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• ISBN 10:0357252675 

• ISBN 13:9780357252673

• Author:Eugene Brigham, Michael Ehrhardt 

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Financial Management + Mindtap 1 Term Printed Access Card Theory and Practice 1st Table of contents:

Part 1. The Company and Its Environment
Chapter 1. An Overview of Financial Management and the Financial Environment
1-1. The Five-Minute MBA
1-2. Finance From 40,000 Feet Above
1-3. The Corporate Life Cycle
1-3a. Starting Up as a Proprietorship
1-3b. More Than One Owner: A Partnership
1-3c. Many Owners: A Corporation
1-3d. Growing a Corporation: Going Public
1-3e. Managing a Corporation’s Value
1-4. Governing a Corporation
1-4a. The Primary Objective of a Corporation: Maximizing Stockholder Wealth
1-4b. Intrinsic Stock Value Maximization and Social Welfare
1-4c. Ethics and Intrinsic Stock Value Maximization
1-5. An Overview of Financial Markets
1-5a. The Net Providers and Users of Capital
1-5b. Getting Cash From Providers to Users: The Capital Allocation Process
1-6. Types of Claims on Future Cash Flows: Financial Instruments, Financial Assets, and Financial Securities
1-6a. Claims on Future Cash Flows: Debt and Equity
1-6b. Types of Claims on Future Cash Flows: Derivatives and Hybrids
1-6c. Type of Claim on Future Cash Flows: Securitized Financial Assets
1-7. Claims on Future Cash Flows: The Required Rate of Return
1-7a. Economic Conditions and Policies That Affect Interest Rates
1-7b. Fundamental Factors That Affect the Required Rate of Return
1-8. The Functions of Financial Institutions
1-8a. Investment Banks and Brokerage Activities
1-8b. Deposit-Taking Financial Intermediaries
1-8c. Investment Funds
1-8d. Life Insurance Companies and Pension Funds
1-8e. Regulation of Financial Institutions
1-9. Financial Markets
1-9a. Types of Financial Markets
1-9b. Why Secondary Markets Are Important
1-10. U.S. Stock Markets
1-10a. Where Stocks Are Listed
1-10b. Types of Brokerage Accounts and Types of Trading Orders
1-10c. Types of Trading Venues: Open Outcry Auctions, Dealer Markets, and Computer Networks
1-11. Trading in Modern Stock Markets
1-11a. Reg NMS: Stock Transactions, Quotes, and the “Market Price”
1-11b. Broker-Dealer Networks
1-11c. Trading in a Standard Broker-Dealer Network
1-11d. Trading in an Electronic Communications Network (ECN) or an Alternative Trading System (ATS)
1-11e. Summary of Trading Activity
1-11f. Algorithmic Trading and High-Frequency Trading (HFT)
1-11g. Stock Market Returns
1-12. The Big Picture
e-Resources
Summary
Questions
Mini Case
Web Extension 1A. An Overview of Derivatives
1A-1. Forward and Futures Contracts
1A-2. Options
1A-3. Swaps
Web Extension 1B. The Great Recession of 2007
1B-1. The Globalization of Mortgage Market Securitization
1B-2. The Dark Side of Securitization: The Sub-Prime Mortgage Meltdown
1B-3. From Sub-Prime Meltdown to Liquidity Crisis to Economic Crisis
1B-4. Responding to the Economic Crisis
1B-5. Preventing the Next Crisis
Summary
Chapter 2. Financial Statements, Cash Flow, and Taxes
2-1. Financial Statements and Reports
2-2. The Balance Sheet
2-2a. Assets
2-2b. Liabilities and Equity
2-3. The Income Statement
2-4. Statement of Cash Flows
2-4a. Operating Activities
2-4b. Investing Activities
2-4c. Financing Activities
2-4d. Putting the Pieces Together
2-5. Statement of Stockholders’ Equity
2-6. Net Cash Flow
2-7. Free Cash Flow: The Cash Flow Available for Distribution to Investors
2-7a. Net Operating Profit After Taxes (NOPAT)
2-7b. Net Operating Working Capital
2-7c. Total Net Operating Capital
2-7d. Net Investment in Operating Capital
2-7e. Calculating Free Cash Flow
2-7f. The Uses of FCF
2-7g. FCF and Corporate Value
2-8. Performance Evaluation
2-8a. The Return on Invested Capital
2-8b. Market Value Added (MVA)
2-8c. Economic Value Added (EVA)
2-8d. Intrinsic Value, MVA, and EVA
2-9. Corporate Income Taxes
2-9a. Corporate Taxes: The Flat Corporate Tax Rate
2-9b. Corporate Taxes: Treatment of Investment Income Earned by a Corporation
2-9c. Corporate Taxes: Special Rules for Certain Expenses
2-9d. Corporate Taxes: Miscellaneous Features
2-10. Personal Taxes
2-10a. Personal Taxes on Municipal Bonds and Corporate Bonds
2-10b. Personal Taxes on Capital Gains (or Losses) and Dividend Income
Web Extension 2A. The Federal Income Tax System for Individuals
2A-1. Overview of IRS Form 1040
2A-1a. Form 1040: Filing Status and Personal Information
2A-1b. Form 1040: Standard Deduction, and Dependents
2A-2. Determining Taxable Income
2A-2a. Form 1040: Total Income
2A-2b. Form 1040: Adjusted Gross Income
2A-2c. Form 1040: Standard Deductions or Itemized Deductions
2A-2d. Form 1040: Taxable Income
2A-3. Ways to Determine Taxes on Taxable Income
2A-3a. Filers with Taxable Income Less than $100,000
2A-3b. Filers with Taxable Income Greater than $100,000
2A-4. Tax Brackets, Marginal Tax Rates, and Average Tax Rates
2A-4a. Tax Brackets and Marginal Tax Rates
2A-4b. Summary of Individual Taxes, Marginal Tax Rates, and Average Tax Rates
2A-5. A Simple Example That Uses Tax Rates and Brackets to Calculate Personal Taxes
2A-6. Personal Tax Credits
2A-7. Payroll Taxes
2A-7a. Social Security Taxes
2A-7b. Medicare Taxes
2A-7c. Example of Social Security Taxes and Medicare Taxes
2A-8. Taxes on Investment Income
2A-8a. Net Investment Income Tax (NIIT)
2A-8b. Dividends and Capital Gains
2A-8c. Taxation of Income Received from Pass-Through Entities
2A-9. The Alternative Minimum Tax
2A-10. Gifts, Estate Taxes, and Generation-Skipping Taxes
Summary
Questions
Self-Test Problem
Problems
Spreadsheet Problems
Mini Case
Chapter 3. Analysis of Financial Statements
3-1. Financial Analysis
3-1a. Gather Data
3-1b. Examine the Statement of Cash Flows
3-1c. Calculate and Examine the Return on Invested Capital and Free Cash Flow
3-1d. Begin Ratio Analysis
3-2. Profitability Ratios
3-2a. Net Profit Margin
3-2b. Basic Earning Power (BEP) Ratio
3-2c. Return on Total Assets
3-2d. Return on Common Equity
3-3. Asset Management Ratios
3-3a. Evaluating Total Assets: The Total Assets Turnover Ratio
3-3b. Evaluating Fixed Assets: The Fixed Assets Turnover Ratio
3-3c. Evaluating Receivables: The Days Sales Outstanding
3-3d. Evaluating Inventories: The Inventory Turnover Ratio
3-4. Liquidity Ratios
3-4a. The Current Ratio
3-4b. The Quick Ratio
3-5. Debt Management Ratios
3-5a. How the Firm Is Financed: Leverage Ratios
3-5b. Ability to Pay Interest: Times-Interest-Earned Ratio
3-5c. Ability to Service Debt: EBITDA Coverage Ratio
3-6. Market Value Ratios
3-6a. Price/Earnings Ratio
3-6b. Price/Free Cash Flow (P/FCF) Ratio
3-6c. Market/Book Ratio
3-7. Other Methods to Evaluate a Company’s Performance
3-7a. Common Size Analysis
3-7b. Percentage Change Analysis
3-7c. Trend Analysis
3-8. Tying the Ratios Together: The DuPont Equation
3-9. Comparative Ratios and Benchmarking
3-10. Uses and Limitations of Ratio Analysis
3-11 . Looking Beyond the Numbers
Summary
Questions
Self-Test Problems
Problems
Spreadsheet Problems
Mini Case
Part 2. Fixed Income Securities
Chapter 4. Time Value of Money
4-1. Time Lines
4-2. Future Values
4-2a. Step-by-Step Approach
4-2b. Formula Approach
4-2c. Financial Calculators
4-2d. Spreadsheets
4-2e. Comparing the Procedures
4-2f. Graphic View of the Compounding Process
4-2g. Simple Interest versus Compound Interest
4-3. Present Values
4-3a. Discounting a Future Value to Find the Present Value
4-3b. Graphic View of the Discounting Process
4-4. Finding the Interest Rate, I
4-5. Finding the Number of Years, N
4-6. Perpetuities
4-7. Annuities
4-8. Future Value of an Ordinary Annuity
4-9. Future Value of an Annuity Due
4-10. Present Value of Ordinary Annuities and Annuities Due
4-10a. Present Value of an Ordinary Annuity
4-10b. Present Value of Annuities Due
4-11. Finding an Annuity’s Payments, Periods, and Interest Rate
4-11a. Finding Annuity Payments, PMT
4-11b. Finding the Number of Periods, N
4-11c. Finding the Interest Rate, I
4-12. Present Value of an Uneven Cash Flow Stream
4-12a. Annuity Plus Additional Final Payment
4-12b. Irregular Cash Flow Stream
4-13. Future Value of an Uneven Cash Flow Stream
4-14. Solving for the Interest Rate of Irregular Cash Flow Streams
4-15. Semiannual and Other Compounding Periods
4-15a. Types of Interest Rates
4-15b. The Result of Frequent Compounding
4-16. Fractional Time Periods
4-17. Amortized Loans
4-17a. Payments
4-17b. Amortization Schedules
4-17c. Mortgage Payments, Remaining Balance, and Interest Paid
4-17d. Auto Loans and the Remaining Balance
4-18. Growing Annuities
4-18a. Example 1: Finding a Constant Real Income
4-18b. Example 2: Initial Deposit to Accumulate a Future Sum
Web Extension 4A. Derivation of Annuity Formulas
4A-1. Sum of Geometric Series from Zero to Infinity
4A-2 . Present Value of a Cash Flow Stream Growing to Infinity
4A-3. Present Value of Perpetuity
4A-4. Present Value of an Annuity
4A-5. Future Value of an Annuity
Web Extension 4B. Continuous Compounding
4B-1. Continuous Compounding
4B-2. Continuous Discounting
Problems
Summary
Questions
Self-Test Problems
Problems
Spreadsheet Problem
Mini Case
Chapter 5. Bonds, Bond Valuation, and Interest Rates
5-1. Who Issues Bonds?
5-2. Key Characteristics of Bonds
5-2a. Par Value
5-2b. Coupon Interest Rate
5-2c. Maturity Date
5-2d. Provisions to Call or Redeem Bonds
5-2e. Sinking Funds
5-2f. Other Provisions and Features
5-2g. Bond Markets
5-3. Bond Valuation
5-3a. Time Lines for a Bond’s Cash Flows
5-3b. Calculating a Bond’s Value
5-3c. Interest Rate Changes and Bond Prices
5-4. Changes in Bond Values Over Time
5-4a. New Bond Issues Versus Seasoned Bonds
5-4b. How Bond Values Change From Issue Date to Maturity Date
5-4c. Bond Prices: Clean and Dirty
5-5. Bonds with Semiannual Coupons
5-6. Bond Yields
5-6a. Yield to Maturity
5-6b. Yield to Call
5-6c. The Cost of Debt and Intrinsic Value
5-7. The Pre-Tax Cost of Debt: Determinants of Market Interest Rates
5-8. The Risk-Free Interest Rate: Nominal ( R Rf ) and Real (R*)
5-9. The Inflation Premium (IP)
5-10. The Maturity Risk Premium (MRP)
5-10a. Interest Rate Risk
5-10b. Reinvestment Rate Risk
5-10c. Comparing Interest Rate Risk and Reinvestment Rate Risk: The Maturity Risk Premium
5-11. The Default Risk Premium (DRP)
5-11a. Bond Contract Provisions That Influence Default Risk
5-11b. Bond Ratings
5-11c. Bond Rating Criteria, Upgrades, and Downgrades
5-11d. Bond Ratings and the Default Risk Premium
5-12. The Liquidity Premium (LP)
5-13. The Term Structure of Interest Rates
5-14. Financing with Junk Bonds
5-15. Bankruptcy and Reorganization
Web Extension 5A. A Closer Look at Zero Coupon Bonds, Original Issue Discount Bonds, and Original Issue Premium Bonds
5A-1a. Zero Coupon Bonds
5A-1a. Original Issue Discount Bonds (OIDs)
5A-1a. Zero Coupon Bonds
Questions
Problems
Web Extension 5B. Bond Valuation Between Coupon Payment Dates
Web Extension 5C. A Closer Look at TIPS: Treasury Inflation-Protected Securities
Web Extension 5D. A Closer Look at Bond Risk: Duration
5D-1. Bond Risk
5D-2. Immunization
5D-3. Duration
5C-4. Duration as a Measure of Interest Rate Risk
Web Extension 5E. The Pure Expectations Theory and Estimation of Forward Rates
Problems
Summary
Questions
Self-Test Problem
Problems
Spreadsheet Problem
Mini Case
Part 3. Stocks and Options
Chapter 6. Risk and Return
6-1. Defining Investment Returns and Risk
6-1a. Returns on Investments
6-1b. Stand-Alone Risk Versus Portfolio Risk
6-2. Measuring Risk for Discrete Probability Distributions
6-2a. Probability Distributions for Discrete Outcomes
6-2b. Expected Rate of Return for Discrete Probability Distributions
6-2c. Measuring Stand-Alone Risk: The Standard Deviation of a Discrete Distribution
6-3. Risk in a Continuous Distribution
6-4. Using Historical Data to Estimate Risk
6-4a. Calculating the Historical Average and Standard Deviation
6-4b. Using Past Data to Estimate Average Return and Standard Deviation
6-5. Risk in a Portfolio Context
6-5a. Creating a Portfolio
6-5b. Correlation and Risk for a Two-Stock Portfolio
6-5c. Diversification and Multi-Stock Portfolios
6-6. The Relevant Risk of a Stock: The Capital Asset Pricing Model (CAPM)
6-6a. Contribution to Market Risk: Beta
6-6b. Estimating Beta
6-6c. Interpreting the Estimated Beta
6-7. The Relationship Between Risk and Return in the Capital Asset Pricing Model
6-7a. The Security Market Line (SML)
6-7b. The Impact on Required Return Due to Changes in the Risk-Free Rate, Risk Aversion, and Beta
6-7c. Portfolio Returns and Portfolio Performance Evaluation
6-7d. Required Returns, Expected Returns, and Market Equilibrium
6-8. The Efficient Markets Hypothesis (EMH)
6-8a. Rationale of the Efficient Markets Hypothesis
6-8b. Forms of the Efficient Markets Hypothesis (EMH)
6-8c. Tests of Market Efficiency: The Empirical Evidence
6-8d. Market Bubbles and the Efficient Market Hypothesis
6-9. The Fama-French Three-Factor Model
6-10. Behavioral Finance
6-10a. Can Behavioral Finance Explain Market Bubbles?
6-10b. Other Ways That Behavioral Finance Affects Decisions
6-11. The CAPM and Market Efficiency: Implications for Corporate Managers and Investors
6-12. Retail Investors, Meme Stocks, and Cryptocurrencies
6-12a. Retail Investors and Stock Trading Fees
6-12b. Meme Stocks
6-12c. Cryptocurrencies
6-12d. Non-Fungible Tokens
Web Extension 6A. Continuous Probability Distributions
6A-1. The Uniform Distribution
6A-2. Triangular Distribution
6A-3. Normal Distribution
6A-4. Using Continuous Distributions
Summary
Questions
Self-Test Problems
Problems
Spreadsheet Problem
Mini Case
Chapter 7. Corporate Valuation, Stock Valuation, and Stock Market Equilibrium Rates
7-1. Legal Rights and Privileges of Common Stockholders
7-1a. Control of the Firm
7-1b. The Preemptive Right
7-2. Classified Stock and Tracking Stock
7-2a. Classified Stock
7-2b. Tracking Stock
7-3. Stock Market Reporting
7-4. Valuing Common Stocks—Introducing the Free Cash Flow (FCF) Valuation Model
7-4a. Sources of Value and Claims on Value
7-4b. The Intrinsic Value per Share of Common Stock
7-4c. The Difference Between Book, Market, and Intrinsic Values of Common Stock
7-5. The Constant Growth Model: Valuation When Expected Free Cash Flow Grows at a Constant Rate
7-5a. Estimating the Value of Operations When Expected Growth Is Constant
7-5b. How to Avoid Common Mistakes When Applying the Constant Growth Model
7-6. The Multistage Model: Valuation When Expected Short-Term Free Cash Flow Grows at a Nonconstant Rate
7-6a. The Forecast Period and the Horizon Value
7-6b. The Current Value of Operations
7-7. Application of the FCF Valuation Model to MicroDrive
7-7a. Forecasting MicroDrive’s Free Cash Flows
7-7b. MicroDrive’s Horizon Value
7-7c. MicroDrive’s Current Value of Operations
7-7d. MicroDrive’s Projected Annual Value of Operations
7-7e. MicroDrive’s Intrinsic Value per Share of Common Stock
7-8. Do Stock Values Reflect Long-Term or Short-Term Cash Flows?
7-9. Value-Based Management: Using the Free Cash Flow Valuation Model to Identify Value Drivers
7-10. Why Are Stock Prices So Volatile?
7-11. Dividend Valuation Models
7-11a. Definitions of Terms Used in Dividend Valuation Models
7-11b. Expected Dividends as the Basis for Stock Values
7-11c. Valuing a Constant Growth Stock
7-11d. Valuing Nonconstant Growth Stocks
7-12. The Market Multiple Method
7-13. Comparing the FCF Valuation Model, the Dividend Growth Model, and the Market Multiple Method
7-14. Preferred Stock
Summary
Questions
Self-Test Problems 
Problems
Spreadsheet Problems
Mini Case
Web Extension 7A. Derivation of Valuation Equations
7A-2. The Present Value of an Infinite and Growing Cash Flow Stream
7A-2. Value of a Constant Growth Stock
7A-3. Value of a Perpetual Preferred Stock
Chapter 8. Financial Options and Applications in Corporate Finance
Overview of Financial Options
8-2. The Single-Period Binomial Option Pricing Approach
8-2a. Payoffs in a Single-Period Binomial Model
8-2b. The Hedge Portfolio Approach
8-2c. Hedge Portfolios and Replicating Portfolios
8-3. The Single-Period Binomial Option Pricing Formula
8-3a. The Binomial Option Pricing Formula
8-3b. Primitive Securities and the Binomial Option Pricing Formula
8-4. The Multi-Period Binomial Option Pricing Model
8-5 . The Black-Scholes Option Pricing Model (OPM)
8-5a. OPM Assumptions and Results
8-5b. Application of the Black-Scholes Option Pricing Model to a Call Option
8-5c. The Five Factors That Affect Call Option Prices
8-6. The Valuation of Put Options
8-6a . Put–Call Parity
8-6b. The Five Factors That Affect Put Option Prices
8-7. Applications of Option Pricing in Corporate Finance
8-7a. Real Options
8-7b. Risk Management
8-7c. Capital Structure Decisions
8-7d. Compensation Plans
Summary
Questions
Self-Test Problems
Problems
Spreadsheet Problem
Mini Case
Part 4. Projects and Their Valuation
Chapter 9. The Cost of Capital
9-1. The Weighted Average Cost of Capital
9-2. Choosing Weights for the Weighted Average Cost of Capital
9-3. The Cost of Debt
9-3a. After-Tax Cost of Short-Term Debt: r std ( 1 – T )
9-3b. The After-Tax Cost of Long-Term Debt: r d ( 1 – T )
9-3c. Yield to Maturity Versus Expected Rate of Return
9-3d. How Flotation Costs Affect the After-Tax Cost of Debt
9-3e. The After-Tax Cost of Debt When Bonds Are Issued at a Premium or a Discount
9-4. Cost of Preferred Stock, r ps
9-5. Cost of Common Stock: The Market Risk Premium, RP M
9-5a. Historical Risk Premium
9-5b. Surveys of Experts
9-5c. Forward-Looking Risk Premiums
9-5d. Our View on the Market Risk Premium
9-6. Using the CAPM to Estimate the Cost of Common Stock, r s
9-6a. The Capital Asset Pricing Model
9-6b. Estimating the Risk-Free Rate, R Rf
9-6c. Estimating the Market Risk Premium, RP M
9-6d. Estimating Beta, b i
9-6e. An Illustration of the CAPM Approach: MicroDrive’s Cost of Equity, r s
9-7. Using the Dividend Growth Approach to Estimate the Cost of Common Stock
9-7a. Estimating Inputs for the Dividend Growth Approach
9-7b. An Illustration of the Dividend Growth Approach
9-8. The Weighted Average Cost of Capital (WACC)
9-8a. Marginal Rates Versus Historical Rates
9-8b. Target Weights Versus Annual Financing Choices
9-8c. Weights for Component Costs: Book Values Versus Market Values versus Targets
9-9. Adjusting the Cost of Equity for Flotation Costs
9-10. Privately Owned Firms and Small Businesses
9-10a. Estimating the Cost of Stock by the Comparison Approach
9-10b. Own-Bond-Yield-Plus-Judgmental-Risk-Premium Approach
9-10c. Adjusting for Lack of Liquidity
9-10d. Estimating the Actual Weights in a Privately Owned Company’s Capital Structure
9-11. The Divisional Cost of Capital
9-11a. Using the CAPM to Estimate the Divisional Cost of Capital
9-11b. Techniques for Measuring Divisional Betas
9-12. Estimating the Cost of Capital for Individual Projects
9-13. Managerial Issues and the Cost of Capital
9-13a. How Managerial Decisions Affect the Cost of Capital
9-13b. Four Mistakes to Avoid
Summary
Questions
Self-Test Problem
Problems
Spreadsheet Problem
Mini Case
Web Extension 9A. Estimating the Required Return on the Market with the Dividend Growth Model: The Impact of Stock Repurchases and Nonconstant Short-Term Growth
9A-1. Estimating the Long-Term Growth Rate of Dividends
9A-2. The Impact of Stock Repurchases on the Estimated Price
9A-3. Estimating the Required Return
Chapter 10. The Basics of Capital Budgeting: Evaluating Cash Flows
10-1. An Overview of Capital Budgeting
10-2. The First Step in Project Analysis
10-3. Net Present Value (NPV)
10-3a. Calculating NPV
10-3b. Applying NPV as an Evaluation Measure
10-4. Internal Rate of Return (IRR)
10-4a. Calculating the IRR
10-4b. A Potential Problem With the Internal Rate of Return: Multiple IRRs
10-4c. Mutually Exclusive Projects: IRR Versus NPV
10-4d. Applying IRR as an Evaluation Measure
10-5. Modified Internal Rate of Return (MIRR)
10-6. Profitability Index (PI)
10-7. Payback Period
10-8. How to Use the Different Capital Budgeting Methods
10-8a. A Comparison of the Methods
10-8b. The Decision Process: What Is the Source of a Project’s NPV?
10-8c. Decision Criteria Used in Practice
10-9. Other Issues in Capital Budgeting
10-9a. Mutually Exclusive Projects With Unequal Lives
10-9b. Economic Life Versus Physical Life
10-9c. The Optimal Capital Budget
Summary
Questions
Self-Test Problems
Problems
Spreadsheet Problems
Mini Case
Chapter 11. Cash Flow Estimation and Risk Analysis
11-1. Identifying Relevant Cash Flows
11-1a. Project Cash Flow Versus Accounting Income
11-1b. Timing of Cash Flows: Yearly Versus Other Periods
11-1c. Expansion Projects and Replacement Projects
11-1d. Sunk Costs
11-1e. Opportunity Costs Associated With Assets the Firm Already Owns
11-1f. Externalities
11-2. Analysis of an Expansion Project
11-2a. Base Case Inputs and Key Results
11-2b. Cash Flow Projections: Intermediate Calculations
11-2c. Cash Flow Projections: Calculating Net Operating Profit After Taxes (NOPAT)
11-2d. Project Cash Flows: Completing the Calculations
11-2e. Evaluating Project Cash Flows
11-3. Risk Analysis in Capital Budgeting
11-4. Measuring Stand-Alone Risk
11-5. Sensitivity Analysis
11-5a. Sensitivity Graph
11-5b. Tornado Diagrams
11-5c. NPV Break-Even Analysis
11-5d. Extensions of Sensitivity Analysis
11-6. Scenario Analysis
11-7. Monte Carlo Simulation Analysis
11-8. Project Risk Conclusions
11-9. Replacement Analysis
11-10. Phased Decisions and Decision Trees
11-10a. The Basic Decision Tree
11-10b. Staged Decision Tree
11-11. Other Real Options
11-11a. Growth Options
11-11b. Flexibility Options
11-11c. Valuing Real Options
Summary
Questions
Self-Test Problems
Problems
Spreadsheet Problems
Mini Case
Appendix 11A. Depreciation for Tax Purposes
Part 5. Corporate Valuation and Governance
Chapter 12. Corporate Valuation and Financial Planning
12-1. Overview of Financial Planning
12-1a. The Operating Plan
12-1b. The Financial Plan
12-2. Financial Planning at MicroDrive Inc.
12-3. Forecasting Operations
12-3a. Sales Revenues
12-3b. Operating Assets
12-3c. Operating Liabilities
12-3d. Operating Income
12-3e. Free Cash Flow (FCF)
12-3f. Estimated Intrinsic Value
12-3g. Enhancements to the Basic Model
12-4. Evaluating MicroDrive’s Strategic Initiatives
12-5. Projecting MicroDrive’s Financial Statements
12-5a. Forecast the Accounts From the Operating Plan
12-5b. Forecast Items Determined by the Preliminary Short-Term Financial Policy
12-5c. Identify and Eliminate the Financing Deficit or Surplus in the Projected Balance Sheets
12-6. Analysis and Selection of a Strategic Plan
12-7. The CFO’s Model
12-7a. Financing Feedback
12-7b. Implementing the Target Capital Structure
12-8. Additional Funds Needed (AFN) Equation
12-8a. Required Increase in Assets
12-8b. Spontaneous Liabilities
12-8c. Addition to Retained Earnings
12-8d. Calculating Additional Funds Needed (AFN)
12-8e. Using MicroDrive’s Data to Implement the AFN Equation
12-8f. Key Factors in the AFN Equation
12-8g. The Self-Supporting Growth Rate
12-9. Forecasting When the Ratios Change
12-9a. Economies of Scale
12-9b. Nonlinear Relationships
12-9c. Lumpy Assets and Excess Capacity
Summary
Questions
Self-Test Problems
Problems
Spreadsheet Problems
Mini Case
Chapter 13. Corporate Governance
13-1. The Board of Directors
13-1a. Board of Director Elections
13-1b. Potential Problems With Board of Director Elections
13-1c. Board Diversity
13-2. Agency Conflicts
13-2a. Conflicts Between Stockholders and Creditors
13-2b. Conflicts Between Inside Owner/Managers and Outside Owners
13-2c. Conflicts Between Managers and Shareholders
13-3. How Good Corporate Governance Can Minimize Agency Costs
13-3a. Monitoring and Discipline by the Board of Directors
13-3b. Charter Provisions and Bylaws That Affect the Likelihood of Hostile Takeovers
13-3c. Using Compensation to Align Managerial and Shareholder Interests
13-3d. Capital Structure and Internal Control Systems
13-3e. Environmental Factors Outside a Firm’s Control
13-4. Employee Stock Ownership Plans (ESOPs)
Summary
Questions
Mini Case
Part 6. Cash Distributions and Capital Structure
Chapter 14. Distributions to Shareholders: Dividends and Repurchases
14-1. An Overview of Cash Distributions
14-1a. Sources of Cash
14-1b. Uses of Cash
14-2. Procedures for Cash Distributions
14-2a. Dividend Payment Procedures
14-2b. Stock Repurchase Procedures
14-2c. Patterns of Cash Distributions
14-3. Cash Distributions and Firm Value
14-3a. Dividend Irrelevance Theory
14-3b. Dividend Preference (Bird-in-the-Hand) Theory
14-3c. Tax Effect Theory: Capital Gains Are Preferred
14-3d. Empirical Evidence on Distribution Policies
14-4. Clientele Effect
14-5. Signaling Hypothesis
14-6. Implications for Dividend Stability
14-7. Setting the Target Distribution Level: The Residual Distribution Model
14-8. The Residual Distribution Model in Practice
14-9. A Tale of Two Cash Distributions: Dividends Versus Stock Repurchases
14-9a. The Impact on Financial Statements
14-9b. The Residual Distribution Model: Application to Full Financial Statements
14-9c. The Impact of Distributions on Intrinsic Value
14-10. The Pros and Cons of Dividends and Repurchases
14-11. Other Factors Influencing Distributions
14-11a. Constraints
14-11b. Alternative Sources of Capital
14-12. Summarizing the Distribution Policy Decision
14-13. Stock Splits and Stock Dividends
14-13a. Stock Splits
14-13b. Stock Dividends
14-13c. Effect on Stock Prices
14-14. Dividend Reinvestment Plans
Summary
Questions
Self-Test Problems
Problems
Spreadsheet Problems
Mini Case
Chapter 15. Capital Structure Decisions
15-1. An Overview of Capital Structure
15-2. Business Risk and Financial Risk
15-2a. Business Risk and Operating Leverage
15-2b. Financial Risk and Financial Leverage
15-2c. Operating Leverage and Financial Leverage: Examples
15-3. Capital Structure Theory: The Modigliani and Miller Models
15-3a. Modigliani and Miller: No Taxes
15-3b. Modigliani and Miller: The Effect of Corporate Taxes
15-3c. Miller: The Effect of Corporate and Personal Taxes
15-4. Capital Structure Theory: Beyond the Modigliani and Miller Models
15-4a. Trade-Off Theory: Tax Advantages Versus Costs of Financial Distress and Bankruptcy
15-4b. Signaling Theory
15-4c. Reserve Borrowing Capacity and the Investment Opportunity Set
15-4d. The Pecking Order Hypothesis
15-4e. Using Debt Financing to Reduce Agency Costs
15-4f. The Market Timing Theory
15-5. Capital Structure Evidence and Implications
15-5a. Empirical Evidence
15-5b. Implications for Managers
15-6. Estimating the Optimal Capital Structure
15-6a. Estimating a Company’s Current Value and Capital Structure
15-6b. Preliminary Steps to Identify the Optimal Capital Structure
15-6c. Estimating the Weighted Average Cost of Capital for Different Capital Structures
15-6d. Estimating Value and Identifying the Optimal Capital Structure
15-7. Anatomy of a Recapitalization
15-7a. Strasburg‘s Decision to Recapitalize
15-7b. Strasburg Issues New Debt but Has Not Yet Repurchased Stock
15-7c. Strasburg Repurchases Stock
15-7d. Recapitalization: A Post-Mortem
15-8. Risky Debt and Equity as an Option
15-8a. Using the Black-Scholes Option Pricing Model to Value Equity
15-8b. Using the Black-Scholes Option Pricing Model to Value Equity
15-8c. Managerial Risk Incentives
15-9. Managing the Maturity Structure of Debt
15-9a. Maturity Matching
15-9b. Effects of Interest Rate Levels and Forecasts
15-9c. Information Asymmetries
15-9d. Amount of Financing Required
15-9e. Availability of Collateral
15-9f. Evidence on Debt Maturity in Practice
Web Extension 15A. Capital Structure Theory: Arbitrage Proofs of the Modigliani-Miller Theorems
15A-1. Initial Assumptions
15A-2. MM Without Taxes
15A-2a. Cash Flows of an Unlevered Firm and a Levered Firm
15A-2b. Proof of Proposition I by Using an Arbitrage Argument
15A-2c. Proof of Proposition II
15b-3. MM With Corporate Taxes Only
15B-3a. Proposition I: Firm Value With Corporate Taxes Only
15A-3b. Proposition II: Shareholders’ Required Returns with Corporate Taxes Only
15A-4. Corporate and Personal Taxes: The Miller Model
15A-4a. The Miller Model
15A-4b. Derivation of the Miller Model
Web Extension 15B. Bond Refunding
15a-1. Refunding Operations
15b-2. Analysis of Microchip’s Refunding Operation
15b-3. Steps in a Refunding Analysis
15b-3a. Step 1: Determine the Investment Outlay Required to Refund the Issue
15b-3b. Step 2: Calculate the Present Value of the Annual After-Tax Flotation Cost Effects
15b-3c. Step 3: Calculate the Present Value of the Annual After-Tax Interest Savings
15a-3d. Step 4: Determine the Total Npv of the Refunding Operation
15a-4. Refund Now or Later?
Problems
Summary
Questions
Self-Test Problems
Problems
Spreadsheet Problems
Mini Case
Part 7. Managing Global Operations
Chapter 16. Supply Chains and Working Capital Management
16-1. Overview of Supply Chain Management
16-2. Using and Financing Operating Current Assets
16-2a. Efficient Investment in Operating Current Assets
16-2b. Financing Operating Current Assets
16-3. The Cash Conversion Cycle
16-3a. Calculating the Target CCC
16-3b. Calculating the Actual Cash Conversion Cycle From Financial Statements
16-3c. Benefits of Reducing the Cash Conversion Cycle
16-4. Inventory Management
16-5. Receivables Management
16-5a. Credit Policy
16-5b. Credit Policy and the Accumulation of Receivables
16-5c. Monitoring the Receivables Position
16-6. Accruals and Accounts Payable (Trade Credit)
16-6a. Accruals
16-6b. Accounts Payable (Trade Credit)
16-6c. The Cost of Trade Credit
16-7. The Cash Budget
16-7a. Forecasting Cash Flows From Operations and Current Sources of Financing
16-7b. Forecasting the Cash Surplus or Deficit
16-7c. Cash Budgets Versus Income Statements and Free Cash Flows
16-7d. Daily Cash Budgets
16-8. Cash Management and the Target Cash Balance
16-8a. Routine (but Uncertain) Operating Transactions
16-8b. Compensating Balances
16-9. Cash Management Techniques
16-9a. Payment, Clearing, and Settlement Systems
16-9b. Synchronizing Cash Flow
16-9c. Using Float
16-9d. Speeding Up Collections
16-10. Managing Short-Term Investments
16-11. Short-Term Bank Loans
16-11a. Maturity
16-11b. Promissory Notes
16-11c. Compensating Balances
16-11d. Line of Credit
16-11e. Costs of Bank Loans
16-12. Commercial Paper
16-12a. Maturity and Cost
16-12b. Use of Commercial Paper
16-13. Use of Security in Short-Term Financing
Web Extension 16A. Secured Short-Term Financing
16a-1. Accounts Receivable Financing
16a-2. Inventory Financing
Summary
Questions
Self-Test Problems
Problems
Intermediate Problems 7–12
Spreadsheet Problem
Mini Case
Chapter 17. Multinational Financial Management
17-1. Multinational, or Global, Corporations
17-2. Multinational Versus Domestic Financial Management
17-3. Exchange Rates
17-3a. Foreign Exchange Notation
17-3b. Direct Quotes Versus Indirect Quotes
17-3c. Reporting Foreign Exchange Rates
17-3d. Transactions Involving U.S. Currency
17-3e. Currency Cross Rates for Transactions Not Involving U.S. Currency
17-3f. Individuals and Currency Conversion
17-4. The Fixed Exchange Rate System
17-5. Floating Exchange Rates
17-5a. Determinants of Floating Exchange Rates
17-5b. Currency Appreciation, Depreciation, and Exchange Rate Risk
17-6. Government Intervention in Foreign Exchange Markets
17-6a. Currency Intervention: Artificially Weak Currencies
17-6b. Currency Intervention: Artificially Strong Currencies
17-6c. Currency Intervention and Manipulation
17-7. Other Exchange Rate Systems: No Local Currency, Pegged Rates, and Managed Floating Rates
17-7a. No Local Currency
17-7b. Pegged Exchange Rates
17-7c. Managed Floating Rates
17-7d. Convertibility of Currency
17-8. Forward Exchange Rates and Risk Management
17-8a. Forward Exchange Rates
17-8b. Managing Exchange Rate Risk
17-9. Interest Rate Parity
17-10. Purchasing Power Parity
17-11. Inflation, Interest Rates, and Exchange Rates
17-12. International Money and Capital Markets
17-12a. Eurodollar Market
17-12b. International Bond Markets
17-12c. International Stock Markets
17-12d. Sovereign Debt
17-13. Multinational Capital Budgeting
17-13a. Risk Exposure
17-13b. Cash Flow Estimation
17-13c. Project Analysis
17-14. International Capital Structures
17-15. Multinational Working Capital Management
17-15a. Cash Management
17-15b. Credit Management
17-15c. Inventory Management
Summary
Questions
Self-Test Problem
Problems
Spreadsheet Problem
Mini Case
Part 8. Tactical Financing Decisions
Chapter 18. Public and Private Financing: Initial Offerings, Seasoned Offerings, and Investment Banks
18-1. The Financial Life Cycle of a Start-Up Company
18-2. The Decision to Go Public
18-2a. Advantages of Going Public
18-2b. Disadvantages of Going Public
18-3. The Process of Going Public: An Initial Public Offering
18-3a. Selecting an Investment Bank
18-3b. The Underwriting Syndicate
18-3c. Regulation of Securities Sales
18-3d. The Roadshow and Book-Building
18-3e. Setting the Offer Price
18-3f. The First Day of Trading
18-3g. The Costs of Going Public
18-3h. The Importance of the Secondary Market
18-3i. Regulating the Secondary Market
18-3j. Questionable IPO Practices
18-4. Equity Carve-Outs: A Special Type of IPO
18-5. Other Ways to Raise Funds in the Capital Markets
18-5a. Preliminary Decisions
18-5b. Seasoned Equity Offerings
18-5c. Shelf Registrations
18-5d. Private Placements
18-5e. Securitization
18-5f. Syndicated Loans
18-5g. Project Financing
18-6. Investment Banking Activities
18-6a. Mergers and Acquisitions
18-6b. Securitization
18-6c. Asset Management
18-6d. Trading Operations
18-7. The Decision to Go Private
Summary
Questions
Self-Test Problems
Problems
Spreadsheet Problem
Mini Case
Web Extension 18A. Rights Offerings
18a-1. Number of Rights Needed to Purchase One New Share
18a-2. Rights-On or Ex-Rights
18a-3. Value of a Right
18a-4. Effects on Position of Stockholders
Chapter 19. Lease Financing
19-1. Types of Leases
19-1a. Finance Leases
19-1b. Operating Leases
19-1c. Combination Leases
19-2. Reporting Leases on Financial Statements
19-2a. Preliminary Calculations
19-2b. Reporting an Operating Lease
19-2c. Reporting a Finance Lease
19-3. Lease Analysis: Determination of Tax Status by the Internal Revenue Service (IRS)
19-4. Lessee’s Analysis of Non-Tax-Oriented Leases
19-5. Lessee’s Analysis of Tax-Oriented Leases
19-5a. The Net Advantage to Leasing for a Tax-Oriented Lease
19-5b. Purchase at End of Lease for Residual Value
19-6. Evaluation by the Lessor
19-6a. Analysis by the Lessor
19-6b. Setting the Lease Payment
19-7. Tax Treatment of Leases
19-8. Other Issues in Lease Analysis
19-8a. Estimated Residual Value
19-8b. Increased Credit Availability
19-8c. Real Estate Leases
19-8d. Vehicle Leases
19-8e. Synthetic Leases
19-9. Other Reasons for Leasing
Web Extension 19A. Percentage Cost Analysis
Web Extension 19B. Leveraged Leases
Summary
Questions
Problems
Spreadsheet Problems
Mini Case
Chapter 20. Hybrid Financing: Preferred Stock, Warrants, and Convertibles
20-1. Preferred Stock
20-1a. Basic Features, Risks, and Tax Treatments of Preferred Stock
20-1b. Other Types of Preferred Stock
20-1c. Advantages and Disadvantages of Preferred Stock
20-2. Warrants
20-2a. Initial Market Price of a Bond With Warrants
20-2b. Use of Warrants in Financing
20-2c. The Component Cost of Bonds With Warrants
20-3. Convertible Securities
20-3a. Conversion Ratio and Conversion Price
20-3b. The Component Cost of Convertibles
20-3c. Use of Convertibles in Financing
20-3d. Convertibles and Agency Costs
20-4. A Final Comparison of Warrants and Convertibles
20-5. Reporting Earnings When Warrants or Convertibles Are Outstanding
Web Extension 20A. Calling Convertible Issues
20a-1. Calling a Convertible Bond Because the Conversion Value Exceeds the Call Price
20a-2. Calling a Convertible Bond in Practice
Summary
Questions
Self-Test Problems
Problems
Spreadsheet Problem
Mini Case
Part 9. Strategic Finance in a Dynamic Environment
Chapter 21. Dynamic Capital Structures and Corporate Valuation
21-1. The Adjusted Present Value (APV) Approach
21-1a. The Value of a Levered Firm ( V L )
21-1b. The Levered Cost of Equity ( r sL )
21-1c. The Levered Beta (b)
21-1d. The Tax Shield Discount Rate ( r TS )
21-2. The Modigliani and Miller Models
21-2a. Modigliani and Miller: No Taxes
21-2b. Modigliani and Miller: Corporate Taxes
21-3. The Compressed Adjusted Present Value (CAPV) Model
21-4. The Free Cash Flow to Equity (FCFE) Model
21-5. Multistage Valuation When the Capital Structure Is Stable
21-5a. A Brief Review of the Multistage FCF Corporate Valuation Model
21-5b. The Multistage Compressed APV Approach
21-5c. The Multistage Free Cash Flow to Equity (FCFE) Model
21-6. Illustration of the Three Valuation Approaches for a Constant Capital Structure
21-6a. The Current Capital Structure and Cost of Capital
21-6b. Cash Flow Projections
21-6c. Valuation Using the Corporate FCF Valuation Model
21-6d. Valuation Using the APV Approach
21-6e. Valuation Using the FCFE Model
21-7. Analysis of a Dynamic Capital Structure
21-7a. Application of the CAPV Model
21-7b. The 2017 Tax Cuts and Jobs Act (TCJA): Interest Expense Limitations
Web Extension 21A. Projecting Consistent Debt and Interest Expenses
21a-1. Projecting Consistent Debt and Interest Expenses When the Capital Structure is Assumed to be Constant
21a-2. Projecting Consistent Debt and Interest Expenses When Capital Structure Is Not Constant
Problems
Summary
Questions
Self-Test Problems
Problems
Spreadsheet Problem
Mini Case
Chapter 22. Mergers and Corporate Control
22-1. Rationale for Mergers
22-1a. Synergy as a Motivation for Mergers
22-1b. Tax Considerations as a Motivation for Mergers
22-1c. Breakup Value as a Motivation for Mergers
22-1d. Diversification as a Motivation for Mergers
22-1e. Purchase of Assets Below Their Replacement Cost as a Motivation for Mergers
22-1f. Executives’ Personal Incentives as a Motivation for Mergers
22-2. Types of Mergers: Business Types, Acquisition Methods, and Hidden Liabilities
22-2a. Business Types
22-2b. Acquisition Method and Hidden Legal Liabilities
22-3. Level of Merger Activity
22-4. Hostile Versus Friendly Takeovers
22-4a. Friendly Mergers
22-4b. Hostile Takeovers
22-5. Merger Regulation
22-5a. Federal Regulation: The Williams Act
22-5b. State Regulations
22-6. Overview of Merger Analysis
22-7. Estimating a Target’s Value
22-7a. Projecting Post-Merger Cash Flows
22-7b. Valuation Using the Compressed APV Approach
22-8. Setting the Bid Price
22-8a. Relative Bargaining Power
22-8b. Cash Offers Versus Stock Offers
22-9. Who Wins: The Empirical Evidence
22-9a. Value Created by Mergers
22-9b. The Impact of Takeover Regulations and Bylaw Changes on Hostile Mergers
22-10. The Role of Investment Bankers
22-10a. Arranging Mergers
22-10b. Developing Defensive Tactics
22-10c. Establishing a Fair Value
22-10d. Financing Mergers
22-10e. Arbitrage Operations
22-11. Other Business Combinations
22-11a. Merger of Equals
22-11b. Holding Companies
22-11c. Corporate Alliances
22-12. Divestitures
22-13. Merger Tax Treatments
22-13a. Nontaxable Exchange of Stock
22-13b. Taxable Purchase of Assets
22-13c. Taxable Purchase of Shares
22-14. Financial Reporting for Mergers
22-14a. Purchase Accounting
22-14b. Income Statement Effects
Summary
Questions
Self-Test Problem
Problems
Spreadsheet Problem
Mini Case
Chapter 23. Enterprise Risk Management
23-1. Reasons to Manage Risk
23-2. An Overview of Enterprise Risk Management
23-3. A Framework for Enterprise Risk Management
23-3a. The Committee of Sponsoring Organizations’ (COSO) Framework for Enterprise Risk Management (ERM)
23-3b. The Components of the Committee of Sponsoring Organizations’ (COSO) Enterprise Risk Management Framework
23-4. Categories of Risk Events
23-4a. Major Categories
23-4b. Dimensions of Risk
23-5. Forward Contracts and Foreign Exchange (FX) Risk
23-6. Commodity Price Risk
23-6a. Futures Contracts and Futures Markets
23-6b. Using Futures Contracts to Reduce Commodity Price Exposure
23-6c. Options and Options on Futures
23-7. Interest Rate Risk
23-7a. The London Interbank Offered Rate (LIBOR) and the Secured Overnight Financing Rate (SOFR)
23-7b. Using Futures Contracts to Manage the Risk of Debt Issuances
23-7c. Using Interest Rate Swaps
23-7d. Inverse Floaters
23-7e. Structured Notes
23-8. Project Selection Risks
23-8a. Using Monte Carlo Simulation to Evaluate Project Risk
23-8b. Using Monte Carlo Simulation to Evaluate Financing Risks
23-8c. Using Monte Carlo Simulation to Evaluate Portfolio Risks
23-9. Managing Credit Risks
23-9a. Managing Credit Risk at Nonfinancial Companies
23-9b. Managing Credit Risk at Financial Institutions
23-10. Risk and Human Safety
Summary
Self-Test Problem
Questions
Problems
Spreadsheet Problem
Mini Case
Chapter 24. Bankruptcy, Reorganization, and Liquidation
24-1. Financial Distress and Its Consequences
24-1a. Causes of Business Failure
24-1b. The Business Failure Record
24-2. Issues Facing a Firm in Financial Distress
24-3. Settlements Without Going Through Formal Bankruptcy
24-3a. Informal Reorganization
24-3b. Informal Liquidation
24-4. Federal Bankruptcy Law
24-5. Reorganization in Bankruptcy (Chapter 11 of Bankruptcy Code)
24-5a. Illustration of a Reorganization
24-5b. Prepackaged Bankruptcies
24-5c. Reorganization Time and Expense
24-6. Liquidation in Bankruptcy
24-7. Anatomy of a Bankruptcy: Transforming the GM Corporation into the GM Company
24-8. Other Motivations for Bankruptcy
24-9. Some Criticisms of Bankruptcy Laws
Web Extension 24A. Multiple Discriminant Analysis
Summary
Questions
Self-Test Problem
Problems
Spreadsheet Problems
Mini Case
Part 10. Special Topics
Chapter 25. Portfolio Theory and Asset Pricing Models
25-1. Efficient Portfolios
25-1a. The Two-Asset Case
25-1b. The N-Asset Case
25-2. Choosing the Optimal Portfolio
25-2a. The Efficient Frontier
25-2b. Risk–Return Indifference Curves
25-2c. The Optimal Portfolio for an Investor
25-3. The Basic Assumptions of the Capital Asset Pricing Model
25-4. The Capital Market Line and the Security Market Line
25-5. Calculating Beta Coefficients
25-5a. Using the Market Model to Estimate Beta Coefficients
25-5b. The Market Model versus the Capm
25-5c. Calculating the Beta Coefficient for a Portfolio: The Vanguard Mid-Cap Value Index Fund Investor Shares
25-5d. Performance Measures
25-5e. Additional Insights into Risk and Return
25-5f. Modifying the Historical Beta
25-5g. Choice of Estimation Period, Holding Period, and Market Index
25-6. Empirical Tests of the Capm
25-6a. Tests of the Stability of Beta Coefficients
25-6b. Tests of the Capm Based on the Slope of the Sml
25-6c. Current Status of the Capm
25-7. Arbitrage Pricing Theory
Summary
Questions
Self-Test Problem
Problems
Spreadsheet Problem
Mini Case
Chapter 26. Real Options
26-1. Valuing Real Options
26-2. The Investment Timing Option: An Illustration
26-2a. Approach 1: DCF Analysis Ignoring the Timing Option
26-2b. Approach 2: DCF Analysis With a Qualitative Consideration of the Timing Option
26-2c. Approach 3: Scenario Analysis and Decision Trees
26-2d. Approach 4: Valuing the Timing Option with the Black-Scholes Option Pricing Model
26-2e. Approach 5: Financial Engineering
26-2f. An Important Observation About Information
26-3. The Growth Option: An Illustration
26-3a. Approach 1: DCF Analysis Ignoring the Growth Option
26-3b. Approach 2: DCF Analysis With a Qualitative Consideration of the Growth Option
26-3c. Approach 3: Decision-Tree Analysis of the Growth Option
26-3d. Approach 4: Valuing the Growth Option with the Black-Scholes Option Pricing Model
26-4. Concluding Thoughts on Real Options
Summary
Questions
Problems
Spreadsheet Problem
Mini Case
Web Extension 26A. The Abandonment Real Option
26A-1. The Abandonment Option: An Illustration
Web Extension 26B. Risk-Neutral Valuation
Web Chapters
Chapter 27. Providing and Obtaining Credit
27-1. Credit Policy
27-1a. Setting the Credit Period and Standards
27-1b. Setting the Collection Policy
27-1c. Cash Discounts
27-1d. Other Factors Influencing Credit Policy
27-2. Monitoring Receivables with the Uncollected Balances Schedule
Inadequacies of the Days Outstanding Measure and Aging Schedules
27-3. Analyzing Proposed Changes in Credit Policy
27-4. Analyzing Proposed Changes in Credit Policy: Incremental Analysis
27-4a. The Basic Equations
27-4b. Changing the Credit Period
27-4c. Changes in Other Credit Policy Variables
27-4d. Simultaneous Changes in Policy Variables
27-5. The Cost of Bank Loans
27-5a. Regular, or Simple, Interest
27-5b. Discount Interest
27-5c. Effects of Compensating Balances
27-5d. Installment Loans: Add-On Interest
27-5e. Annual Percentage Rate
27-6. Choosing a Bank
27-6a. Willingness to Assume Risks
27-6b. Advice and Counsel
27-6c. Loyalty to Customers
27-6d. Specialization
27-6e. Maximum Loan Size
27-6f. Other Services
Summary
Questions
Problems
Spreadsheet Problem
Mini Case
Chapter 28. Advanced Issues in Cash Management and Inventory Control
28-1. The Concept of Zero Working Capital
28-2. Setting the Target Cash Balance
28-2a. The Baumol Model
28-2b. Monte Carlo Simulation
28-3. Inventory Control Systems
28-3a. Computerized Systems
28-3b. Just-in-Time Systems
28-3c. Outsourcing
28-3d. The Relationship between Production Scheduling and Inventory Levels
28-4. Accounting for Inventory
28-4a. Specific Identification
28-4b. First-In, First-Out (FIFO)
28-4c. Last-In, First-Out (LIFO)
28-4d. Weighted Average
28-4e. Comparison of Inventory Accounting Methods
28-5. The Economic Ordering Quantity (EOQ) Model
28-5a. Carrying Cost
28-5b. Ordering Cost
28-5c. Total Inventory Costs
28-5d. Derivation of the EOQ Model
28-5e. EOQ Model Illustration
28-5f. Setting the Order Point
28-6. EOQ Model Extensions
28-6a. The Concept of Safety Stocks
28-6b. Setting the Safety Stock Level
28-6c. Quantity Discounts
28-6d. Inflation
28-6e. Seasonal Demand
28-6f. EOQ Range
Summary
Questions
Problems
Spreadsheet Problem
Mini Case
Chapter 29. Pension Plan Management
29-1. The Role and Scope of Pension Plan Management
29-2. Types of Pension Plans and Key Features
29-2a. Defined Contribution Plan
29-2b. Defined Benefit Plan
29-2c. Profit Sharing Plan
29-2d. Cash Balance Plan
29-2e. Other Key Features
29-3. Pension Fund Regulation and Accounting
29-3a. The Pension Plan Funding Status
29-3b. Pension Regulation
29-3c. Financial Reporting
29-4. Pension Fund Mathematics: Defined Benefit Plans
29-5. Risks Inherent in Pension Plans
29-5a. Risks to the Corporation
29-5b. Risks to Beneficiaries
29-6. Illustration of a Defined Benefit versus a Defined Contribution Plan
29-6a. Company DB: Defined Benefit
29-6b. Company DC: Defined Contribution
29-6c. Conclusions
29-7. Defined Benefit versus Defined Contribution Plans: The Employee Choice
29-8. Developing a Plan Strategy
29-9. Pension Fund Investment Performance
29-9a. Active Workers vis-à-vis Retirees
29-9b. Performance Measurement
29-10. “Tapping” Pension Fund Assets
29-11. Retiree Health Benefits
Summary
Questions
Problems
Mini Case
Chapter 30. Financial Management in Not-for-Profit Businesses
30-1. For-Profit (Investor-Owned) versus Not-for-Profit Businesses
30-2. Goals of the Firm
30-3. Estimating the Cost of Capital
30-4. Capital Structure Decisions
30-5. Capital Budgeting Decisions
30-5a. The Goal of Project Analysis
30-5b. Cash Flow Estimation/Decision Methods
30-5c. Risk Analysis
30-6. Long-Term Financing Decisions
30-6a. Long-Term Debt Financing
30-6b. Equity (Fund) Financing
30-7. Financial Analysis, Planning, and Forecasting
Summary
Questions
Mini Case
Appendix A. Solutions to Self-Test Problems
Appendix B. Answers to End-of-Chapter Problems
Appendix C. Selected Equations
Frequently Used Symbols
 

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