Corporate finance fundamentals:
Gespeichert in:
| Vorheriger Titel: | Fundamentals of corporate finance |
|---|---|
| Hauptverfasser: | , , |
| Format: | Buch |
| Sprache: | English |
| Veröffentlicht: |
Boston [u.a.]
McGraw-Hill
2008
|
| Ausgabe: | 8. ed., internat. student ed. |
| Schriftenreihe: | The McGraw-Hill, Irwin series in finance, insurance and real estate
|
| Schlagworte: | |
| Online-Zugang: | Inhaltsverzeichnis |
| Beschreibung: | Getr. Zählung |
| ISBN: | 9780071285636 9780071281614 |
Internformat
MARC
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| 245 | 1 | 0 | |a Corporate finance fundamentals |c Stephen A. Ross ; Randolph W. Westerfield ; Bradford D. Jordan |
| 250 | |a 8. ed., internat. student ed. | ||
| 264 | 1 | |a Boston [u.a.] |b McGraw-Hill |c 2008 | |
| 300 | |a Getr. Zählung | ||
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| 490 | 0 | |a The McGraw-Hill, Irwin series in finance, insurance and real estate | |
| 650 | 4 | |a Betriebliche Finanzwirtschaft / Unternehmensfinanzierung | |
| 650 | 4 | |a Lehrbuch / Textbook - 28 | |
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| 700 | 1 | |a Jordan, Bradford D. |e Verfasser |4 aut | |
| 780 | 0 | 0 | |i Frühere Ausg. u.d.T. |t Fundamentals of corporate finance |
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Datensatz im Suchindex
| _version_ | 1804138318707818497 |
|---|---|
| adam_text | Brief Contents
PARTI
CHAPTER 1
CHAPTER 2
PART 2
CHAPTER 3
CHAPTER 4
PART 3
Overview of Corporate Finance
INTRODUCTION TO CORPORATE FINANCE 1
FINANCIAL STATEMENTS, TAXES, AND CASH FLOW 21
Financial Statements and Long-Term Financial Planning
WORKING WITH FINANCIAL STATEMENTS 48
LONG-TERM FINANCIAL PLANNING AND GROWTH 89
Valuation of Future Cash Flows
CHAPTER 5 INTRODUCTION TO VALUATION: THE TIME VALUE OF MONEY 121
CHAPTER 6 DISCOUNTED CASH FLOW VALUATION 146
CHAPTER 7 INTEREST RATES AND BOND VALUATION 192
CHAPTER 8 STOCK VALUATION 234
Capital Budgeting
CHAPTER 9 NET PRESENT VALUE AND OTHER INVESTMENT CRITERIA 264
CHAPTER 10 MAKING CAPITAL INVESTMENT DECISIONS 302
CHAPTER 11 PROJECT ANALYSIS AND EVALUATION 337
PART 5
Risk and Return
CHAPTER 12 SOME LESSONS FROM CAPITAL MARKET HISTORY 368
CHAPTER 13 RETURN, RISK, AND THE SECURITY MARKET LINE 403
CHAPTER 14 OPTIONS AND CORPORATE FINANCE 439
PART 6
Cost of Capital and Long-Term Financial Policy
CHAPTER 15 COST OF CAPITAL 479
CHAPTER 16 RAISING CAPITAL 513
CHAPTER 17 FINANCIAL LEVERAGE AND CAPITAL STRUCTURE POLICY 551
CHAPTER 18 DIVIDENDS AND DIVIDEND POLICY 590
PART 7
Short-Term Financial Planning and Management
CHAPTER 19 SHORT-TERM FINANCE AND PLANNING 624
CHAPTER 20 CASH AND LIQUIDITY MANAGEMENT 657
CHAPTER 21 CREDIT AND INVENTORY MANAGEMENT 689
PART 8 Topics in Corporate Finance
CHAPTER 22 INTERNATIONAL CORPORATE FINANCE 726
CHAPTER 23 RISK MANAGEMENT: AN INTRODUCTION TO FINANCIAL ENGINEERING 754
CHAPTER 24 OPTION VALUATION 782
CHAPTER 25 MERGERS AND ACQUISITIONS 815
CHAPTER 26 LEASING 845
Contents
PART 1 Overview of Corporate Finance
CHAPTER 1
INTRODUCTION TO CORPORATE FINANCE 1
1.1 Corporate Finance and the Financial Manager 2
What Is Corporate Finance? 2
The Financial Manager 2
Financial Management Decisions 2
Capital Budgeting 2
Capital Structure 3
Working Capital Management 4
Conclusion 4
1.2 Forms of Business Organization 4
Sole Proprietorship 5
Partnership 5
Corporation 6
A Corporation by Another Name ... 7
1.3 The Goal of Financial Management 8
Possible Goals 8
The Goal of Financial Management 8
A More General Goal 9
Sarbanes-Oxley 10
1.4 The Agency Problem and Control of the
Corporation 11
Agency Relationships 11
Management Goals 11
Do Managers Act in the Stockholders Interests? 72
Managerial Compensation 12
Control of the Firm 12
Conclusion 13
Stakeholders 14
1.5 Financial Markets and the Corporation 14
Cash Flows to and from the Firm 14
Primary versus Secondary Markets 14
Primary Markets 15
Secondary Markets 15
Dealer versus Auction Markets 15
Trading in Corporate Securities 16
Listing 16
1.6 Summary and Conclusions 17
PART 2 Financial Statements and Long-Term Financial Planning
CHAPTER 2
FINANCIAL STATEMENTS, TAXES, AND CASH FLOW 21
2.1 The Balance Sheet 22
Assets: The Left Side 22
Liabilities and Owners Equity: The Right Side 22
Net Working Capital 23
Liquidity 24
Debt versus Equity 25
Market Value versus Book Value 25
2.2 The Income Statement 26
GAAP and the Income Statement 27
Noncash Items 28
Time and Costs 28
2.3 Taxes 30
Corporate Tax Rates 30
Average versus Marginal Tax Rates 30
2.4 Cash Flow 32
Cash Flow from Assets 33
Operating Cash Flow 33
Capital Spending 34
Change in Net Working Capital 34
Conclusion 35
A Note about Free Cash Flow 35
Cash Flow to Creditors and Stockholders 35
Cash Flow to Creditors 35
Cash Flow to Stockholders 35
An Example: Cash Flows for Dole Cola 37
Operating Cash Flow 37
Net Capital Spending 38
Change in NWC and Cash Flow from Assets 38
Cash Flow to Stockholders and Creditors 38
2.5 Summary and Conclusions 39
CHAPTER 3
WORKING WITH FINANCIAL STATEMENTS 48
3.1 Cash Flow and Financial Statements: A Closer
Look 49
Sources and Uses of Cash 49
The Statement of Cash Flows 57
3.2 Standardized Financial Statements 53
Common-Size Statements 53
Common-Size Balance Sheets 53
Common-Size Income Statements 54
Common-Size Statements of Cash Flows 55
Common-Base Year Financial Statements: Trend
Analysis 55
XXVII
Combined Common-Size and Base Year
Analysis 55
3.3 Ratio Analysis 56
Short-Term Solvency, or Liquidity, Measures 57
Current Ratio 57
The Quick (or Acid- Test) Ratio 58
Other Liquidity Ratios 59
Long-Term Solvency Measures 59
Total Debt Ratio 59
A Brief Digression: Total Capitalization versus Total
Assets 60
Times Interest Earned 60
Cash Coverage 61
Asset Management, or Turnover, Measures 61
Inventory Turnover and Days Sales in Inventory 61
Receivables Turnover and Days Sales in
Receivables 62
Asset Turnover Ratios 63
Profitability Measures 63
Profit Margin 64
Return on Assets 64
Return on Equity 64
Market Value Measures 65
Price-Earnings Ratio 65
Price-Sales Ratio 65
Market-to-Book Ratio 66
Conclusion 66
3.4 The Du Pont Identity 67
A Closer Look at ROE 67
An Expanded Du Pont Analysis 69
3.5 Using Financial Statement Information 71
Why Evaluate Financial Statements? 71
Internal Uses 71
External Uses 71
Choosing a Benchmark 71
Time Trend Analysis 71
Peer Group Analysis 72
Problems with Financial Statement Analysis 76
3.6 Summary and Conclusions 77
CHAPTER 4
LONG-TERM FINANCIAL PLANNING AND
GROWTH 89
4.1 What Is Financial Planning? 90
Growth as a Financial Management Goal 90
Dimensions of Financial Planning 91
What Can Planning Accomplish? 92
Examining Interactions 92
Exploring Options 92
Avoiding Surprises 92
Ensuring Feasibility and Internal Consistency 92
Conclusion 92
4.2 Financial Planning Models: A First Look 93
A Financial Planning Model: The Ingredients 93
Sales Forecast 93
Pro Forma Statements 93
Asset Requirements 94
Financial Requirements 94
The Plug 94
Economic Assumptions 94
A Simple Financial Planning Model 94
4.3 The Percentage of Sales Approach 96
The Income Statement 96
The Balance Sheet 97
A Particular Scenario 99
An Alternative Scenario 100
4.4 External Financing and Growth 101
EFN and Growth 707
Financial Policy and Growth 705
The Internal Growth Rate 105
The Sustainable Growth Rate 105
Determinants of Growth 107
A Note about Sustainable Growth Rate
Calculations 708
4.5 Some Caveats Regarding Financial Planning
Models 110
4.6 Summary and Conclusions 111
PART 3 Valuation of Future Cash Flows
CHAPTER 5
INTRODUCTION TO VALUATION: THE TIME
VALUE OF MONEY 121
5.1 Future Value and Compounding 122
Investing for a Single Period 722
Investing for More Than One Period 722
A Note about Compound Growth 728
5.2 Present Value and Discounting 129
The Single-Period Case 729
Present Values for Multiple Periods 730
5.3 More about Present and Future Values
Present versus Future Value 733
Determining the Discount Rate 734
Finding the Number of Periods 738
5.4 Summary and Conclusions 141
133
CHAPTER 6
DISCOUNTED CASH FLOW VALUATION 146
6.1
Future and Present Values of Multiple Cash
Flows 147
Future Value with Multiple Cash Flows 147
Present Value with Multiple Cash Flows 750
A Note about Cash Flow Timing 753
6.2 Valuing Level Cash Flows: Annuities and
Perpetuities 154
Present Value for Annuity Cash Flows 754
Annuity Tables 756
Finding the Payment 757
Finding the Rate 159
Future Value for Annuities 767
A Note about Annuities Due 762
Perpetuities 762
Growing Annuities and Perpetuities 764
6.3 Comparing Rates: The Effect of Compounding 165
Effective Annual Rates and Compounding 765
Calculating and Comparing Effective Annual
Rates 766
EARs and APRs 768
Taking It to the Limit: A Note about Continuous
Compounding 769
6.4 Loan Types and Loan Amortization 171
Pure Discount Loans 777
Interest-Only Loans 7 71
Amortized Loans 7 72
6.5 Summary and Conclusions 177
CHAPTER 7
INTEREST RATES AND BOND VALUATION 192
7.1 Bonds and Bond Valuation 193
Bond Features and Prices 793
Bond Values and Yields 793
Interest Rate Risk 797
Finding the Yield to Maturity. More Trial and Error 198
7.2 More about Bond Features 203
Is It Debt or Equity? 203
Long-Term Debt: The Basics 203
The Indenture 205
Terms of a Bond 205
Security 206
Seniority 206
Repayment 206
The Call Provision 207
Protective Covenants 207
7.3 Bond Ratings 208
7.4 Some Different Types of Bonds 209
Government Bonds 209
Zero-Coupon Bonds 270
Floating-Rate Bonds 27 7
Other Types of Bonds 2 7 2
7.5 Bond Markets 214
How Bonds Are Bought and Sold 274
Bond Price Reporting 276
A Note about Bond Price Quotes 279
7.6 Inflation and Interest Rates 219
Real versus Nominal Rates 279
The Fisher Effect 220
Inflation and Present Values 221
7.7 Determinants of Bond Yields 222
The Term Structure of Interest Rates 222
Bond Yields and the Yield Curve: Putting It All
Together 225
Conclusion 226
7.8 Summary and Conclusions 227
CHAPTER 8
STOCK VALUATION 234
8.1 Common Stock Valuation 235
Cash Flows 235
Some Special Cases 237
Zero Growth 237
Constant Growth 237
Nonconstant Growth 240
Two-Stage Growth 242
Components of the Required Return 243
8.2 Some Features of Common and Preferred
Stocks 245
Common Stock Features 245
Shareholder Rights 245
Proxy Voting 246
Classes of Stock 247
Other Rights 247
Dividends 248
Preferred Stock Features 248
Stated Value 248
Cumulative and Noncumulative Dividends 248
Is Preferred Stock Really Debt? 249
8.3 The Stock Markets 249
Dealers and Brokers 250
Organization of the NYSE 250
Members 250
Operations 251
Floor Activity 251
NASDAQ Operations 252
NASDAQ Participants 253
Stock Market Reporting 254
8.4 Summary and Conclusions 256
PART 4 Capital Budgeting
CHAPTER 9
NET PRESENT VALUE AND OTHER INVESTMENT
CRITERIA 264
9.1 Net Present Value 265
The Basic Idea 265
Estimating Net Present Value 266
9.2 The Payback Rule 269
Defining the Rule 269
Analyzing the Rule 270
Redeeming Qualities of the Rule 271
Summary of the Rule 272
9.3 The Discounted Payback 272
9.4 The Average Accounting Return 275
9.5 The Internal Rate of Return 277
Problems with the IRR 281
Nonconventional Cash Flows 281
Mutually Exclusive Investments 283
Redeeming Qualities of the IRR 285
The Modified Internal Rate of Return (MIRR) 286
Method # 7: The Discounting Approach 286
Method #2: The Reinvestment Approach 286
Method #3: The Combination Approach 286
MIRR or IRR: Which Is Better? 287
9.6 The Profitability Index 287
9.7 The Practice of Capital Budgeting 288
9.8 Summary and Conclusions 291
CHAPTER 10
MAKING CAPITAL INVESTMENT DECISIONS 302
10.1 Project Cash Flows: A First Look 303
Relevant Cash Flows 303
The Stand-Alone Principle 303
10.2 Incremental Cash Flows 303
Sunk Costs 304
Opportunity Costs 304
Side Effects 304
Net Working Capital 305
Financing Costs 305
Other Issues 305
10.3 Pro Forma Financial Statements and Project Cash
Flows 306
Getting Started: Pro Forma Financial Statements
Project Cash Flows 307
Project Operating Cash Flow 307
Project Net Working Capital and Capital
Spending 308
Projected Total Cash Flow and Value 308
306
10.4 More about Project Cash Flow 309
A Closer Look at Net Working Capital 309
Depreciation 312
Modified ACRS Depreciation (MACRS) 312
Book Value versus Market Value 313
An Example: The Majestic Mulch and Compost
Company (MMCC) 375
Operating Cash Flows 315
Change in NWC 315
Capital Spending 317
Total Cash Flow and Value 317
Conclusion 378
10.5 Alternative Definitions of Operating
Cash Flow 318
The Bottom-Up Approach 379
The Top-Down Approach 320
The Tax Shield Approach 320
Conclusion 321
10.6 Some Special Cases of Discounted Cash Flow
Analysis 321
Evaluating Cost-Cutting Proposals 327
Setting the Bid Price 323
Evaluating Equipment Options with
Different Lives 325
10.7 Summary and Conclusions 327
CHAPTER 11
PROJECT ANALYSIS AND EVALUATION 337
11.1 Evaluating NPV Estimates 338
The Basic Problem 338
Projected versus Actual Cash Flows 338
Forecasting Risk 338
Sources of Value 339
11.2 Scenario and Other What-lf Analyses 340
Getting Started 340
Scenario Analysis 347
Sensitivity Analysis 343
Simulation Analysis 344
11.3 Break-Even Analysis 344
Fixed and Variable Costs 345
Variable Costs 345
Fixed Costs 346
Total Costs 346
Accounting Break-Even 348
Accounting Break-Even: A Closer Look 348
Uses for the Accounting Break-Even 350
11.4 Operating Cash Flow, Sales Volume, and Break-
Even 350
Accounting Break-Even and Cash Flow 357
The Base Case 357
Calculating the Break-Even Level 351
Payback and Break-Even 352
Sales Volume and Operating Cash Flow 352
Cash Flow, Accounting, and Financial Break-Even
Points 352
Accounting Break-Even Revisited 353
Cash Break-Even 353
Financial Break-Even 354
Conclusion 354
PART 5 Risk and Return
11.5 Operating Leverage 355
The Basic Idea 355
Implications of Operating Leverage 356
Measuring Operating Leverage 356
Operating Leverage and Break-Even 357
11.6 Capital Rationing 358
Soft Rationing 358
Hard Rationing 359
11.7 Summary and Conclusions 359
CHAPTER 12
SOME LESSONS FROM CAPITAL MARKET
HISTORY 368
12.1 Returns 369
Dollar Returns 369
Percentage Returns 377
12.2 The Historical Record 373
A First Look 373
A Closer Look 375
12.3 Average Returns: The First Lesson 379
Calculating Average Returns 379
Average Returns: The Historical Record 379
Risk Premiums 380
The First Lesson 380
12.4 The Variability of Returns: The Second
Lesson 381
Frequency Distributions and Variability 387
The Historical Variance and Standard
Deviation 382
The Historical Record 384
Normal Distribution 384
The Second Lesson 386
Using Capital Market History 386
12.5 More about Average Returns 387
Arithmetic versus Geometric Averages 387
Calculating Geometric Average
Returns 388
Arithmetic Average Return or Geometric Average
Return? 390
12.6 Capital Market Efficiency 391
Price Behavior in an Efficient Market 397
The Efficient Markets Hypothesis 392
Some Common Misconceptions about the
EMH 393
The Forms of Market Efficiency 395
12.7 Summary and Conclusions 396
CHAPTER 13
RETURN, RISK, AND THE SECURITY
MARKET LINE 403
13.1 Expected Returns and Variances 404
Expected Return 404
Calculating the Variance 406
13.2 Portfolios 407
Portfolio Weights 408
Portfolio Expected Returns 408
Portfolio Variance 409
13.3 Announcements, Surprises, and Expected
Returns 411
Expected and Unexpected Returns 47 7
Announcements and News 47 7
13.4 Risk: Systematic and Unsystematic 413
Systematic and Unsystematic Risk 473
Systematic and Unsystematic Components of
Return 473
13.5 Diversification and Portfolio Risk 414
The Effect of Diversification: Another Lesson from
Market History 474
The Principle of Diversification 475
Diversification and Unsystematic Risk 476
Diversification and Systematic Risk 47 7
13.6 Systematic Risk and Beta 417
The Systematic Risk Principle 478
Measuring Systematic Risk 478
Portfolio Betas 420
13.7 The Security Market Line 421
Beta and the Risk Premium 427
The Reward-to-Risk Ratio 422
The Basic Argument 423
The Fundamental Result 424
The Security Market Line 426
Market Portfolios 426
The Capital Asset Pricing Model 426
13.8 The SML and the Cost of Capital: A Preview 428
The Basic Idea 428
The Cost of Capital 429
13.9 Summary and Conclusions 429
CHAPTER 14
OPTIONS AND CORPORATE FINANCE 439
14.1 Options: The Basics 440
Puts and Calls 440
Stock Option Quotations 440
Option Payoffs 444
14.2 Fundamentals of Option Valuation 446
Value of a Call Option at Expiration 446
The Upper and Lower Bounds on a Call Option s
Value 446
The Upper Bound 447
The Lower Bound 44 7
A Simple Model: Part I 448
The Basic Approach 448
A More Complicated Case 449
Four Factors Determining Option
Values 450
14.3 Valuing a Call Option 451
A Simple Model: Part II 451
The Fifth Factor 452
A Closer Look 453
14.4 Employee Stock Options 454
ESO Features 454
ESO Repricing 455
ESO Backdating 455
14.5 Equity as a Call Option on the Firm s Assets 456
Case I: The Debt Is Risk-Free 457
Case II: The Debt Is Risky 457
14.6 Options and Capital Budgeting 459
The Investment Timing Decision 459
Managerial Options 461
Contingency Planning 462
Options in Capital Budgeting: An Example 463
Strategic Options 464
Conclusion 464
14.7 Options and Corporate Securities 465
Warrants 465
The Difference between Warrants and Call
Options 465
Earnings Dilution 466
Convertible Bonds 466
Features of a Convertible Bond 466
Value of a Convertible Bond 466
Other Options 468
The Call Provision on a Bond 468
Put Bonds 469
Insurance and Loan Guarantees 469
14.8 Summary and Conclusions 470
PART 6 Cost of Capital and Long-Term Financial Policy
CHAPTER 15
COST OF CAPITAL 479
15.1 The Cost of Capital: Some Preliminaries 480
Required Return versus Cost of Capital 480
Financial Policy and Cost of Capital 480
15.2 The Cost of Equity 481
The Dividend Growth Model Approach 481
Implementing the Approach 481
Estimating g 482
Advantages and Disadvantages of the Approach 483
The SML Approach 483
Implementing the Approach 484
Advantages and Disadvantages of the Approach 484
15.3 The Costs of Debt and Preferred Stock 485
The Cost of Debt 485
The Cost of Preferred Stock 486
15.4 The Weighted Average Cost of Capital 487
The Capital Structure Weights 487
Taxes and the Weighted Average Cost of Capital 488
Calculating the WACC for Eastman Chemical 489
Eastman s Cost of Equity 489
Eastman s Cost of Debt 491
Eastman s WACC 492
Solving the Warehouse Problem and Similar Capital
Budgeting Problems 494
Performance Evaluation: Another Use of the
WACC 496
15.5 Divisional and Project Costs of Capital 497
The SML and the WACC 497
Divisional Cost of Capital 498
The Pure Play Approach 498
The Subjective Approach 499
15.6 Flotation Costs and the Weighted Average Cost of
Capital 501
The Basic Approach 507
Flotation Costs and NPV 502
Internal Equity and Flotation Costs 504
15.7 Summary and Conclusions 504
CHAPTER 16
RAISING CAPITAL 513
16.1 The Financing Life Cycle of a Firm: Early-Stage
Financing and Venture Capital 514
Venture Capital 514
Some Venture Capital Realities 575
Choosing a Venture Capitalist 515
Conclusion 576
16.2 Selling Securities to the Public: The Basic
Procedure 516
16.3 Alternative Issue Methods 517
16.4 Underwriters 519
Choosing an Underwriter 520
Types of Underwriting 520
Firm Commitment Underwriting 520
Best Efforts Underwriting 520
Dutch Auction Underwriting 521
The Aftermarket 527
The Green Shoe Provision 522
Lockup Agreements 522
The Quiet Period 522
16.5 IPOs and Underpricing 523
IPO Underpricing: The 1999-2000 Experience 523
Evidence on Underpricing 525
Why Does Underpricing Exist? 526
16.6 New Equity Sales and the Value of the Firm 529
16.7 The Costs of Issuing Securities 530
The Costs of Selling Stock to the Public 530
The Costs of Going Public: The Case of Symbion 532
16.8 Rights 534
The Mechanics of a Rights Offering 534
Number of Rights Needed to Purchase a Share 535
The Value of a Right 536
Ex Rights 538
The Underwriting Arrangements 539
Effects on Shareholders 539
16.9 Dilution 540
Dilution of Proportionate Ownership 540
Dilution of Value: Book versus Market Values 540
A Misconception 541
The Correct Arguments 542
16.10 Issuing Long-Term Debt 542
16.11 Shelf Registration 543
16.12 Summary and Conclusions 544
CHAPTER 17
FINANCIAL LEVERAGE AND CAPITAL STRUCTURE
POLICY 551
17.1 The Capital Structure Question 552
Firm Value and Stock Value: An Example 552
Capital Structure and the Cost of Capital 553
17.2 The Effect of Financial Leverage 553
The Basics of Financial Leverage 553
Financial Leverage, EPS, and ROE: An Example 554
EPS versus EBIT 555
Corporate Borrowing and Homemade Leverage 556
17.3 Capital Structure and the Cost of Equity
Capital 558
M M Proposition I: The Pie Model 558
The Cost of Equity and Financial Leverage: M M
Proposition II 559
Business and Financial Risk 567
17.4 M M Propositions I and II with Corporate
Taxes 562
The Interest Tax Shield 563
Taxes and M M Proposition I 563
Taxes, the WACC, and Proposition II 564
Conclusion 565
17.5 Bankruptcy Costs 567
Direct Bankruptcy Costs 568
Indirect Bankruptcy Costs 568
17.6 Optimal Capital Structure 569
The Static Theory of Capital Structure 569
Optimal Capital Structure and the Cost of Capital 570
Optimal Capital Structure: A Recap 577
Capital Structure: Some Managerial
Recommendations 573
Taxes 573
Financial Distress 573
17.7 The Pie Again 573
The Extended Pie Model 574
Marketed Claims versus Nonmarketed Claims 575
17.8 The Pecking-Order Theory 575
Internal Financing and the Pecking Order 575
Implications of the Pecking Order 576
17.9 Observed Capital Structures 577
17.10 A Quick Look at the Bankruptcy Process 579
Liquidation and Reorganization 579
Bankruptcy Liquidation 579
Bankruptcy Reorganization 580
Financial Management and the Bankruptcy
Process 587
Agreements to Avoid Bankruptcy 582
17.11 Summary and Conclusions 582
CHAPTER 18
DIVIDENDS AND DIVIDEND POLICY 590
18.1 Cash Dividends and Dividend Payment 591
Cash Dividends 597
Standard Method of Cash Dividend Payment 592
Dividend Payment: A Chronology 592
More about the Ex-Dividend Date 593
18.2 Does Dividend Policy Matter? 594
An Illustration of the Irrelevance of Dividend Policy 595
Current Policy: Dividends Set Equal to Cash Flow 595
Alternative Policy: Initial Dividend Greater Than Cash
Flow 595
Homemade Dividends 596
A Test 596
18.3 Real-World Factors Favoring a Low Payout 597
Taxes 597
Expected Return, Dividends, and Personal Taxes 598
Flotation Costs 599
Dividend Restrictions 599
18.4 Real-World Factors Favoring a High Payout 599
Desire for Current Income 600
Uncertainty Resolution 600
Tax and Legal Benefits from High Dividends 601
Corporate Investors 601
Tax-Exempt Investors 601
Conclusion 601
18.5 A Resolution of Real-World Factors? 602
Information Content of Dividends 602
The Clientele Effect 603
18.6 Establishing a Dividend Policy 604
Residual Dividend Approach 604
Dividend Stability 606
A Compromise Dividend Policy 607
Some Survey Evidence on Dividends 608
18.7 Stock Repurchase: An Alternative to Cash
Dividends 609
Cash Dividends versus Repurchase 670
Real-World Considerations in a Repurchase
Share Repurchase and EPS 612
18.8 Stock Dividends and Stock Splits 612
Some Details about Stock Splits and Stock
Dividends 613
Example of a Small Stock Dividend 613
Example of a Stock Split 613
Example of a Large Stock Dividend 614
Value of Stock Splits and Stock Dividends
The Benchmark Case 614
Popular Trading Range 614
Reverse Splits 615
18.9 Summary and Conclusions 616
611
614
PART 7 Short-Term Financial Planning and Management
CHAPTER 19
SHORT-TERM FINANCE AND PLANNING 624
19.1 Tracing Cash and Net Working Capital 625
19.2 The Operating Cycle and the Cash Cycle 626
Defining the Operating and Cash Cycles 627
The Operating Cycle 627
The Cash Cycle 627
The Operating Cycle and the Firm s Organizational
Chart 629
Calculating the Operating and Cash Cycles 629
The Operating Cycle 630
The Cash Cycle 631
Interpreting the Cash Cycle 632
19.3 Some Aspects of Short-Term Financial Policy 632
The Size of the Firm s Investment in Current
Assets 633
Alternative Financing Policies for Current Assets 634
An Ideal Case 634
Different Policies for Financing Current Assets 634
Which Financing Policy Is Best? 637
Current Assets and Liabilities in Practice 638
19.4 The Cash Budget 639
Sales and Cash Collections 639
Cash Outflows 640
The Cash Balance 640
19.5 Short-Term Borrowing 641
Unsecured Loans 642
Compensating Balances 642
Cost of a Compensating Balance 642
Letters of Credit 643
Secured Loans 643
Accounts Receivable Financing 643
Inventory Loans 644
Other Sources 644
19.6 A Short-Term Financial Plan 645
19.7 Summary and Conclusions 646
CHAPTER 20
CASH AND LIQUIDITY MANAGEMENT 657
20.1 Reasons for Holding Cash 658
The Speculative and Precautionary Motives 658
The Transaction Motive 658
Compensating Balances 658
Costs of Holding Cash 658
Cash Management versus Liquidity Management 659
20.2 Understanding Float 659
Disbursement Float 659
Collection Float and Net Float 660
Float Management 661
Measuring Float 661
Some Details 662
Cost of the Float 662
Ethical and Legal Questions 664
Electronic Data Interchange and Check 21: The End of
Float? 665
20.3 Cash Collection and Concentration 666
Components of Collection Time 666
Cash Collection 666
Lockboxes 666
Cash Concentration 668
Accelerating Collections: An Example 669
20.4 Managing Cash Disbursements 670
Increasing Disbursement Float 670
Controlling Disbursements 671
Zero-Balance Accounts 671
Controlled Disbursement Accounts 672
20.5 Investing Idle Cash 672
Temporary Cash Surpluses 672
Seasonal or Cyclical Activities 672
Planned or Possible Expenditures 672
Characteristics of Short-Term Securities 673
Maturity 673
Default Risk 673
Marketability 673
Taxes 673
Some Different Types of Money Market
Securities 674
20.6 Summary and Conclusions 675
20A Determining the Target Cash Balance 679
The Basic Idea 679
The BAT Model 680
The Opportunity Costs 681
The Trading Costs 682
The Total Cost 682
The Solution 683
Conclusion 684
The Miller-Orr Model: A More General
Approach 684
7?7e Basic Idea 684
Using the Model 684
Implications of the BAT and Miller-Orr Models 686
Other Factors Influencing the Target Cash Balance 686
CHAPTER 21
CREDIT AND INVENTORY MANAGEMENT 689
21.1 Credit and Receivables 690
Components of Credit Policy 690
The Cash Flows from Granting Credit 690
The Investment in Receivables 697
21.2 Terms of the Sale 691
The Basic Form 692
The Credit Period 692
The Invoice Date 692
Length of the Credit Period 692
Cash Discounts 693
Cost of the Credit 694
Trade Discounts 694
The Cash Discount and the ACP 694
Credit Instruments 695
21.3 Analyzing Credit Policy 695
Credit Policy Effects 695
Evaluating a Proposed Credit Policy 696
NPV of Switching Policies 696
A Break-Even Application 698
21.4 Optimal Credit Policy 698
The Total Credit Cost Curve 698
Organizing the Credit Function 699
21.5 Credit Analysis 700
When Should Credit Be Granted? 700
A One- Time Sale 700
Repeat Business 701
Credit Information 702
Credit Evaluation and Scoring 702
21.6 Collection Policy 703
Monitoring Receivables 703
Collection Effort 704
21.7 Inventory Management 704
The Financial Manager and Inventory Policy 705
Inventory Types 705
Inventory Costs 705
21.8 Inventory Management Techniques 706
The ABC Approach 706
The Economic Order Quantity Model 707
Inventory Depletion 707
The Carrying Costs 709
The Shortage Costs 709
The Total Costs 709
Extensions to the EOQ Model 711
Safety Stocks 711
Reorder Points 711
Managing Derived-Demand Inventories 711
Materials Requirements Planning 713
Just-in-Time Inventory 713
21.9 Summary and Conclusions 713
21A More about Credit Policy Analysis 719
Two Alternative Approaches 719
The One-Shot Approach 720
PART 8 Topics in Corporate Finance
CHAPTER 22
INTERNATIONAL CORPORATE FINANCE 726
22.1 Terminology 727
22.2 Foreign Exchange Markets and Exchange
Rates 728
Exchange Rates 729
Exchange Rate Quotations 729
Cross-Rates and Triangle Arbitrage 730
Types of Transactions 732
22.3 Purchasing Power Parity 733
Absolute Purchasing Power Parity 733
Relative Purchasing Power Parity 735
The Basic Idea 735
The Result 735
Currency Appreciation and Depreciation 736
22.4 Interest Rate Parity, Unbiased Forward Rates, and
the International Fisher Effect 737
Covered Interest Arbitrage 737
Interest Rate Parity 738
Forward Rates and Future Spot Rates 739
Putting It All Together 739
Uncovered Interest Parity 740
The International Fisher Effect 740
22.5 International Capital Budgeting 741
Method 1: The Home Currency Approach 741
Method 2: The Foreign Currency Approach 742
Unremitted Cash Flows 743
22.6 Exchange Rate Risk 743
Short-Run Exposure 743
Long-Run Exposure 744
Translation Exposure 745
Managing Exchange Rate Risk 746
22.7 Political Risk 746
22.8 Summary and Conclusions 747
CHAPTER 23
RISK MANAGEMENT: AN INTRODUCTION TO
FINANCIAL ENGINEERING 754
23.1 Hedging and Price Volatility 755
Price Volatility: A Historical Perspective 755
Interest Rate Volatility 756
The Accounts Receivable Approach
Discounts and Default Risk 721
NPV of the Credit Decision 722
A Break-Even Application 723
720
Exchange Rate Volatility 756
Commodity Price Volatility 757
The Impact of Financial Risk: The U.S. Savings and
Loan Industry 757
23.2 Managing Financial Risk 758
The Risk Profile 759
Reducing Risk Exposure 759
Hedging Short-Run Exposure 760
Cash Flow Hedging: A Cautionary Note 767
Hedging Long-Term Exposure 767
Conclusion 762
23.3 Hedging with Forward Contracts 762
Forward Contracts: The Basics 762
The Payoff Profile 763
Hedging with Forwards 763
A Caveat 764
Credit Risk 765
Forward Contracts in Practice 765
23.4 Hedging with Futures Contracts 765
Trading in Futures 765
Futures Exchanges 766
Hedging with Futures 766
23.5 Hedging with Swap Contracts 768
Currency Swaps 768
Interest Rate Swaps 769
Commodity Swaps 769
The Swap Dealer 769
Interest Rate Swaps: An Example 770
23.6 Hedging with Option Contracts 771
Option Terminology 777
Options versus Forwards 777
Option Payoff Profiles 772
Option Hedging 772
Hedging Commodity Price Risk with Options 773
Hedging Exchange Rate Risk with Options 774
Hedging Interest Rate Risk with Options 774
A Preliminary Note 775
Interest Rate Caps 775
Other Interest Rate Options 775
Actual Use of Derivatives 776
23.7 Summary and Conclusions 777
CHAPTER 24
OPTION VALUATION 782
24.1 Put-Call Parity 783
Protective Puts 783
An Alternative Strategy 783
The Result 784
Continuous Compounding: A Refresher Course 785
24.2 The Black-Scholes Option Pricing Model 788
The Call Option Pricing Formula 788
Put Option Valuation 791
A Cautionary Note 792
24.3 More about Black-Scholes 793
Varying the Stock Price 794
Varying the Time to Expiration 796
Varying the Standard Deviation 797
Varying the Risk-Free Rate 798
Implied Standard Deviations 799
24.4 Valuation of Equity and Debt in a Leveraged
Firm 800
Valuing the Equity in a Leveraged Firm 801
Options and the Valuation of Risky Bonds 802
24.5 Options and Corporate Decisions: Some
Applications 803
Mergers and Diversification 803
Options and Capital Budgeting 805
24.6 Summary and Conclusions 807
CHAPTER 25
MERGERS AND ACQUISITIONS 815
25.1 The Legal Forms of Acquisitions 816
Merger or Consolidation 816
Acquisition of Stock 817
Acquisition of Assets 817
Acquisition Classifications 878
A Note about Takeovers 818
Alternatives to Merger 819
25.2 Taxes and Acquisitions 819
Determinants of Tax Status 819
Taxable versus Tax-Free Acquisitions 819
25.3 Accounting for Acquisitions 820
The Purchase Method 820
Pooling of Interests 821
More about Goodwill 821
25.4 Gains from Acquisition 822
Synergy 822
Revenue Enhancement 823
Marketing Gains 823
Strategic Benefits 824
Market Power 824
Cost Reductions 824
Economies of Scale 824
Economies of Vertical Integration 825
Complementary Resources 825
Lower Taxes 825
Net Operating Losses 825
Unused Debt Capacity 826
Surplus Funds 826
Asset Write-Ups 826
Reductions in Capital Needs 826
Avoiding Mistakes 827
A Note about Inefficient Management 827
25.5 Some Financial Side Effects of Acquisitions 828
EPS Growth 828
Diversification 829
25.6 The Cost of an Acquisition 829
Case I: Cash Acquisition 830
Case II: Stock Acquisition 830
Cash versus Common Stock 837
25.7 Defensive Tactics 832
The Corporate Charter 832
Repurchase and Standstill Agreements 832
Poison Pills and Share Rights Plans 832
Going Private and Leveraged Buyouts 834
Other Devices and Jargon of Corporate Takeovers 834
25.8 Some Evidence on Acquisitions: Do M A Pay? 835
25.9 Divestitures and Restructurings 836
25.10 Summary and Conclusions 837
CHAPTER 26
LEASING 845
26.1 Leases and Lease Types 846
Leasing versus Buying 846
Operating Leases 847
Financial Leases 847
Tax-Oriented Leases 847
Leveraged Leases 848
Sale and Leaseback Agreements 848
26.2 Accounting and Leasing 848
26.3 Taxes, the IRS, and Leases 850
26.4 The Cash Flows from Leasing 851
The Incremental Cash Flows 857
A Note about Taxes 852
26.5 Lease or Buy? 853
A Preliminary Analysis 853
Three Potential Pitfalls 854
NPV Analysis 854
A Misconception 854
26.6 A Leasing Paradox 856
26.7 Reasons for Leasing 857
Good Reasons for Leasing 857
Tax Advantages 857
A Reduction of Uncertainty 858
Lower Transactions Costs 859
Fewer Restrictions and Security Requirements 859
Dubious Reasons for Leasing 859
Leasing and Accounting Income 859
100 Percent Financing 859
Low Cost 860
Other Reasons for Leasing 860
26.8 Summary and Conclusions 860
APPENDIX A
MATHEMATICAL TABLES A-l
APPENDIX B
KEY EQUATIONS B-1
Index 1-1
¦ i
CHAPTER 4
Robert C Higgins University of Washington
On Sustainable Growth
CHAPTER 7
Edward I. Altman
On Junk Bonds
New York University
CHAPTER 10
Samuel C. Weaver Lehigh University
On Capital Budgeting at the Hershey Company
CHAPTER 12
Roger Ibbotson Yale University
On Capital Market History
Jeremy Siegel University of Pennsylvania
On Stocks for the Long Run
Richard Roll University of California at Los Angeles
On Market Efficiency
CHAPTER 15
Bennett Stewart Stern Stewart Co.
On EVA
Samuel C. Weaver Lehigh University
On Cost of Capital and Hurdle Rates at the Hershey
Company
CHAPTER 16
Jay R. Ritter University of Florida
On IPO Underpricing around the World
CHAPTER 17
Merton H. Miller
On Capital Structure: M M 30 Years Later
CHAPTER 18
Fischer Black
On Why Firms Pay Dividends
CHAPTER 14
Erik Lie University of Iowa
On Employee Stock Option Backdating
Robert C Merton Harvard University
On Applications of Option Analysis
|
| adam_txt |
Brief Contents
PARTI
CHAPTER 1
CHAPTER 2
PART 2
CHAPTER 3
CHAPTER 4
PART 3
Overview of Corporate Finance
INTRODUCTION TO CORPORATE FINANCE 1
FINANCIAL STATEMENTS, TAXES, AND CASH FLOW 21
Financial Statements and Long-Term Financial Planning
WORKING WITH FINANCIAL STATEMENTS 48
LONG-TERM FINANCIAL PLANNING AND GROWTH 89
Valuation of Future Cash Flows
CHAPTER 5 INTRODUCTION TO VALUATION: THE TIME VALUE OF MONEY 121
CHAPTER 6 DISCOUNTED CASH FLOW VALUATION 146
CHAPTER 7 INTEREST RATES AND BOND VALUATION 192
CHAPTER 8 STOCK VALUATION 234
Capital Budgeting
CHAPTER 9 NET PRESENT VALUE AND OTHER INVESTMENT CRITERIA 264
CHAPTER 10 MAKING CAPITAL INVESTMENT DECISIONS 302
CHAPTER 11 PROJECT ANALYSIS AND EVALUATION 337
PART 5
Risk and Return
CHAPTER 12 SOME LESSONS FROM CAPITAL MARKET HISTORY 368
CHAPTER 13 RETURN, RISK, AND THE SECURITY MARKET LINE 403
CHAPTER 14 OPTIONS AND CORPORATE FINANCE 439
PART 6
Cost of Capital and Long-Term Financial Policy
CHAPTER 15 COST OF CAPITAL 479
CHAPTER 16 RAISING CAPITAL 513
CHAPTER 17 FINANCIAL LEVERAGE AND CAPITAL STRUCTURE POLICY 551
CHAPTER 18 DIVIDENDS AND DIVIDEND POLICY 590
PART 7
Short-Term Financial Planning and Management
CHAPTER 19 SHORT-TERM FINANCE AND PLANNING 624
CHAPTER 20 CASH AND LIQUIDITY MANAGEMENT 657
CHAPTER 21 CREDIT AND INVENTORY MANAGEMENT 689
PART 8 Topics in Corporate Finance
CHAPTER 22 INTERNATIONAL CORPORATE FINANCE 726
CHAPTER 23 RISK MANAGEMENT: AN INTRODUCTION TO FINANCIAL ENGINEERING 754
CHAPTER 24 OPTION VALUATION 782
CHAPTER 25 MERGERS AND ACQUISITIONS 815
CHAPTER 26 LEASING 845
Contents
PART 1 Overview of Corporate Finance
CHAPTER 1
INTRODUCTION TO CORPORATE FINANCE 1
1.1 Corporate Finance and the Financial Manager 2
What Is Corporate Finance? 2
The Financial Manager 2
Financial Management Decisions 2
Capital Budgeting 2
Capital Structure 3
Working Capital Management 4
Conclusion 4
1.2 Forms of Business Organization 4
Sole Proprietorship 5
Partnership 5
Corporation 6
A Corporation by Another Name . 7
1.3 The Goal of Financial Management 8
Possible Goals 8
The Goal of Financial Management 8
A More General Goal 9
Sarbanes-Oxley 10
1.4 The Agency Problem and Control of the
Corporation 11
Agency Relationships 11
Management Goals 11
Do Managers Act in the Stockholders' Interests? 72
Managerial Compensation 12
Control of the Firm 12
Conclusion 13
Stakeholders 14
1.5 Financial Markets and the Corporation 14
Cash Flows to and from the Firm 14
Primary versus Secondary Markets 14
Primary Markets 15
Secondary Markets 15
Dealer versus Auction Markets 15
Trading in Corporate Securities 16
Listing 16
1.6 Summary and Conclusions 17
PART 2 Financial Statements and Long-Term Financial Planning
CHAPTER 2
FINANCIAL STATEMENTS, TAXES, AND CASH FLOW 21
2.1 The Balance Sheet 22
Assets: The Left Side 22
Liabilities and Owners' Equity: The Right Side 22
Net Working Capital 23
Liquidity 24
Debt versus Equity 25
Market Value versus Book Value 25
2.2 The Income Statement 26
GAAP and the Income Statement 27
Noncash Items 28
Time and Costs 28
2.3 Taxes 30
Corporate Tax Rates 30
Average versus Marginal Tax Rates 30
2.4 Cash Flow 32
Cash Flow from Assets 33
Operating Cash Flow 33
Capital Spending 34
Change in Net Working Capital 34
Conclusion 35
A Note about "Free" Cash Flow 35
Cash Flow to Creditors and Stockholders 35
Cash Flow to Creditors 35
Cash Flow to Stockholders 35
An Example: Cash Flows for Dole Cola 37
Operating Cash Flow 37
Net Capital Spending 38
Change in NWC and Cash Flow from Assets 38
Cash Flow to Stockholders and Creditors 38
2.5 Summary and Conclusions 39
CHAPTER 3
WORKING WITH FINANCIAL STATEMENTS 48
3.1 Cash Flow and Financial Statements: A Closer
Look 49
Sources and Uses of Cash 49
The Statement of Cash Flows 57
3.2 Standardized Financial Statements 53
Common-Size Statements 53
Common-Size Balance Sheets 53
Common-Size Income Statements 54
Common-Size Statements of Cash Flows 55
Common-Base Year Financial Statements: Trend
Analysis 55
XXVII
Combined Common-Size and Base Year
Analysis 55
3.3 Ratio Analysis 56
Short-Term Solvency, or Liquidity, Measures 57
Current Ratio 57
The Quick (or Acid- Test) Ratio 58
Other Liquidity Ratios 59
Long-Term Solvency Measures 59
Total Debt Ratio 59
A Brief Digression: Total Capitalization versus Total
Assets 60
Times Interest Earned 60
Cash Coverage 61
Asset Management, or Turnover, Measures 61
Inventory Turnover and Days' Sales in Inventory 61
Receivables Turnover and Days' Sales in
Receivables 62
Asset Turnover Ratios 63
Profitability Measures 63
Profit Margin 64
Return on Assets 64
Return on Equity 64
Market Value Measures 65
Price-Earnings Ratio 65
Price-Sales Ratio 65
Market-to-Book Ratio 66
Conclusion 66
3.4 The Du Pont Identity 67
A Closer Look at ROE 67
An Expanded Du Pont Analysis 69
3.5 Using Financial Statement Information 71
Why Evaluate Financial Statements? 71
Internal Uses 71
External Uses 71
Choosing a Benchmark 71
Time Trend Analysis 71
Peer Group Analysis 72
Problems with Financial Statement Analysis 76
3.6 Summary and Conclusions 77
CHAPTER 4
LONG-TERM FINANCIAL PLANNING AND
GROWTH 89
4.1 What Is Financial Planning? 90
Growth as a Financial Management Goal 90
Dimensions of Financial Planning 91
What Can Planning Accomplish? 92
Examining Interactions 92
Exploring Options 92
Avoiding Surprises 92
Ensuring Feasibility and Internal Consistency 92
Conclusion 92
4.2 Financial Planning Models: A First Look 93
A Financial Planning Model: The Ingredients 93
Sales Forecast 93
Pro Forma Statements 93
Asset Requirements 94
Financial Requirements 94
The Plug 94
Economic Assumptions 94
A Simple Financial Planning Model 94
4.3 The Percentage of Sales Approach 96
The Income Statement 96
The Balance Sheet 97
A Particular Scenario 99
An Alternative Scenario 100
4.4 External Financing and Growth 101
EFN and Growth 707
Financial Policy and Growth 705
The Internal Growth Rate 105
The Sustainable Growth Rate 105
Determinants of Growth 107
A Note about Sustainable Growth Rate
Calculations 708
4.5 Some Caveats Regarding Financial Planning
Models 110
4.6 Summary and Conclusions 111
PART 3 Valuation of Future Cash Flows
CHAPTER 5
INTRODUCTION TO VALUATION: THE TIME
VALUE OF MONEY 121
5.1 Future Value and Compounding 122
Investing for a Single Period 722
Investing for More Than One Period 722
A Note about Compound Growth 728
5.2 Present Value and Discounting 129
The Single-Period Case 729
Present Values for Multiple Periods 730
5.3 More about Present and Future Values
Present versus Future Value 733
Determining the Discount Rate 734
Finding the Number of Periods 738
5.4 Summary and Conclusions 141
133
CHAPTER 6
DISCOUNTED CASH FLOW VALUATION 146
6.1
Future and Present Values of Multiple Cash
Flows 147
Future Value with Multiple Cash Flows 147
Present Value with Multiple Cash Flows 750
A Note about Cash Flow Timing 753
6.2 Valuing Level Cash Flows: Annuities and
Perpetuities 154
Present Value for Annuity Cash Flows 754
Annuity Tables 756
Finding the Payment 757
Finding the Rate 159
Future Value for Annuities 767
A Note about Annuities Due 762
Perpetuities 762
Growing Annuities and Perpetuities 764
6.3 Comparing Rates: The Effect of Compounding 165
Effective Annual Rates and Compounding 765
Calculating and Comparing Effective Annual
Rates 766
EARs and APRs 768
Taking It to the Limit: A Note about Continuous
Compounding 769
6.4 Loan Types and Loan Amortization 171
Pure Discount Loans 777
Interest-Only Loans 7 71
Amortized Loans 7 72
6.5 Summary and Conclusions 177
CHAPTER 7
INTEREST RATES AND BOND VALUATION 192
7.1 Bonds and Bond Valuation 193
Bond Features and Prices 793
Bond Values and Yields 793
Interest Rate Risk 797
Finding the Yield to Maturity. More Trial and Error 198
7.2 More about Bond Features 203
Is It Debt or Equity? 203
Long-Term Debt: The Basics 203
The Indenture 205
Terms of a Bond 205
Security 206
Seniority 206
Repayment 206
The Call Provision 207
Protective Covenants 207
7.3 Bond Ratings 208
7.4 Some Different Types of Bonds 209
Government Bonds 209
Zero-Coupon Bonds 270
Floating-Rate Bonds 27 7
Other Types of Bonds 2 7 2
7.5 Bond Markets 214
How Bonds Are Bought and Sold 274
Bond Price Reporting 276
A Note about Bond Price Quotes 279
7.6 Inflation and Interest Rates 219
Real versus Nominal Rates 279
The Fisher Effect 220
Inflation and Present Values 221
7.7 Determinants of Bond Yields 222
The Term Structure of Interest Rates 222
Bond Yields and the Yield Curve: Putting It All
Together 225
Conclusion 226
7.8 Summary and Conclusions 227
CHAPTER 8
STOCK VALUATION 234
8.1 Common Stock Valuation 235
Cash Flows 235
Some Special Cases 237
Zero Growth 237
Constant Growth 237
Nonconstant Growth 240
Two-Stage Growth 242
Components of the Required Return 243
8.2 Some Features of Common and Preferred
Stocks 245
Common Stock Features 245
Shareholder Rights 245
Proxy Voting 246
Classes of Stock 247
Other Rights 247
Dividends 248
Preferred Stock Features 248
Stated Value 248
Cumulative and Noncumulative Dividends 248
Is Preferred Stock Really Debt? 249
8.3 The Stock Markets 249
Dealers and Brokers 250
Organization of the NYSE 250
Members 250
Operations 251
Floor Activity 251
NASDAQ Operations 252
NASDAQ Participants 253
Stock Market Reporting 254
8.4 Summary and Conclusions 256
PART 4 Capital Budgeting
CHAPTER 9
NET PRESENT VALUE AND OTHER INVESTMENT
CRITERIA 264
9.1 Net Present Value 265
The Basic Idea 265
Estimating Net Present Value 266
9.2 The Payback Rule 269
Defining the Rule 269
Analyzing the Rule 270
Redeeming Qualities of the Rule 271
Summary of the Rule 272
9.3 The Discounted Payback 272
9.4 The Average Accounting Return 275
9.5 The Internal Rate of Return 277
Problems with the IRR 281
Nonconventional Cash Flows 281
Mutually Exclusive Investments 283
Redeeming Qualities of the IRR 285
The Modified Internal Rate of Return (MIRR) 286
Method # 7: The Discounting Approach 286
Method #2: The Reinvestment Approach 286
Method #3: The Combination Approach 286
MIRR or IRR: Which Is Better? 287
9.6 The Profitability Index 287
9.7 The Practice of Capital Budgeting 288
9.8 Summary and Conclusions 291
CHAPTER 10
MAKING CAPITAL INVESTMENT DECISIONS 302
10.1 Project Cash Flows: A First Look 303
Relevant Cash Flows 303
The Stand-Alone Principle 303
10.2 Incremental Cash Flows 303
Sunk Costs 304
Opportunity Costs 304
Side Effects 304
Net Working Capital 305
Financing Costs 305
Other Issues 305
10.3 Pro Forma Financial Statements and Project Cash
Flows 306
Getting Started: Pro Forma Financial Statements
Project Cash Flows 307
Project Operating Cash Flow 307
Project Net Working Capital and Capital
Spending 308
Projected Total Cash Flow and Value 308
306
10.4 More about Project Cash Flow 309
A Closer Look at Net Working Capital 309
Depreciation 312
Modified ACRS Depreciation (MACRS) 312
Book Value versus Market Value 313
An Example: The Majestic Mulch and Compost
Company (MMCC) 375
Operating Cash Flows 315
Change in NWC 315
Capital Spending 317
Total Cash Flow and Value 317
Conclusion 378
10.5 Alternative Definitions of Operating
Cash Flow 318
The Bottom-Up Approach 379
The Top-Down Approach 320
The Tax Shield Approach 320
Conclusion 321
10.6 Some Special Cases of Discounted Cash Flow
Analysis 321
Evaluating Cost-Cutting Proposals 327
Setting the Bid Price 323
Evaluating Equipment Options with
Different Lives 325
10.7 Summary and Conclusions 327
CHAPTER 11
PROJECT ANALYSIS AND EVALUATION 337
11.1 Evaluating NPV Estimates 338
The Basic Problem 338
Projected versus Actual Cash Flows 338
Forecasting Risk 338
Sources of Value 339
11.2 Scenario and Other What-lf Analyses 340
Getting Started 340
Scenario Analysis 347
Sensitivity Analysis 343
Simulation Analysis 344
11.3 Break-Even Analysis 344
Fixed and Variable Costs 345
Variable Costs 345
Fixed Costs 346
Total Costs 346
Accounting Break-Even 348
Accounting Break-Even: A Closer Look 348
Uses for the Accounting Break-Even 350
11.4 Operating Cash Flow, Sales Volume, and Break-
Even 350
Accounting Break-Even and Cash Flow 357
The Base Case 357
Calculating the Break-Even Level 351
Payback and Break-Even 352
Sales Volume and Operating Cash Flow 352
Cash Flow, Accounting, and Financial Break-Even
Points 352
Accounting Break-Even Revisited 353
Cash Break-Even 353
Financial Break-Even 354
Conclusion 354
PART 5 Risk and Return
11.5 Operating Leverage 355
The Basic Idea 355
Implications of Operating Leverage 356
Measuring Operating Leverage 356
Operating Leverage and Break-Even 357
11.6 Capital Rationing 358
Soft Rationing 358
Hard Rationing 359
11.7 Summary and Conclusions 359
CHAPTER 12
SOME LESSONS FROM CAPITAL MARKET
HISTORY 368
12.1 Returns 369
Dollar Returns 369
Percentage Returns 377
12.2 The Historical Record 373
A First Look 373
A Closer Look 375
12.3 Average Returns: The First Lesson 379
Calculating Average Returns 379
Average Returns: The Historical Record 379
Risk Premiums 380
The First Lesson 380
12.4 The Variability of Returns: The Second
Lesson 381
Frequency Distributions and Variability 387
The Historical Variance and Standard
Deviation 382
The Historical Record 384
Normal Distribution 384
The Second Lesson 386
Using Capital Market History 386
12.5 More about Average Returns 387
Arithmetic versus Geometric Averages 387
Calculating Geometric Average
Returns 388
Arithmetic Average Return or Geometric Average
Return? 390
12.6 Capital Market Efficiency 391
Price Behavior in an Efficient Market 397
The Efficient Markets Hypothesis 392
Some Common Misconceptions about the
EMH 393
The Forms of Market Efficiency 395
12.7 Summary and Conclusions 396
CHAPTER 13
RETURN, RISK, AND THE SECURITY
MARKET LINE 403
13.1 Expected Returns and Variances 404
Expected Return 404
Calculating the Variance 406
13.2 Portfolios 407
Portfolio Weights 408
Portfolio Expected Returns 408
Portfolio Variance 409
13.3 Announcements, Surprises, and Expected
Returns 411
Expected and Unexpected Returns 47 7
Announcements and News 47 7
13.4 Risk: Systematic and Unsystematic 413
Systematic and Unsystematic Risk 473
Systematic and Unsystematic Components of
Return 473
13.5 Diversification and Portfolio Risk 414
The Effect of Diversification: Another Lesson from
Market History 474
The Principle of Diversification 475
Diversification and Unsystematic Risk 476
Diversification and Systematic Risk 47 7
13.6 Systematic Risk and Beta 417
The Systematic Risk Principle 478
Measuring Systematic Risk 478
Portfolio Betas 420
13.7 The Security Market Line 421
Beta and the Risk Premium 427
The Reward-to-Risk Ratio 422
The Basic Argument 423
The Fundamental Result 424
The Security Market Line 426
Market Portfolios 426
The Capital Asset Pricing Model 426
13.8 The SML and the Cost of Capital: A Preview 428
The Basic Idea 428
The Cost of Capital 429
13.9 Summary and Conclusions 429
CHAPTER 14
OPTIONS AND CORPORATE FINANCE 439
14.1 Options: The Basics 440
Puts and Calls 440
Stock Option Quotations 440
Option Payoffs 444
14.2 Fundamentals of Option Valuation 446
Value of a Call Option at Expiration 446
The Upper and Lower Bounds on a Call Option's
Value 446
The Upper Bound 447
The Lower Bound 44 7
A Simple Model: Part I 448
The Basic Approach 448
A More Complicated Case 449
Four Factors Determining Option
Values 450
14.3 Valuing a Call Option 451
A Simple Model: Part II 451
The Fifth Factor 452
A Closer Look 453
14.4 Employee Stock Options 454
ESO Features 454
ESO Repricing 455
ESO Backdating 455
14.5 Equity as a Call Option on the Firm's Assets 456
Case I: The Debt Is Risk-Free 457
Case II: The Debt Is Risky 457
14.6 Options and Capital Budgeting 459
The Investment Timing Decision 459
Managerial Options 461
Contingency Planning 462
Options in Capital Budgeting: An Example 463
Strategic Options 464
Conclusion 464
14.7 Options and Corporate Securities 465
Warrants 465
The Difference between Warrants and Call
Options 465
Earnings Dilution 466
Convertible Bonds 466
Features of a Convertible Bond 466
Value of a Convertible Bond 466
Other Options 468
The Call Provision on a Bond 468
Put Bonds 469
Insurance and Loan Guarantees 469
14.8 Summary and Conclusions 470
PART 6 Cost of Capital and Long-Term Financial Policy
CHAPTER 15
COST OF CAPITAL 479
15.1 The Cost of Capital: Some Preliminaries 480
Required Return versus Cost of Capital 480
Financial Policy and Cost of Capital 480
15.2 The Cost of Equity 481
The Dividend Growth Model Approach 481
Implementing the Approach 481
Estimating g 482
Advantages and Disadvantages of the Approach 483
The SML Approach 483
Implementing the Approach 484
Advantages and Disadvantages of the Approach 484
15.3 The Costs of Debt and Preferred Stock 485
The Cost of Debt 485
The Cost of Preferred Stock 486
15.4 The Weighted Average Cost of Capital 487
The Capital Structure Weights 487
Taxes and the Weighted Average Cost of Capital 488
Calculating the WACC for Eastman Chemical 489
Eastman's Cost of Equity 489
Eastman's Cost of Debt 491
Eastman's WACC 492
Solving the Warehouse Problem and Similar Capital
Budgeting Problems 494
Performance Evaluation: Another Use of the
WACC 496
15.5 Divisional and Project Costs of Capital 497
The SML and the WACC 497
Divisional Cost of Capital 498
The Pure Play Approach 498
The Subjective Approach 499
15.6 Flotation Costs and the Weighted Average Cost of
Capital 501
The Basic Approach 507
Flotation Costs and NPV 502
Internal Equity and Flotation Costs 504
15.7 Summary and Conclusions 504
CHAPTER 16
RAISING CAPITAL 513
16.1 The Financing Life Cycle of a Firm: Early-Stage
Financing and Venture Capital 514
Venture Capital 514
Some Venture Capital Realities 575
Choosing a Venture Capitalist 515
Conclusion 576
16.2 Selling Securities to the Public: The Basic
Procedure 516
16.3 Alternative Issue Methods 517
16.4 Underwriters 519
Choosing an Underwriter 520
Types of Underwriting 520
Firm Commitment Underwriting 520
Best Efforts Underwriting 520
Dutch Auction Underwriting 521
The Aftermarket 527
The Green Shoe Provision 522
Lockup Agreements 522
The Quiet Period 522
16.5 IPOs and Underpricing 523
IPO Underpricing: The 1999-2000 Experience 523
Evidence on Underpricing 525
Why Does Underpricing Exist? 526
16.6 New Equity Sales and the Value of the Firm 529
16.7 The Costs of Issuing Securities 530
The Costs of Selling Stock to the Public 530
The Costs of Going Public: The Case of Symbion 532
16.8 Rights 534
The Mechanics of a Rights Offering 534
Number of Rights Needed to Purchase a Share 535
The Value of a Right 536
Ex Rights 538
The Underwriting Arrangements 539
Effects on Shareholders 539
16.9 Dilution 540
Dilution of Proportionate Ownership 540
Dilution of Value: Book versus Market Values 540
A Misconception 541
The Correct Arguments 542
16.10 Issuing Long-Term Debt 542
16.11 Shelf Registration 543
16.12 Summary and Conclusions 544
CHAPTER 17
FINANCIAL LEVERAGE AND CAPITAL STRUCTURE
POLICY 551
17.1 The Capital Structure Question 552
Firm Value and Stock Value: An Example 552
Capital Structure and the Cost of Capital 553
17.2 The Effect of Financial Leverage 553
The Basics of Financial Leverage 553
Financial Leverage, EPS, and ROE: An Example 554
EPS versus EBIT 555
Corporate Borrowing and Homemade Leverage 556
17.3 Capital Structure and the Cost of Equity
Capital 558
M M Proposition I: The Pie Model 558
The Cost of Equity and Financial Leverage: M M
Proposition II 559
Business and Financial Risk 567
17.4 M M Propositions I and II with Corporate
Taxes 562
The Interest Tax Shield 563
Taxes and M M Proposition I 563
Taxes, the WACC, and Proposition II 564
Conclusion 565
17.5 Bankruptcy Costs 567
Direct Bankruptcy Costs 568
Indirect Bankruptcy Costs 568
17.6 Optimal Capital Structure 569
The Static Theory of Capital Structure 569
Optimal Capital Structure and the Cost of Capital 570
Optimal Capital Structure: A Recap 577
Capital Structure: Some Managerial
Recommendations 573
Taxes 573
Financial Distress 573
17.7 The Pie Again 573
The Extended Pie Model 574
Marketed Claims versus Nonmarketed Claims 575
17.8 The Pecking-Order Theory 575
Internal Financing and the Pecking Order 575
Implications of the Pecking Order 576
17.9 Observed Capital Structures 577
17.10 A Quick Look at the Bankruptcy Process 579
Liquidation and Reorganization 579
Bankruptcy Liquidation 579
Bankruptcy Reorganization 580
Financial Management and the Bankruptcy
Process 587
Agreements to Avoid Bankruptcy 582
17.11 Summary and Conclusions 582
CHAPTER 18
DIVIDENDS AND DIVIDEND POLICY 590
18.1 Cash Dividends and Dividend Payment 591
Cash Dividends 597
Standard Method of Cash Dividend Payment 592
Dividend Payment: A Chronology 592
More about the Ex-Dividend Date 593
18.2 Does Dividend Policy Matter? 594
An Illustration of the Irrelevance of Dividend Policy 595
Current Policy: Dividends Set Equal to Cash Flow 595
Alternative Policy: Initial Dividend Greater Than Cash
Flow 595
Homemade Dividends 596
A Test 596
18.3 Real-World Factors Favoring a Low Payout 597
Taxes 597
Expected Return, Dividends, and Personal Taxes 598
Flotation Costs 599
Dividend Restrictions 599
18.4 Real-World Factors Favoring a High Payout 599
Desire for Current Income 600
Uncertainty Resolution 600
Tax and Legal Benefits from High Dividends 601
Corporate Investors 601
Tax-Exempt Investors 601
Conclusion 601
18.5 A Resolution of Real-World Factors? 602
Information Content of Dividends 602
The Clientele Effect 603
18.6 Establishing a Dividend Policy 604
Residual Dividend Approach 604
Dividend Stability 606
A Compromise Dividend Policy 607
Some Survey Evidence on Dividends 608
18.7 Stock Repurchase: An Alternative to Cash
Dividends 609
Cash Dividends versus Repurchase 670
Real-World Considerations in a Repurchase
Share Repurchase and EPS 612
18.8 Stock Dividends and Stock Splits 612
Some Details about Stock Splits and Stock
Dividends 613
Example of a Small Stock Dividend 613
Example of a Stock Split 613
Example of a Large Stock Dividend 614
Value of Stock Splits and Stock Dividends
The Benchmark Case 614
Popular Trading Range 614
Reverse Splits 615
18.9 Summary and Conclusions 616
611
614
PART 7 Short-Term Financial Planning and Management
CHAPTER 19
SHORT-TERM FINANCE AND PLANNING 624
19.1 Tracing Cash and Net Working Capital 625
19.2 The Operating Cycle and the Cash Cycle 626
Defining the Operating and Cash Cycles 627
The Operating Cycle 627
The Cash Cycle 627
The Operating Cycle and the Firm's Organizational
Chart 629
Calculating the Operating and Cash Cycles 629
The Operating Cycle 630
The Cash Cycle 631
Interpreting the Cash Cycle 632
19.3 Some Aspects of Short-Term Financial Policy 632
The Size of the Firm's Investment in Current
Assets 633
Alternative Financing Policies for Current Assets 634
An Ideal Case 634
Different Policies for Financing Current Assets 634
Which Financing Policy Is Best? 637
Current Assets and Liabilities in Practice 638
19.4 The Cash Budget 639
Sales and Cash Collections 639
Cash Outflows 640
The Cash Balance 640
19.5 Short-Term Borrowing 641
Unsecured Loans 642
Compensating Balances 642
Cost of a Compensating Balance 642
Letters of Credit 643
Secured Loans 643
Accounts Receivable Financing 643
Inventory Loans 644
Other Sources 644
19.6 A Short-Term Financial Plan 645
19.7 Summary and Conclusions 646
CHAPTER 20
CASH AND LIQUIDITY MANAGEMENT 657
20.1 Reasons for Holding Cash 658
The Speculative and Precautionary Motives 658
The Transaction Motive 658
Compensating Balances 658
Costs of Holding Cash 658
Cash Management versus Liquidity Management 659
20.2 Understanding Float 659
Disbursement Float 659
Collection Float and Net Float 660
Float Management 661
Measuring Float 661
Some Details 662
Cost of the Float 662
Ethical and Legal Questions 664
Electronic Data Interchange and Check 21: The End of
Float? 665
20.3 Cash Collection and Concentration 666
Components of Collection Time 666
Cash Collection 666
Lockboxes 666
Cash Concentration 668
Accelerating Collections: An Example 669
20.4 Managing Cash Disbursements 670
Increasing Disbursement Float 670
Controlling Disbursements 671
Zero-Balance Accounts 671
Controlled Disbursement Accounts 672
20.5 Investing Idle Cash 672
Temporary Cash Surpluses 672
Seasonal or Cyclical Activities 672
Planned or Possible Expenditures 672
Characteristics of Short-Term Securities 673
Maturity 673
Default Risk 673
Marketability 673
Taxes 673
Some Different Types of Money Market
Securities 674
20.6 Summary and Conclusions 675
20A Determining the Target Cash Balance 679
The Basic Idea 679
The BAT Model 680
The Opportunity Costs 681
The Trading Costs 682
The Total Cost 682
The Solution 683
Conclusion 684
The Miller-Orr Model: A More General
Approach 684
7?7e Basic Idea 684
Using the Model 684
Implications of the BAT and Miller-Orr Models 686
Other Factors Influencing the Target Cash Balance 686
CHAPTER 21
CREDIT AND INVENTORY MANAGEMENT 689
21.1 Credit and Receivables 690
Components of Credit Policy 690
The Cash Flows from Granting Credit 690
The Investment in Receivables 697
21.2 Terms of the Sale 691
The Basic Form 692
The Credit Period 692
The Invoice Date 692
Length of the Credit Period 692
Cash Discounts 693
Cost of the Credit 694
Trade Discounts 694
The Cash Discount and the ACP 694
Credit Instruments 695
21.3 Analyzing Credit Policy 695
Credit Policy Effects 695
Evaluating a Proposed Credit Policy 696
NPV of Switching Policies 696
A Break-Even Application 698
21.4 Optimal Credit Policy 698
The Total Credit Cost Curve 698
Organizing the Credit Function 699
21.5 Credit Analysis 700
When Should Credit Be Granted? 700
A One- Time Sale 700
Repeat Business 701
Credit Information 702
Credit Evaluation and Scoring 702
21.6 Collection Policy 703
Monitoring Receivables 703
Collection Effort 704
21.7 Inventory Management 704
The Financial Manager and Inventory Policy 705
Inventory Types 705
Inventory Costs 705
21.8 Inventory Management Techniques 706
The ABC Approach 706
The Economic Order Quantity Model 707
Inventory Depletion 707
The Carrying Costs 709
The Shortage Costs 709
The Total Costs 709
Extensions to the EOQ Model 711
Safety Stocks 711
Reorder Points 711
Managing Derived-Demand Inventories 711
Materials Requirements Planning 713
Just-in-Time Inventory 713
21.9 Summary and Conclusions 713
21A More about Credit Policy Analysis 719
Two Alternative Approaches 719
The One-Shot Approach 720
PART 8 Topics in Corporate Finance
CHAPTER 22
INTERNATIONAL CORPORATE FINANCE 726
22.1 Terminology 727
22.2 Foreign Exchange Markets and Exchange
Rates 728
Exchange Rates 729
Exchange Rate Quotations 729
Cross-Rates and Triangle Arbitrage 730
Types of Transactions 732
22.3 Purchasing Power Parity 733
Absolute Purchasing Power Parity 733
Relative Purchasing Power Parity 735
The Basic Idea 735
The Result 735
Currency Appreciation and Depreciation 736
22.4 Interest Rate Parity, Unbiased Forward Rates, and
the International Fisher Effect 737
Covered Interest Arbitrage 737
Interest Rate Parity 738
Forward Rates and Future Spot Rates 739
Putting It All Together 739
Uncovered Interest Parity 740
The International Fisher Effect 740
22.5 International Capital Budgeting 741
Method 1: The Home Currency Approach 741
Method 2: The Foreign Currency Approach 742
Unremitted Cash Flows 743
22.6 Exchange Rate Risk 743
Short-Run Exposure 743
Long-Run Exposure 744
Translation Exposure 745
Managing Exchange Rate Risk 746
22.7 Political Risk 746
22.8 Summary and Conclusions 747
CHAPTER 23
RISK MANAGEMENT: AN INTRODUCTION TO
FINANCIAL ENGINEERING 754
23.1 Hedging and Price Volatility 755
Price Volatility: A Historical Perspective 755
Interest Rate Volatility 756
The Accounts Receivable Approach
Discounts and Default Risk 721
NPV of the Credit Decision 722
A Break-Even Application 723
720
Exchange Rate Volatility 756
Commodity Price Volatility 757
The Impact of Financial Risk: The U.S. Savings and
Loan Industry 757
23.2 Managing Financial Risk 758
The Risk Profile 759
Reducing Risk Exposure 759
Hedging Short-Run Exposure 760
Cash Flow Hedging: A Cautionary Note 767
Hedging Long-Term Exposure 767
Conclusion 762
23.3 Hedging with Forward Contracts 762
Forward Contracts: The Basics 762
The Payoff Profile 763
Hedging with Forwards 763
A Caveat 764
Credit Risk 765
Forward Contracts in Practice 765
23.4 Hedging with Futures Contracts 765
Trading in Futures 765
Futures Exchanges 766
Hedging with Futures 766
23.5 Hedging with Swap Contracts 768
Currency Swaps 768
Interest Rate Swaps 769
Commodity Swaps 769
The Swap Dealer 769
Interest Rate Swaps: An Example 770
23.6 Hedging with Option Contracts 771
Option Terminology 777
Options versus Forwards 777
Option Payoff Profiles 772
Option Hedging 772
Hedging Commodity Price Risk with Options 773
Hedging Exchange Rate Risk with Options 774
Hedging Interest Rate Risk with Options 774
A Preliminary Note 775
Interest Rate Caps 775
Other Interest Rate Options 775
Actual Use of Derivatives 776
23.7 Summary and Conclusions 777
CHAPTER 24
OPTION VALUATION 782
24.1 Put-Call Parity 783
Protective Puts 783
An Alternative Strategy 783
The Result 784
Continuous Compounding: A Refresher Course 785
24.2 The Black-Scholes Option Pricing Model 788
The Call Option Pricing Formula 788
Put Option Valuation 791
A Cautionary Note 792
24.3 More about Black-Scholes 793
Varying the Stock Price 794
Varying the Time to Expiration 796
Varying the Standard Deviation 797
Varying the Risk-Free Rate 798
Implied Standard Deviations 799
24.4 Valuation of Equity and Debt in a Leveraged
Firm 800
Valuing the Equity in a Leveraged Firm 801
Options and the Valuation of Risky Bonds 802
24.5 Options and Corporate Decisions: Some
Applications 803
Mergers and Diversification 803
Options and Capital Budgeting 805
24.6 Summary and Conclusions 807
CHAPTER 25
MERGERS AND ACQUISITIONS 815
25.1 The Legal Forms of Acquisitions 816
Merger or Consolidation 816
Acquisition of Stock 817
Acquisition of Assets 817
Acquisition Classifications 878
A Note about Takeovers 818
Alternatives to Merger 819
25.2 Taxes and Acquisitions 819
Determinants of Tax Status 819
Taxable versus Tax-Free Acquisitions 819
25.3 Accounting for Acquisitions 820
The Purchase Method 820
Pooling of Interests 821
More about Goodwill 821
25.4 Gains from Acquisition 822
Synergy 822
Revenue Enhancement 823
Marketing Gains 823
Strategic Benefits 824
Market Power 824
Cost Reductions 824
Economies of Scale 824
Economies of Vertical Integration 825
Complementary Resources 825
Lower Taxes 825
Net Operating Losses 825
Unused Debt Capacity 826
Surplus Funds 826
Asset Write-Ups 826
Reductions in Capital Needs 826
Avoiding Mistakes 827
A Note about Inefficient Management 827
25.5 Some Financial Side Effects of Acquisitions 828
EPS Growth 828
Diversification 829
25.6 The Cost of an Acquisition 829
Case I: Cash Acquisition 830
Case II: Stock Acquisition 830
Cash versus Common Stock 837
25.7 Defensive Tactics 832
The Corporate Charter 832
Repurchase and Standstill Agreements 832
Poison Pills and Share Rights Plans 832
Going Private and Leveraged Buyouts 834
Other Devices and Jargon of Corporate Takeovers 834
25.8 Some Evidence on Acquisitions: Do M A Pay? 835
25.9 Divestitures and Restructurings 836
25.10 Summary and Conclusions 837
CHAPTER 26
LEASING 845
26.1 Leases and Lease Types 846
Leasing versus Buying 846
Operating Leases 847
Financial Leases 847
Tax-Oriented Leases 847
Leveraged Leases 848
Sale and Leaseback Agreements 848
26.2 Accounting and Leasing 848
26.3 Taxes, the IRS, and Leases 850
26.4 The Cash Flows from Leasing 851
The Incremental Cash Flows 857
A Note about Taxes 852
26.5 Lease or Buy? 853
A Preliminary Analysis 853
Three Potential Pitfalls 854
NPV Analysis 854
A Misconception 854
26.6 A Leasing Paradox 856
26.7 Reasons for Leasing 857
Good Reasons for Leasing 857
Tax Advantages 857
A Reduction of Uncertainty 858
Lower Transactions Costs 859
Fewer Restrictions and Security Requirements 859
Dubious Reasons for Leasing 859
Leasing and Accounting Income 859
100 Percent Financing 859
Low Cost 860
Other Reasons for Leasing 860
26.8 Summary and Conclusions 860
APPENDIX A
MATHEMATICAL TABLES A-l
APPENDIX B
KEY EQUATIONS B-1
Index 1-1
¦ i
CHAPTER 4
Robert C Higgins University of Washington
On Sustainable Growth
CHAPTER 7
Edward I. Altman
On Junk Bonds
New York University
CHAPTER 10
Samuel C. Weaver Lehigh University
On Capital Budgeting at the Hershey Company
CHAPTER 12
Roger Ibbotson Yale University
On Capital Market History
Jeremy Siegel University of Pennsylvania
On Stocks for the Long Run
Richard Roll University of California at Los Angeles
On Market Efficiency
CHAPTER 15
Bennett Stewart Stern Stewart Co.
On EVA
Samuel C. Weaver Lehigh University
On Cost of Capital and Hurdle Rates at the Hershey
Company
CHAPTER 16
Jay R. Ritter University of Florida
On IPO Underpricing around the World
CHAPTER 17
Merton H. Miller
On Capital Structure: M M 30 Years Later
CHAPTER 18
Fischer Black
On Why Firms Pay Dividends
CHAPTER 14
Erik Lie University of Iowa
On Employee Stock Option Backdating
Robert C Merton Harvard University
On Applications of Option Analysis |
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| author | Ross, Stephen A. 1944-2017 Westerfield, Randolph Jordan, Bradford D. |
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| discipline | Wirtschaftswissenschaften |
| discipline_str_mv | Wirtschaftswissenschaften |
| edition | 8. ed., internat. student ed. |
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| index_date | 2024-07-02T22:49:18Z |
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| spelling | Ross, Stephen A. 1944-2017 Verfasser (DE-588)128781408 aut Corporate finance fundamentals Stephen A. Ross ; Randolph W. Westerfield ; Bradford D. Jordan 8. ed., internat. student ed. Boston [u.a.] McGraw-Hill 2008 Getr. Zählung txt rdacontent n rdamedia nc rdacarrier The McGraw-Hill, Irwin series in finance, insurance and real estate Betriebliche Finanzwirtschaft / Unternehmensfinanzierung Lehrbuch / Textbook - 28 Corporate Finance (DE-588)4269795-5 gnd rswk-swf Finanzierung (DE-588)4017182-6 gnd rswk-swf (DE-588)4123623-3 Lehrbuch gnd-content Corporate Finance (DE-588)4269795-5 s DE-604 Finanzierung (DE-588)4017182-6 s Westerfield, Randolph Verfasser (DE-588)121792250 aut Jordan, Bradford D. Verfasser aut Frühere Ausg. u.d.T. Fundamentals of corporate finance HBZ Datenaustausch application/pdf http://bvbr.bib-bvb.de:8991/F?func=service&doc_library=BVB01&local_base=BVB01&doc_number=016964409&sequence=000002&line_number=0001&func_code=DB_RECORDS&service_type=MEDIA Inhaltsverzeichnis |
| spellingShingle | Ross, Stephen A. 1944-2017 Westerfield, Randolph Jordan, Bradford D. Corporate finance fundamentals Betriebliche Finanzwirtschaft / Unternehmensfinanzierung Lehrbuch / Textbook - 28 Corporate Finance (DE-588)4269795-5 gnd Finanzierung (DE-588)4017182-6 gnd |
| subject_GND | (DE-588)4269795-5 (DE-588)4017182-6 (DE-588)4123623-3 |
| title | Corporate finance fundamentals |
| title_auth | Corporate finance fundamentals |
| title_exact_search | Corporate finance fundamentals |
| title_exact_search_txtP | Corporate finance fundamentals |
| title_full | Corporate finance fundamentals Stephen A. Ross ; Randolph W. Westerfield ; Bradford D. Jordan |
| title_fullStr | Corporate finance fundamentals Stephen A. Ross ; Randolph W. Westerfield ; Bradford D. Jordan |
| title_full_unstemmed | Corporate finance fundamentals Stephen A. Ross ; Randolph W. Westerfield ; Bradford D. Jordan |
| title_old | Fundamentals of corporate finance |
| title_short | Corporate finance fundamentals |
| title_sort | corporate finance fundamentals |
| topic | Betriebliche Finanzwirtschaft / Unternehmensfinanzierung Lehrbuch / Textbook - 28 Corporate Finance (DE-588)4269795-5 gnd Finanzierung (DE-588)4017182-6 gnd |
| topic_facet | Betriebliche Finanzwirtschaft / Unternehmensfinanzierung Lehrbuch / Textbook - 28 Corporate Finance Finanzierung Lehrbuch |
| url | http://bvbr.bib-bvb.de:8991/F?func=service&doc_library=BVB01&local_base=BVB01&doc_number=016964409&sequence=000002&line_number=0001&func_code=DB_RECORDS&service_type=MEDIA |
| work_keys_str_mv | AT rossstephena corporatefinancefundamentals AT westerfieldrandolph corporatefinancefundamentals AT jordanbradfordd corporatefinancefundamentals |