public Offerings
650(2)
The Process of Going Public
652(8)
Equity Carve-Outs: A Special Type of IPO
660(1)
Non-IPO Investment Banking Activities
661(3)
The Decision to Go Private
664(2)
Managing the Maturity Structure of Debt
666(2)
Refunding Operations
668(5)
Box: TVA Ratchets Down Its Interest Expenses
673(2)
Managing the Risk Structure of Debt
675(2)
Box: Bowie Bonds Ch-Ch-Change Asset Securitization
677(1)
Summary
678(8)
Web Extension: Rights Offerings and Zero Coupon Bonds
Lease Financing
686(26)
The Two Parties to Leasing
687(1)
Types of Leases
687(1)
Box: Corporate Valuation and Lease Financing
688(2)
Tax Effects
690(2)
Financial Statement Effects
692(2)
Evaluation by the Lessee
694(4)
Evaluation by the Lessor
698(1)
Box: Leasing Comes to the Internet
699(2)
Other Issues in Lease Analysis
701(2)
Box: Lease Securitization
703(1)
Other Reasons for Leasing
704(1)
Summary
705(7)
Web Extension: Percentage Cost Analysis, Leasing Feedback, and Leveraged Leases
Hybrid Financing: Preferred Stock, Warrants, and Convertibles
712(29)
Preferred Stock
713(1)
Box: Corporate Valuation and Hybrid Financing
714(1)
Box: Where's the Dividend?
715(1)
Box: A Rose by Any Other Name: MIPS, QUIPS, TOPrS, and QUIDS
716(2)
Warrants
718(4)
Convertibles
722(8)
A Final Comparison of Warrants and Convertibles
730(1)
Reporting Earnings When Warrants or Convertibles Are Outstanding
731(1)
Summary
731(10)
Web Extension: Calling Convertible Issues
PART 7 Special Topics
741(217)
Working Capital Management
742(41)
Box: Corporate Valuation and Working Capital Management
743(1)
The Cash Conversion Cycle
743(5)
Alternative Net Operating Working Capital Policies
748(1)
Box: The Best at Managing Working Capital
749(1)
Cash Management
749(1)
The Cash Budget
750(3)
Box: The Great Debate: How Much Cash Is Enough?
753(1)
Cash Management Techniques
754(2)
Inventory
756(1)
Receivables Management
756(1)
Box: Supply Chain Management
757(3)
Accruals and Accounts Payable (Trade Credit)
760(4)
Alternative Short-Term Financing Policies
764(2)
Short-Term Investments: Marketable Securities
766(1)
Short-Term Financing
767(1)
Short-Term Bank Loans
768(2)
Commercial Paper
770(1)
Use of Security in Short-Term Financing
771(1)
Summary
771(12)
Web Extension: Secured Short-Term Financing
Derivatives and Risk Management
783(30)
Reasons to Manage Risk
784(1)
Box: Corporate Valuation and Risk Management
785(2)
Background on Derivatives
787(2)
Derivatives in the News
789(3)
Other Types of Derivatives
792(6)
Risk Management
798(1)
Fundamentals of Risk Management
798(2)
Box: Microsoft's Goal: Manage Every Risk!
800(1)
Using Derivatives to Reduce Risks
801(3)
Box: Risk Management in the Cyber Economy
804(4)
Summary
808(5)
Web Extension: Risk Management with Insurance and Bond Portfolio Immunization
Bankruptcy, Reorganization, and Liquidation
813(28)
Financial Distress and Its Consequences
814(2)
Issues Facing a Firm in Financial Distress
816(1)
Settlements without Going through Formal Bankruptcy
816(3)
Federal Bankruptcy Law
819(1)
Reorganization in Bankruptcy
820(8)
Liquidation in Bankruptcy
828(4)
Other Motivations for Bankruptcy
832(1)
Some Criticisms of Bankruptcy Laws
833(1)
Other Topics in Bankruptcy
834(1)
Summary
834(7)
Web Extension: Case Histories and Multiple Discriminant Analysis
Mergers, LBOs, Divestitures, and Holding Companies
841(40)
Rationale for Mergers
842(3)
Types of Mergers
845(1)
Level of Merger Activity
845(2)
Hostile versus Friendly Takeovers
847(1)
Merger Regulation
848(1)
Merger Analysis
849(1)
The Adjusted Present Value (APV) Approach
850(5)
Setting the Bid Price
855(1)
Analysis When There Is a Permanent Change in Capital Structure
856(1)
Taxes and the Structure of the Takeover Bid
857(4)
Box: Tempest in a Teapot?
861(1)
Financial Reporting for Mergers
861(2)
Analysis for a ``True Consolidation''
863(1)
The Role of Investment Bankers
864(3)
Who Wins: The Empirical Evidence
867(1)
Corporate Alliances
868(1)
Leveraged Buyouts
869(1)
Divestitures
870(2)
Holding Companies
872(2)
Summary
874(7)
Web Extension: Comparison of Alternative Valuation Models
Multinational Financial Management
881(77)
Multinational, or Global, Corporations
882(1)
Multinational versus Domestic Financial Management
883(1)
Box: The Euro: What You Need to Know
884(1)
Exchange Rates
885(3)
The International Monetary System
888(3)
Trading in Foreign Exchange
891(1)
Interest Rate Parity
892(2)
Box: Hungry for a Big Mac? Go to China!
894(1)
Purchasing Power Parity
895(1)
Inflation, Interest Rates, and Exchange Rates
896(1)
International Money and Capital Markets
897(3)
Multinational Capital Budgeting
900(3)
Box: Stock Market Indices Around the World
903(1)
International Capital Structures
903(2)
Multinational Working Capital Management
905(3)
Summary
908(6)
Appendixes
Appendix A Solutions to Self-Test Problems
914(28)
Appendix B Answers to End-of-Chapter Problems
942(7)
Appendix C Selected Equations and Data
949(8)
Appendix D Mathematical Table
957(1)
Glossary 958(19)
Name Index 977(2)
Subject Index 979

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