Fundamentals of corporate finance:
Saved in:
| Main Authors: | , , |
|---|---|
| Format: | Book |
| Language: | English |
| Published: |
Boston ; Munich [u.a.]
Pearson Prentice Hall
2009
|
| Edition: | International financial reporting standards ed., Pearson International ed. |
| Series: | The Prentice-Hall series in finance
|
| Subjects: | |
| Online Access: | Inhaltsverzeichnis Inhaltsverzeichnis |
| Physical Description: | XXXVIII, 737, 15 S. Ill., graph. Darst. |
| ISBN: | 0321580419 9780321580412 |
Staff View
MARC
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| 245 | 1 | 0 | |a Fundamentals of corporate finance |c Jonathan Berk ; Peter DeMarzo ; Jarrad Harford |
| 250 | |a International financial reporting standards ed., Pearson International ed. | ||
| 264 | 1 | |a Boston ; Munich [u.a.] |b Pearson Prentice Hall |c 2009 | |
| 300 | |a XXXVIII, 737, 15 S. |b Ill., graph. Darst. | ||
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Record in the Search Index
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| adam_text | Brief Contents
PARTI
PART 2
PART 3
PART 4
PARTS
PART 6
PART?
PART 8
Introduction I
Chapter 1 Corporate Finance and the Financial Manager 2
Chapter 2 Introduction to Financial Statement Analysis 23
Interest Rates and Valuing Cash Flows 61
Chapter 3 The Valuation Principle: The Foundation of Financial
Decision Making 62
Chapter 4 NPV and the Time Value of Money 86
Chapter 5 Interest Rates 132
Chapter 6 Bonds 161
Valuation and the Firm 203
Chapter 7 Investment Decision Rules 204
Chapter 8 Fundamentals of Capital Budgeting 242
Chapter 9 Valuing Stocks 282
Risk and Return 33I
Chapter 10 Risk and Return in Capital Markets 332
Chapter 11 Systematic Risk and the Equity Risk Premium 362
Chapter 12 Determining the Cost of Capital 399
Long-Term Financing 427
Chapter 13 Raising Equity Capital 428
Chapter 14 Debt Financing 458
Capital Structure and Payout Policy 48I
Chapter 15 Capital Structure 482
Chapter 16 Payout Policy 522
Financial Planning and Forecasting 559
Chapter 17 Financial Modeling and Pro Forma Analysis 560
Chapter 18 Working Capital Management 590
Chapter 19 Short-Term Financial Planning 618
Special Topics 649
Chapter 20 Option Applications and Corporate Finance
Chapter 21 Risk Management 677
Chapter 22 International Corporate Finance 702
650
Vli
PARTI
Introduction 1
1 Corporate finance and the Financial
Manager Z
I INTERVIEW WITH Leslie Tillquist, PA Consulting
Group 3
1.1 Why Study Finance? 4
1.2 The Four Types of Firms 5
Sole Proprietorships 5
Partnerships 6
Limited Liability Companies 6
Corporations 6
Tax Implications for Corporate Entities 8
I Corporate Taxation around the World 10
1.3 The Financial Manager 11
Making Investment Decisions 11
Making Financing Decisions 11
Managing Short-Term Cash Needs 11
The Goal of the Financial Manager 12
1.4 The Financial Manager s Place in the
Corporation 12
The Corporate Management Team 13
Ethics and Incentives in Corporations 14
I Shareholder Activism and Voting Rights
1.5 The Stock Market 16
The Largest Stock Markets 16
NYSE 16
NASDAQ 17
I NYSE, AMEX, DJIA, S P 500: Awash in
Acronyms 19
15
Kmyfinancelabj Summary 191 Problems 21
I Introduction to Financial Statement
Analysis 23
I INTERVIEW WITH Hira Tolia, CBIZ Valuation
Group, LLC 24
2.1 Firms Disclosure of Financial Information 25
35
37
I International Financial Reporting Standards 26
Preparation of Financial Statements 26
Types of Financial Statements 26
2.2 The Balance Sheet 26
Assets 27
Liabilities 28
Stockholders Equity 29
2.3 Balance Sheet Analysis 30
Market-to-Book Ratio 30
Debt-Equity Ratio 30
Enterprise Value 31
Other Balance Sheet Information 32
2.4 The Income Statement 33
Earnings Calculations 34
2.5 Income Statement Analysis
Profitability Ratios 35
Asset Efficiency 36
Working Capital Ratios
EBITDA 37
Leverage Ratios 37
Investment Returns 38
The DuPont Identity 38
Valuation Ratios 40
COMMON MISTAKE: Mismatched Ratios 40
2.6 The Statement of Cash Flows 43
Operating Activity 44
Investment Activity 44
Financing Activity 44
2.7 Other Financial Statement Information 46
Management Discussion and Analysis 46
Statement of Stockholders Equity 46
Notes to the Financial Statements 46
2.8 Financial Reporting in Practice 47
Enron 47
WorldCom 47
The Sarbannes-Oxley Act 48
I PRACTITIONER INTERVIEW WITH Sue Frieden,
Ernst Young 49
The Financial Statements: A Useful Starting
Point 50
l^myfmancelabl Summary 51 I Review Questions
53 Problems 54 Data Case 59
ix
Detailed Contents
PART 2
Interest Rates and Valuing
Cash Flows 61
3 The Valuation Principle: The Foundation
of financial Decision Making 62
I INTERVIEW WITH Matt Herriot, Oxford Hill
Home Products 63
3.1 Managerial Decision Making 64
I Your Personal Financial Decisions 65
3.2 Cost-Benefit Analysis 65
3.3 Valuation Principle 67
I When Competitive Market Prices Are Not
Available 68
3.4 The Time Value of Money and Interest
Rates 69
The Time Value of Money 69
The Interest Rate: Converting Cash Across
Time 70
3.5 The NPV Decision Rule 73
Net Present Value 74
The NPV Decision Rule 74
NPV and Cash Needs 76
3.6 The Law of One Price 77
Arbitrage 78
9 Arbitrage 78
Law of One Price
I An Old Joke 79
Transactions Costs
78
80
[Kmyflnancelab] Summary 81 9 Review
Questions 82 Problems 83
4 NPV and the Time Value
of Money 86
I INTERVIEW WITH Jonathan Jagolinzer,
Ameriprise Financial Services 87
4.1 The Timeline 88
Constructing a Timeline 88
Identifying Dates on a Timeline 89
Distinguishing Cash Inflows from
Outflows 89
Representing Various Time Periods 89
4.2 Valuing Cash Flows at Different Points
in Time 90
Rule 1: Comparing and Combining
Values 90
I COMMON MISTAKE: Summing Cash Flows
Across Time 90
Rule 2: Compounding 91
I Rule of 72 93
Rule 3: Discounting 93
Applying the Rules of Valuing Cash
Flows 94
I Using a Financial Calculator: Solving for Present
and Future Values 95
4.3 Valuing a Stream of Cash Flows 97
4.4 The Net Present Value of a Stream of Cash
Flows 100
4.5 Perpetuities, Annuities, and Other Special
Cases 101
Perpetuities 101
I Historical Examples of Perpetuities 103
I COMMON MISTAKE: Discounting One Too Many
Times 104
Annuities 104
Growing Cash Flows 108
4.6 Solving for Variables Other Than Present Value
or Future Value 110
Solving for the Cash Flows 111
Internal Rate Return 113
Solving for the Number of Periods 117
t Solving for N Using Logarithms 117
jjmyfinancelabl summary 1191 Review
Questions 1211 Problems 1211 Data Case 127
Chapter 4 Appendix: Using a Financial
Calculator 129
5 Interest Rates 132
I INTERVIEW WITH Jason Moore, Bradford
Marzec, LLC 133
5.1 Interest Rate Quotes and Adjustments 134
The Effective Annual Rate 135
Adjusting the Discount Rate to Different
Time Periods 135
Annual Percentage Rates 137
9 COMMON MISTAKE: Using the EAR in the
Annuity Formula 137
5.2 Application: Discount Rates and Loans 140
Computing Loan Payments 140
Computing the Outstanding Loan
Balance 142
5.3 The Determinants of Interest Rates
Inflation and Real Versus Nominal
Rates 143
143
Detailed Contents
XI
Investment and Interest Rate Policy 145
I How Is Inflation Actually Calculated? 146
The Yield Curve and Discount Rates 146
ft COMMON MISTAKE: Using the Annuity Formula
When Discount Rates Vary 149
The Yield Curve and the Economy 149
5.4 The Opportunity Cost of Capital 152
ft Interest Rates, Discount Rates, and the Cost of
Capital 153
Chapter 6 Appendix B: The Yield Curve and the
Law of One Price 196
Part I Integrate Case 200
PART 3
^myfuiancelabl Summary 154 ft Review
Questions 156 ft Problems 157
6 Bonds I6l
I INTERVIEW WITH Patrick Brown, Citigroup
Global Market 162
6.1 Bond Terminology 163
6.2 Zero-Coupon Bonds 165
Zero-Coupon Bond Cash Flows 165
Yield to Maturity of a Zero-Coupon
Bond 166
Risk-Free Interest Rates 167
6.3 Coupon Bonds 168
Coupon Bond Cash Flows 169
ft The U.S. Treasury Market 170
Yield to Maturity of a Coupon Bond 170
ft Finding Bond Prices on the Web 172
Coupon Bond Price Quotes 173
6.4 Why Bond Prices Change 173
Interest Rate Changes and Bond
Prices 174
Time and Bond Prices 176
Interest Rate Risk and Bond Prices 178
Bond Prices in Practice 180
ft Clean and Dirty Prices for Coupon Bonds 180
6.5 Corporate Bonds 182
Credit Risk 182
Corporate Bond Yields 183
Bond Ratings 183
ft PRACTITIONER INTERVIEW WITH Lisa Black,
Teachers Insurance and Annuity Association 185
Corporate Yield Curves 186
ft Bond Ratings and the 2007-2008 Subprime
Crisis 187
SFJmyrmancelabl Summary 188 ft Review
Questions 190ft Problems 190 ft Data Case 193
Chapter 6 Appendix A: Solving for the Yield to
Maturity of a Bond Using a Financial
Calculator 195
Valuation and the
Firm 203
/ Investment Decision Rules 204
7.1
INTERVIEW WITH Katherine Pagelsdorf, Pearson
Education 205
Using the NPV Rule 206
Organizing the Cash Flows and Computing
the NPV 206
The NPV Profile 207
Measuring Sensitivity with IRR 207
Alternative Rules Versus the NPV Rule 208
7.2 Alternative Decision Rules 208
The Payback Rule 209
The Internal Rate of Return Rule 210
ft COMMON MISTAKE: IRR Versus the IRR
Rule 214
ft Why Do Rules Other Than the NPV Rule
Persist? 214
Modified Internal Rate of Return 215
7.3 Choosing Between Projects 217
Differences in Scale 218
ft PRACTITIONER INTERVIEW WITH Dick Granms,
Qualcomm, Inc. 221
Timing of the Cash Flows 223
7.4 Evaluating Projects with Different Lives 224
Important Considerations When Using the
Equivalent Annual Annuity 226
7.5 Choosing Among Projects When Resources
Are Limited 227
Evaluating Projects with Different Resource
Requirements 227
7.6 Putting It All Together 230
^myfinancelah] Summary 232ft Review
Questions 233ft Problems 233ft Data Case 238
Chapter 7 Appendix: Using Excel to Make an
NPV Profile 240
0 Fundamentals of Capital
Budgeting 242
I INTERVIEW WITH James King, Limitless
LLC 243
XII
Detailed Contents
8.1 The Capital Budgeting Process 244
8.2 Forecasting Incremental Earnings 246
Operating Expenses Versus Capital
Expenditures 246
Incremental Revenue and Cost
Estimates 246
Taxes 247
Incremental Earnings Forecast 248
8.3 Determining Incremental Free Cash
Flow 250
Calculating Free Cash Flow from
Earnings 251
Calculating Free Cash Flow Directly 255
Calculating the NPV 255
8.4 Other Effects on Incremental Free Cash
Flows 256
Opportunity Costs 256
I COMMON MISTAKE: The Opportunity Cost of
an Idle Asset 257
Project Externalities 257
Sunk Costs 257
I COMMON MISTAKE: The Sunk Cost
Fallacy 258
Adjusting Free Cash Flow 258
Replacement Decisions 261
8.5 Analyzing the Project 262
Sensitivity Analysis 262
Break-Even Analysis 263
Scenario Analysis 265
8.6 Real Options in Capital Budgeting 266
Option to Delay 266
Option to Expand 266
Option to Abandon 266
Summary 267* Review
Questions 2691 Problems 2691 Data Case 275
Chapter 8 Appendix A: MACRS
Depreciation 277
Chapter 8: Appendix B: Using Excel for
Capital Budgeting 278
9 Valuing Stocks 282
A Multiyear Investor 288
Dividend-Discount Model Equation 289
9.3 Estimating Dividends in the Dividend-Discount
Model 290
Constant Dividend Growth 290
Dividends Versus Investment and
Growth 291
I PRACTITIONER INTERVIEW WITH Marilyn Fedak,
AllianceBernstein 294
Changing Growth Rates 295
Limitations of the Dividend-Discount
Model 296
9.4 Total Payout and Free Cash Flow Valuation
Models 298
Share Repurchases and the Total Payout
Model 298
The Discounted Free Cash Flow Model 299
9.5 Valuation Based on Comparable Firms 303
Valuation Multiples 304
Limitations of Multiples 306
Comparison with Discounted Cash Flow
Methods 307
Stock Valuation Techniques: The Final
Word 308
9.6 Information, Competition, and Stock
Prices 309
Information in Stock Prices 309
Competition and Efficient Markets 311
Lessons for Investors and Corporate
Managers 314
The Efficient Markets Hypothesis Versus No
Arbitrage 314
Summary 3151 Review Questions
3181 Problems 318 Data Case 324
Chapter 9 Appendix: Using Excel to Build a
Dividend-Discount Model 326
Part 3 Integrative Case 328
Risk and Return 331
PART 4
I INTERVIEW WITH Christopher Brigham, Loomis
Sayles Company 283
9.1 Stock Basics 284
9.2 The Dividend-Discount Model 286
A One-Year Investor 286
Dividend Yields, Capital Gains, and Total
Returns 287
I0 Risk and Return in Capital
Market 33Z
INTERVIEW WITH Jon Kirchoff, 3M 333
10.1 A First Look at Risk and Return 334
10.2 Historical Risks and Returns of Stocks 338
Computing Historical Returns 338
Detailed Contents
XIII
Average Annual Returns 341
The Variance and Volatility of Returns 343
Arithmetic Average Returns Versus Compound
Annual Returns 344
I Common Mistake 345
The Normal Distribution 347
10.3 The Historical Tradeoff Between Risk and
Returns 348
The Returns of Large Portfolios 349
The Returns of Individual Stocks 349
10.4 Common Versus Independent Risk 350
Theft Versus Earthquake Insurance:
An Example 350
Types of Risk 351
10.5 Diversification in Stock Portfolios 352
Unsystematic Versus Systematic Risk 352
Diversifiable Risk and the Risk
Premium 355
The Importance of Systematic Risk 355
I COMMON MISTAKE: A Fallacy of Long-Run
Diversification 356
Summary 357 Review
Questions 3591 Problems 360
11 Systematic Risk and the Equity Risk
Premium 362
I INTERVIEW WITH Alexander Morgan, Pantheon
Ventures 363
11.1 The Expected Return of a Portfolio 364
Portfolio Weights 364
Portfolio Returns 365
Expected Portfolio Return 366
11.2 The Volatility of a Portfolio 368
Diversifying Risks 368
Measuring Stocks Comovement:
Correlation 370
Computing a Portfolio s Variance and
Standard Deviation 373
The Volatility of a Large Portfolio 374
I NOBEL PRIZE: Harry Markowitz 374
11.3 Measuring Systematic Risk 375
Role of the Market Portfolio 376
Stock Market Indexes as the Market
Portfolio 377
I Index Funds 377
Market Risk and Beta 378
I COMMON MISTAKE: Mixing Standard Deviation
and Beta 379
Estimating Beta from Historical Returns 381
11.4 Putting it All Together: The Capital Asset
Pricing Model 384
The CAPM Equation Relating Risk to
Expected Return 384
I Why Not Estimate Expected Returns
Directly? 384
The Security Market Line 386
The CAPM and Portfolios 387
Summary of the Capital Asset Pricing
Model 389
» NOBEL PRIZE: William Sharpe 389
The Big Picture 390
ISIiyflnancelahl Summary 390 Review
Questions 392 ? Problems 392
Chapter 11 Appendix: Alternative Models of
Systematic Risk 396
I l Determining the Cost of
Capital 399
I INTERVIEW WITH Priscilla Srbu, Qualcomnrs
Strategic Finance Group 400
12.1 A First Look at the Weighted Average Cost of
Capital 401
The Firm s Capital Structure 401
Opportunity Cost and the Overall Cost of
Capital 402
Weighted Averages and the Overall Cost of
Capital 402
Weighted Average Cost of Capital
Calculations 403
12.2 The Firm s Costs of Debt and Equity
Capital 405
Cost of Debt Capital 405
» COMMON MISTAKE: Using the Coupon Rate as
the Cost of Debt 406
Cost of Preferred Stock Capital 406
Cost of Common Stock Capital 407
12.3 A Second Look at the Weighted Average Cost
of Capital 409
WACC Equation 409
Weighted Average Cost of Capital in
Practice 410
Methods in Practice 410
12.4 Using the WACC to Value a Project 412
Key Assumptions 413
WACC Method Application: Extending the
Life of an Alcoa Mine 414
xiv
Detailed Contents
Summary of the WACC Method 415
12.5 Project-Based Costs of Capital 415
Cost of Capital for a New Acquisition
Divisional Costs of Capital 416
12.6 When Raising External Capital Is Costly 417
416
Summary 419* Review
Questions 4211 Problems 4211 Data Case 424
Part 4 Integratiw Case 426
PART 5
Long-Term financing 427
I Debt Financing at Hertz: Bank Loans 461
I Debt Financing at Hertz: Private Placements
Public Debt 462
I Debt Financing at Hertz: Public Debt 464
14.2 Bond Covenants 466
Types of Covenants 466
Advantages of Covenants 467
Application: Hertz s Covenants 467
14.3 Repayment Provisions 467
Call Provisions 467
Sinking Funds 470
Convertible Provisions 470
461
13 Raising Equity Capital 428
I INTERVIEW WITH Sandra Pfeiler, Goldman
Sachs 429
13.1 Equity Financing for Private Companies 430
Sources of Funding 430
Securities and Valuation 433
Exiting an Investment in a Private
Company 435
13.2 Taking Your Firm Public: The Initial Public
Offering 435
Advantages and Disadvantages of Going
Public 435
Primary and Secondary IPO Offerings 436
Other IPO Types 441
t Google s IPO 444
13.3 IPO Puzzles 444
Underpriced IPOs 445
Hot and Cold IPO Markets 445
High Cost of Issuing an IPO 446
Poor Post-IPO Long-Run Stock
Performance 448
13.4 Raising Additional Capital: The Seasoned
Equity Offering 448
SEO Process 448
SEO Price Reaction 451
SEO Costs 452
Summary 473* Review
Questions 4741 Problems 475
Chapter 14 Appendix: Using a Financial
Calculator to Calculate Yield to Call 476
Part 5 Integrative Case 477
PART 6
Capital Structure and
Payout Policy 481
Summary 453* Review
Questions 4541 Problems 455
14 Debt financing 458
I INTERVIEW WITH Bryan Milner, Wells Fargo
Foothill 459
14.1 Corporate Debt 460
Private Debt 460
15 Capital Structure 48Z
I INTERVIEW WITH Christopher Cvijic, Morgan
Stanley 483
15.1 Capital Structure Choices 484
Capital Structure Choices Across
Industries 484
Capital Structure Choices Within
Industries 485
15.2 Capital Structure in Perfect Capital
Markets 486
Application: Financing a New Business 487
Leverage and Firm Value 488
The Effect of Leverage on Risk and
Return 490
Homemade Leverage 492
Leverage and the Cost of Capital 492
I COMMON MISTAKE: Capital Structure
Fallacies 494
MM and the Real World 495
* NOBEL PRIZE: Franco Modigliani and Merton
Miller 495
15.3 Debt and Taxes 496
The Interest Tax Deduction and Firm
Value 496
Detailed Contents
xv
Value of the Interest Tax Shield 498
The Interest Tax Shield with Permanent
Debt 499
Leverage and the WACC with Taxes 500
Debt and Taxes: The Bottom Line 501
15.4 The Costs of Bankruptcy and Financial
Distress 502
Direct Costs of Bankruptcy 502
Bankruptcies Mean Big Money for Experts 502
Indirect Costs of Financial Distress 503
15.5 Optimal Capital Structure: The Tradeoff
Theory 504
Differences Across Firms 504
Optimal Leverage 504
15.6 Additional Consequences of Leverage: Agency
Costs and Information 506
Agency Costs 506
• Airlines Use Financial Distress to Their
Advantage 507
I Financial Distress and Rolling the Dice,
Literally 508
Debt and Information 508
15.7 Capital Structure: Putting It All Together 511
16.3 The Tax Disadvantage of Dividends 533
Taxes on Dividends and Capital Gains 533
Optimal Dividend Policy with Taxes 535
Tax Differences Across Investors 537
16.4 Payout Versus Retention of Cash 539
Retaining Cash with Perfect Capital
Markets 539
Retaining Cash with Imperfect Capital
Markets 540
16.5 Signaling with Payout Policy 543
Dividend Smoothing 543
Dividend Signaling 545
I Royal SunAlliance s Dividend Cut 545
I PRACTITIONER INTERVIEW WITH John Connors,
Microsoft 546
Signaling and Share Repurchases 547
16.6 Stock Dividends, Splits, and Spin-offs 548
Stock Dividends and Splits 548
I Berkshire Hathaway s A and B Shares 548
Spin-offs 549
16.7 Advice for the Financial Manager 549
Summary 5501 Review
Summary 5111 Review
Questions 514 I Problems 515
Chapter 15 Appendix: The Bankruptcy
Code 521
16 Payout Policy 522
PART 7
INTERVIEW WITH Biil Bascom, Intuit, Inc. 523
16.1
Distributions to Shareholders
Dividends 525
Share Repurchases 526
524
Questions 5531 Problems 5531 Data Case 555
Part 6 Interqrative Case 557
Financial Planning and
Forecasting 559
I / financial Modeling and Pro Forma
Analysis 560
16.2 Dividends Versus Share Repurchases in a
Perfect Capital Market 527
Alternative Policy 1: Pay a Dividend with
Excess Cash 528
Alternative Policy 2: Share Repurchase (No
Dividend) 529
I COMMON MISTAKE: Repurchases and the
Supply of Shares 530
Alternative Policy 3: High Dividend (Equity
Issue) 531
Modigliani-Miller and Dividend Policy
Irrelevance 531
I COMMON MISTAKE: The Bird in the Hand
Fallacy 532
Dividend Policy with Perfect Capital
Markets 533
I INTERVIEW WITH David Hollon, Goldman
Sachs 561
562
17.1 Goals of Long-Term Financial Planning
Identify Important Linkages 562
Analyze the Impact of Potential Business
Plans 562
Plan for Future Funding Needs 563
17.2 Forecasting Financial Statements: The Percent
of Sales Method 563
Percent of Sales Method 563
Pro Forma Income Statement 564
Pro Forma Balance Sheet 565
I COMMON MISTAKE: Confusing Stockholders
with Retained Earnings 567
The Plug: Net New Financing 567
XVI
Detailed Contents
17.3 Forecasting a Planned Expansion 568
KMS Design s Expansion: Financing
Needs 569
KMS Design s Expansion: Pro Forma
Income Statement 570
Forecasting the Balance Sheet 572
17.4 Valuing the Planned Expansion 573
Forecasting Free Cash Flows 573
I COMMON MISTAKE: Confusing Total and
Incremental New Working Capita! 574
KMS Design s Expansion: Effect on Firm
Value 575
Optimal Timing and the Option to
Delay 578
17.5 Growth and Firm Value 578
Sustainable Growth Rate and External
Financing 579
Summary 582* Review
Questions 5841 Problems 584
Chapter 17 Appendix: The Balance Sheet and
Statement of Cash Flows 588
10 Working Capital Management 590
I INTERVIEW WITH Waleed Husain,
Comcast 591
18.1 Overview of Working Capital 592
The Cash Cycle 592
Working Capital Needs by Industry 595
Firm Value and Working Capital 596
18.2 Trade Credit 597
Trade Credit Terms 597
Trade Credit and Market Frictions 597
I COMMON MISTAKE: Using APR Instead of EAR
to Compute the Cost of Trade Credit 598
Managing Float 599
18.3 Receivables Management 600
Determining the Credit Policy 600
ft The 5 C?s of Credit 601
Monitoring Accounts Receivable 602
18.4 Payables Management 604
Determining Accounts Payable Days
Outstanding 605
Stretching Accounts Payable 605
18.5 Inventory Management 606
Benefits of Holding Inventory 607
Costs of Holding Inventory 607
• Inventory Management Adds to the Bottom Line
at Gap 608
18.6 Cash Management 608
Motivation for Holding Cash 609
Alternative Investments 609
I Cash Balances 609
I yflaiiceiab1 Summary 611 Review
Questions 6121 Problems 6131 Data Case 616
19 Short-Term Financial Planning 618
I INTERVIEW WITH Teresa Wendt, Lockheed
Martin 619
19.1 Forecasting Short-Term Financing Needs 620
Application: Springfield Snowboards,
Inc. 620
Seasonalities 621
Negative Cash Flow Shocks 623
Positive Cash Flow Shocks 624
19.2 The Matching Principle 625
Permanent Working Capital 625
Temporary Working Capital 625
Permanent Versus Temporary Working
Capital 625
Financing Policy Choices 626
19.3 Short-Term Financing with Bank Loans 628
Single, End-of-Period Payment Loan 628
Line of Credit 628
Bridge Loan 629
Common Loan Stipulations and Fees 629
19.4 Short-Term Financing with Commercial
Paper 631
19.5 Short-Term Financing with Secured
Financing 633
Accounts Receivable as Collateral 633
I A Seventeenth-Century Financing Solution 634
Inventory as Collateral 634
19.6 Putting It All Together: Creating a Short-Term
Financial Plan 636
l^myflnancelabj Summary 6371 Review
Questions 6391 Problems 640
Part/ IntegrativeCase 643
Special Topics 649
Z 0 Option Applications and Corporate
PART 8
finance 650
I INTERVIEW WITH Dan Ross, Simon-Kucher
Partners 651
Detailed Contents
XVII
20.1 Option Basics 652
Option Contracts 652
Stock Option Quotations 654
Options on Other Financial Securities 655
I Options Are for More Than Just Stocks 656
20.2 Option Payoffs at Expiration 656
The Long Position in an Option
Contract 656
The Short Position in an Option
Contract 658
Profits for Holding an Option to
Expiration 659
Returns for Holding an Option to
Expiration 661
20.3 Factors Affecting Option Prices 663
Strike Price and Stock Price 663
Option Prices and the Exercise Date
Option Prices and the Risk-Free Rate
Option Prices and Volatility 664
20.4 The Black-Scholes Option Pricing
Formula 665
Interest Rate Risk Measurement:
Duration 693
Duration-Based Hedging 694
The Savings and Loan Crisis 694
Swap-Based Hedging 695
663
664
20.5 Put-Call Parity 667
Portfolio Insurance
667
20.6 Options and Corporate Finance 670
[^ myfinancelab] Summary 672 Review
Questions 6731 Problems 674 ? Data Case 675
L Risk Management 677
) INTERVIEW WITH Randy Newsom, Real Sports
Interactive 678
21.1 Insurance 679
The Role of Insurance: An Example 680
Insurance Pricing in a Perfect Market 680
The Value of Insurance 682
The Costs of Insurance 684
The Insurance Decision 686
21.2 Commodity Price Risk 687
Hedging with Vertical Integration and
Storage 687
I Hedging Strategy Leads to Promotion 688
Hedging with Long-Term Contracts 688
Hedging with Futures Contracts 690
COMMON MISTAKE: Mistakes When Hedging
Risk 692
Deciding to Hedge Commodity
Price Risk 692
I Differing Hedging Strategies 693
21.3 Interest Rate Risk 693
Eniyfinancelabl Summary 697% Review
Questions 698 * Problems 698
LI International Corporate
Finance 70Z
I INTERVIEW WITH Sean West, Eurasia Group 703
22.1 Foreign Exchange 705
The Foreign Exchange Market 706
Exchange Rates 707
22.2 Exchange Rate Risk 708
Exchange Rate Fluctuations 708
Hedging with Forward Contracts 710
Cash-and-Carry and the Pricing of Currency
Forwards 712
Hedging Exchange Rate Risk with
Options 715
22.3 Internationally Integrated Capital Markets 716
COMMON MISTAKES: Forgetting to Flip the
Exchange Rate 718
22.4 Valuation of Foreign Currency Cash Flows 719
Application: Ityesi, Inc. 719
The Law of One Price as a Robustness
Check 721
22.5 Valuation and International Taxation 723
A Single Foreign Project with Immediate
Repatriation of Earnings 723
Multiple Foreign Projects and Deferral of
Earnings Repatriation 723
22.6 Internationally Segmented Capital
Markets 724
Differential Access to Markets 724
Macro-Level Distortions 725
Implications of Internationally Segmented
Capital Markets 726
22.7 Capital Budgeting with Exchange Rate
Risk 728
Application: Ityesi, Inc. 728
Conclusion 729
|^ myfinancelab | Summary 730 Review Questions
732» Problems 7321 Data Case 736
Credits CR-1
Index 1-1
|
| adam_txt |
Brief Contents
PARTI
PART 2
PART 3
PART 4
PARTS
PART 6
PART?
PART 8
Introduction I
Chapter 1 Corporate Finance and the Financial Manager 2
Chapter 2 Introduction to Financial Statement Analysis 23
Interest Rates and Valuing Cash Flows 61
Chapter 3 The Valuation Principle: The Foundation of Financial
Decision Making 62
Chapter 4 NPV and the Time Value of Money 86
Chapter 5 Interest Rates 132
Chapter 6 Bonds 161
Valuation and the Firm 203
Chapter 7 Investment Decision Rules 204
Chapter 8 Fundamentals of Capital Budgeting 242
Chapter 9 Valuing Stocks 282
Risk and Return 33I
Chapter 10 Risk and Return in Capital Markets 332
Chapter 11 Systematic Risk and the Equity Risk Premium 362
Chapter 12 Determining the Cost of Capital 399
Long-Term Financing 427
Chapter 13 Raising Equity Capital 428
Chapter 14 Debt Financing 458
Capital Structure and Payout Policy 48I
Chapter 15 Capital Structure 482
Chapter 16 Payout Policy 522
Financial Planning and Forecasting 559
Chapter 17 Financial Modeling and Pro Forma Analysis 560
Chapter 18 Working Capital Management 590
Chapter 19 Short-Term Financial Planning 618
Special Topics 649
Chapter 20 Option Applications and Corporate Finance
Chapter 21 Risk Management 677
Chapter 22 International Corporate Finance 702
650
Vli
PARTI
Introduction 1
1 Corporate finance and the Financial
Manager Z
I INTERVIEW WITH Leslie Tillquist, PA Consulting
Group 3
1.1 Why Study Finance? 4
1.2 The Four Types of Firms 5
Sole Proprietorships 5
Partnerships 6
Limited Liability Companies 6
Corporations 6
Tax Implications for Corporate Entities 8
I Corporate Taxation around the World 10
1.3 The Financial Manager 11
Making Investment Decisions 11
Making Financing Decisions 11
Managing Short-Term Cash Needs 11
The Goal of the Financial Manager 12
1.4 The Financial Manager's Place in the
Corporation 12
The Corporate Management Team 13
Ethics and Incentives in Corporations 14
I Shareholder Activism and Voting Rights
1.5 The Stock Market 16
The Largest Stock Markets 16
NYSE 16
NASDAQ 17
I NYSE, AMEX, DJIA, S P 500: Awash in
Acronyms 19
15
Kmyfinancelabj Summary 191 Problems 21
I Introduction to Financial Statement
Analysis 23
I INTERVIEW WITH Hira Tolia, CBIZ Valuation
Group, LLC 24
2.1 Firms' Disclosure of Financial Information 25
35
37
I International Financial Reporting Standards 26
Preparation of Financial Statements 26
Types of Financial Statements 26
2.2 The Balance Sheet 26
Assets 27
Liabilities 28
Stockholders' Equity 29
2.3 Balance Sheet Analysis 30
Market-to-Book Ratio 30
Debt-Equity Ratio 30
Enterprise Value 31
Other Balance Sheet Information 32
2.4 The Income Statement 33
Earnings Calculations 34
2.5 Income Statement Analysis
Profitability Ratios 35
Asset Efficiency 36
Working Capital Ratios
EBITDA 37
Leverage Ratios 37
Investment Returns 38
The DuPont Identity 38
Valuation Ratios 40
COMMON MISTAKE: Mismatched Ratios 40
2.6 The Statement of Cash Flows 43
Operating Activity 44
Investment Activity 44
Financing Activity 44
2.7 Other Financial Statement Information 46
Management Discussion and Analysis 46
Statement of Stockholders' Equity 46
Notes to the Financial Statements 46
2.8 Financial Reporting in Practice 47
Enron 47
WorldCom 47
The Sarbannes-Oxley Act 48
I PRACTITIONER INTERVIEW WITH Sue Frieden,
Ernst Young 49
The Financial Statements: A Useful Starting
Point 50
l^myfmancelabl Summary 51 I Review Questions
53 Problems 54 Data Case 59
ix
Detailed Contents
PART 2
Interest Rates and Valuing
Cash Flows 61
3 The Valuation Principle: The Foundation
of financial Decision Making 62
I INTERVIEW WITH Matt Herriot, Oxford Hill
Home Products 63
3.1 Managerial Decision Making 64
I Your Personal Financial Decisions 65
3.2 Cost-Benefit Analysis 65
3.3 Valuation Principle 67
I When Competitive Market Prices Are Not
Available 68
3.4 The Time Value of Money and Interest
Rates 69
The Time Value of Money 69
The Interest Rate: Converting Cash Across
Time 70
3.5 The NPV Decision Rule 73
Net Present Value 74
The NPV Decision Rule 74
NPV and Cash Needs 76
3.6 The Law of One Price 77
Arbitrage 78
9 Arbitrage 78
Law of One Price
I An Old Joke 79
Transactions Costs
78
80
[Kmyflnancelab] Summary 81 9 Review
Questions 82 Problems 83
4 NPV and the Time Value
of Money 86
I INTERVIEW WITH Jonathan Jagolinzer,
Ameriprise Financial Services 87
4.1 The Timeline 88
Constructing a Timeline 88
Identifying Dates on a Timeline 89
Distinguishing Cash Inflows from
Outflows 89
Representing Various Time Periods 89
4.2 Valuing Cash Flows at Different Points
in Time 90
Rule 1: Comparing and Combining
Values 90
I COMMON MISTAKE: Summing Cash Flows
Across Time 90
Rule 2: Compounding 91
I Rule of 72 93
Rule 3: Discounting 93
Applying the Rules of Valuing Cash
Flows 94
I Using a Financial Calculator: Solving for Present
and Future Values 95
4.3 Valuing a Stream of Cash Flows 97
4.4 The Net Present Value of a Stream of Cash
Flows 100
4.5 Perpetuities, Annuities, and Other Special
Cases 101
Perpetuities 101
I Historical Examples of Perpetuities 103
I COMMON MISTAKE: Discounting One Too Many
Times 104
Annuities 104
Growing Cash Flows 108
4.6 Solving for Variables Other Than Present Value
or Future Value 110
Solving for the Cash Flows 111
Internal Rate Return 113
Solving for the Number of Periods 117
t Solving for N Using Logarithms 117
jjmyfinancelabl summary 1191 Review
Questions 1211 Problems 1211 Data Case 127
Chapter 4 Appendix: Using a Financial
Calculator 129
5 Interest Rates 132
I INTERVIEW WITH Jason Moore, Bradford
Marzec, LLC 133
5.1 Interest Rate Quotes and Adjustments 134
The Effective Annual Rate 135
Adjusting the Discount Rate to Different
Time Periods 135
Annual Percentage Rates 137
9 COMMON MISTAKE: Using the EAR in the
Annuity Formula 137
5.2 Application: Discount Rates and Loans 140
Computing Loan Payments 140
Computing the Outstanding Loan
Balance 142
5.3 The Determinants of Interest Rates
Inflation and Real Versus Nominal
Rates 143
143
Detailed Contents
XI
Investment and Interest Rate Policy 145
I How Is Inflation Actually Calculated? 146
The Yield Curve and Discount Rates 146
ft COMMON MISTAKE: Using the Annuity Formula
When Discount Rates Vary 149
The Yield Curve and the Economy 149
5.4 The Opportunity Cost of Capital 152
ft Interest Rates, Discount Rates, and the Cost of
Capital 153
Chapter 6 Appendix B: The Yield Curve and the
Law of One Price 196
Part I Integrate Case 200
PART 3
^myfuiancelabl Summary 154 ft Review
Questions 156 ft Problems 157
6 Bonds I6l
I INTERVIEW WITH Patrick Brown, Citigroup
Global Market 162
6.1 Bond Terminology 163
6.2 Zero-Coupon Bonds 165
Zero-Coupon Bond Cash Flows 165
Yield to Maturity of a Zero-Coupon
Bond 166
Risk-Free Interest Rates 167
6.3 Coupon Bonds 168
Coupon Bond Cash Flows 169
ft The U.S. Treasury Market 170
Yield to Maturity of a Coupon Bond 170
ft Finding Bond Prices on the Web 172
Coupon Bond Price Quotes 173
6.4 Why Bond Prices Change 173
Interest Rate Changes and Bond
Prices 174
Time and Bond Prices 176
Interest Rate Risk and Bond Prices 178
Bond Prices in Practice 180
ft Clean and Dirty Prices for Coupon Bonds 180
6.5 Corporate Bonds 182
Credit Risk 182
Corporate Bond Yields 183
Bond Ratings 183
ft PRACTITIONER INTERVIEW WITH Lisa Black,
Teachers Insurance and Annuity Association 185
Corporate Yield Curves 186
ft Bond Ratings and the 2007-2008 Subprime
Crisis 187
SFJmyrmancelabl Summary 188 ft Review
Questions 190ft Problems 190 ft Data Case 193
Chapter 6 Appendix A: Solving for the Yield to
Maturity of a Bond Using a Financial
Calculator 195
Valuation and the
Firm 203
/ Investment Decision Rules 204
7.1
INTERVIEW WITH Katherine Pagelsdorf, Pearson
Education 205
Using the NPV Rule 206
Organizing the Cash Flows and Computing
the NPV 206
The NPV Profile 207
Measuring Sensitivity with IRR 207
Alternative Rules Versus the NPV Rule 208
7.2 Alternative Decision Rules 208
The Payback Rule 209
The Internal Rate of Return Rule 210
ft COMMON MISTAKE: IRR Versus the IRR
Rule 214
ft Why Do Rules Other Than the NPV Rule
Persist? 214
Modified Internal Rate of Return 215
7.3 Choosing Between Projects 217
Differences in Scale 218
ft PRACTITIONER INTERVIEW WITH Dick Granms,
Qualcomm, Inc. 221
Timing of the Cash Flows 223
7.4 Evaluating Projects with Different Lives 224
Important Considerations When Using the
Equivalent Annual Annuity 226
7.5 Choosing Among Projects When Resources
Are Limited 227
Evaluating Projects with Different Resource
Requirements 227
7.6 Putting It All Together 230
^myfinancelah] Summary 232ft Review
Questions 233ft Problems 233ft Data Case 238
Chapter 7 Appendix: Using Excel to Make an
NPV Profile 240
0 Fundamentals of Capital
Budgeting 242
I INTERVIEW WITH James King, Limitless
LLC 243
XII
Detailed Contents
8.1 The Capital Budgeting Process 244
8.2 Forecasting Incremental Earnings 246
Operating Expenses Versus Capital
Expenditures 246
Incremental Revenue and Cost
Estimates 246
Taxes 247
Incremental Earnings Forecast 248
8.3 Determining Incremental Free Cash
Flow 250
Calculating Free Cash Flow from
Earnings 251
Calculating Free Cash Flow Directly 255
Calculating the NPV 255
8.4 Other Effects on Incremental Free Cash
Flows 256
Opportunity Costs 256
I COMMON MISTAKE: The Opportunity Cost of
an Idle Asset 257
Project Externalities 257
Sunk Costs 257
I COMMON MISTAKE: The Sunk Cost
Fallacy 258
Adjusting Free Cash Flow 258
Replacement Decisions 261
8.5 Analyzing the Project 262
Sensitivity Analysis 262
Break-Even Analysis 263
Scenario Analysis 265
8.6 Real Options in Capital Budgeting 266
Option to Delay 266
Option to Expand 266
Option to Abandon 266
Summary 267* Review
Questions 2691 Problems 2691 Data Case 275
Chapter 8 Appendix A: MACRS
Depreciation 277
Chapter 8: Appendix B: Using Excel for
Capital Budgeting 278
9 Valuing Stocks 282
A Multiyear Investor 288
Dividend-Discount Model Equation 289
9.3 Estimating Dividends in the Dividend-Discount
Model 290
Constant Dividend Growth 290
Dividends Versus Investment and
Growth 291
I PRACTITIONER INTERVIEW WITH Marilyn Fedak,
AllianceBernstein 294
Changing Growth Rates 295
Limitations of the Dividend-Discount
Model 296
9.4 Total Payout and Free Cash Flow Valuation
Models 298
Share Repurchases and the Total Payout
Model 298
The Discounted Free Cash Flow Model 299
9.5 Valuation Based on Comparable Firms 303
Valuation Multiples 304
Limitations of Multiples 306
Comparison with Discounted Cash Flow
Methods 307
Stock Valuation Techniques: The Final
Word 308
9.6 Information, Competition, and Stock
Prices 309
Information in Stock Prices 309
Competition and Efficient Markets 311
Lessons for Investors and Corporate
Managers 314
The Efficient Markets Hypothesis Versus No
Arbitrage 314
Summary 3151 Review Questions
3181 Problems 318 Data Case 324
Chapter 9 Appendix: Using Excel to Build a
Dividend-Discount Model 326
Part 3 Integrative Case 328
Risk and Return 331
PART 4
I INTERVIEW WITH Christopher Brigham, Loomis
Sayles Company 283
9.1 Stock Basics 284
9.2 The Dividend-Discount Model 286
A One-Year Investor 286
Dividend Yields, Capital Gains, and Total
Returns 287
I0 Risk and Return in Capital
Market 33Z
INTERVIEW WITH Jon Kirchoff, 3M 333
10.1 A First Look at Risk and Return 334
10.2 Historical Risks and Returns of Stocks 338
Computing Historical Returns 338
Detailed Contents
XIII
Average Annual Returns 341
The Variance and Volatility of Returns 343
Arithmetic Average Returns Versus Compound
Annual Returns 344
I Common Mistake 345
The Normal Distribution 347
10.3 The Historical Tradeoff Between Risk and
Returns 348
The Returns of Large Portfolios 349
The Returns of Individual Stocks 349
10.4 Common Versus Independent Risk 350
Theft Versus Earthquake Insurance:
An Example 350
Types of Risk 351
10.5 Diversification in Stock Portfolios 352
Unsystematic Versus Systematic Risk 352
Diversifiable Risk and the Risk
Premium 355
The Importance of Systematic Risk 355
I COMMON MISTAKE: A Fallacy of Long-Run
Diversification 356
Summary 357 Review
Questions 3591 Problems 360
11 Systematic Risk and the Equity Risk
Premium 362
I INTERVIEW WITH Alexander Morgan, Pantheon
Ventures 363
11.1 The Expected Return of a Portfolio 364
Portfolio Weights 364
Portfolio Returns 365
Expected Portfolio Return 366
11.2 The Volatility of a Portfolio 368
Diversifying Risks 368
Measuring Stocks' Comovement:
Correlation 370
Computing a Portfolio's Variance and
Standard Deviation 373
The Volatility of a Large Portfolio 374
I NOBEL PRIZE: Harry Markowitz 374
11.3 Measuring Systematic Risk 375
Role of the Market Portfolio 376
Stock Market Indexes as the Market
Portfolio 377
I Index Funds 377
Market Risk and Beta 378
I COMMON MISTAKE: Mixing Standard Deviation
and Beta 379
Estimating Beta from Historical Returns 381
11.4 Putting it All Together: The Capital Asset
Pricing Model 384
The CAPM Equation Relating Risk to
Expected Return 384
I Why Not Estimate Expected Returns
Directly? 384
The Security Market Line 386
The CAPM and Portfolios 387
Summary of the Capital Asset Pricing
Model 389
» NOBEL PRIZE: William Sharpe 389
The Big Picture 390
ISIiyflnancelahl Summary 390 Review
Questions 392 ? Problems 392
Chapter 11 Appendix: Alternative Models of
Systematic Risk 396
I l Determining the Cost of
Capital 399
I INTERVIEW WITH Priscilla Srbu, Qualcomnrs
Strategic Finance Group 400
12.1 A First Look at the Weighted Average Cost of
Capital 401
The Firm's Capital Structure 401
Opportunity Cost and the Overall Cost of
Capital 402
Weighted Averages and the Overall Cost of
Capital 402
Weighted Average Cost of Capital
Calculations 403
12.2 The Firm's Costs of Debt and Equity
Capital 405
Cost of Debt Capital 405
» COMMON MISTAKE: Using the Coupon Rate as
the Cost of Debt 406
Cost of Preferred Stock Capital 406
Cost of Common Stock Capital 407
12.3 A Second Look at the Weighted Average Cost
of Capital 409
WACC Equation 409
Weighted Average Cost of Capital in
Practice 410
Methods in Practice 410
12.4 Using the WACC to Value a Project 412
Key Assumptions 413
WACC Method Application: Extending the
Life of an Alcoa Mine 414
xiv
Detailed Contents
Summary of the WACC Method 415
12.5 Project-Based Costs of Capital 415
Cost of Capital for a New Acquisition
Divisional Costs of Capital 416
12.6 When Raising External Capital Is Costly 417
416
Summary 419* Review
Questions 4211 Problems 4211 Data Case 424
Part 4 Integratiw Case 426
PART 5
Long-Term financing 427
I Debt Financing at Hertz: Bank Loans 461
I Debt Financing at Hertz: Private Placements
Public Debt 462
I Debt Financing at Hertz: Public Debt 464
14.2 Bond Covenants 466
Types of Covenants 466
Advantages of Covenants 467
Application: Hertz's Covenants 467
14.3 Repayment Provisions 467
Call Provisions 467
Sinking Funds 470
Convertible Provisions 470
461
13 Raising Equity Capital 428
I INTERVIEW WITH Sandra Pfeiler, Goldman
Sachs 429
13.1 Equity Financing for Private Companies 430
Sources of Funding 430
Securities and Valuation 433
Exiting an Investment in a Private
Company 435
13.2 Taking Your Firm Public: The Initial Public
Offering 435
Advantages and Disadvantages of Going
Public 435
Primary and Secondary IPO Offerings 436
Other IPO Types 441
t Google's IPO 444
13.3 IPO Puzzles 444
Underpriced IPOs 445
"Hot" and "Cold" IPO Markets 445
High Cost of Issuing an IPO 446
Poor Post-IPO Long-Run Stock
Performance 448
13.4 Raising Additional Capital: The Seasoned
Equity Offering 448
SEO Process 448
SEO Price Reaction 451
SEO Costs 452
Summary 473* Review
Questions 4741 Problems 475
Chapter 14 Appendix: Using a Financial
Calculator to Calculate Yield to Call 476
Part 5 Integrative Case 477
PART 6
Capital Structure and
Payout Policy 481
Summary 453* Review
Questions 4541 Problems 455
14 Debt financing 458
I INTERVIEW WITH Bryan Milner, Wells Fargo
Foothill 459
14.1 Corporate Debt 460
Private Debt 460
15 Capital Structure 48Z
I INTERVIEW WITH Christopher Cvijic, Morgan
Stanley 483
15.1 Capital Structure Choices 484
Capital Structure Choices Across
Industries 484
Capital Structure Choices Within
Industries 485
15.2 Capital Structure in Perfect Capital
Markets 486
Application: Financing a New Business 487
Leverage and Firm Value 488
The Effect of Leverage on Risk and
Return 490
Homemade Leverage 492
Leverage and the Cost of Capital 492
I COMMON MISTAKE: Capital Structure
Fallacies 494
MM and the Real World 495
* NOBEL PRIZE: Franco Modigliani and Merton
Miller 495
15.3 Debt and Taxes 496
The Interest Tax Deduction and Firm
Value 496
Detailed Contents
xv
Value of the Interest Tax Shield 498
The Interest Tax Shield with Permanent
Debt 499
Leverage and the WACC with Taxes 500
Debt and Taxes: The Bottom Line 501
15.4 The Costs of Bankruptcy and Financial
Distress 502
Direct Costs of Bankruptcy 502
Bankruptcies Mean Big Money for Experts 502
Indirect Costs of Financial Distress 503
15.5 Optimal Capital Structure: The Tradeoff
Theory 504
Differences Across Firms 504
Optimal Leverage 504
15.6 Additional Consequences of Leverage: Agency
Costs and Information 506
Agency Costs 506
• Airlines Use Financial Distress to Their
Advantage 507
I Financial Distress and Rolling the Dice,
Literally 508
Debt and Information 508
15.7 Capital Structure: Putting It All Together 511
16.3 The Tax Disadvantage of Dividends 533
Taxes on Dividends and Capital Gains 533
Optimal Dividend Policy with Taxes 535
Tax Differences Across Investors 537
16.4 Payout Versus Retention of Cash 539
Retaining Cash with Perfect Capital
Markets 539
Retaining Cash with Imperfect Capital
Markets 540
16.5 Signaling with Payout Policy 543
Dividend Smoothing 543
Dividend Signaling 545
I Royal SunAlliance's Dividend Cut 545
I PRACTITIONER INTERVIEW WITH John Connors,
Microsoft 546
Signaling and Share Repurchases 547
16.6 Stock Dividends, Splits, and Spin-offs 548
Stock Dividends and Splits 548
I Berkshire Hathaway's A and B Shares 548
Spin-offs 549
16.7 Advice for the Financial Manager 549
Summary 5501 Review
Summary 5111 Review
Questions 514 I Problems 515
Chapter 15 Appendix: The Bankruptcy
Code 521
16 Payout Policy 522
PART 7
INTERVIEW WITH Biil Bascom, Intuit, Inc. 523
16.1
Distributions to Shareholders
Dividends 525
Share Repurchases 526
524
Questions 5531 Problems 5531 Data Case 555
Part 6 Interqrative Case 557
Financial Planning and
Forecasting 559
I / financial Modeling and Pro Forma
Analysis 560
16.2 Dividends Versus Share Repurchases in a
Perfect Capital Market 527
Alternative Policy 1: Pay a Dividend with
Excess Cash 528
Alternative Policy 2: Share Repurchase (No
Dividend) 529
I COMMON MISTAKE: Repurchases and the
Supply of Shares 530
Alternative Policy 3: High Dividend (Equity
Issue) 531
Modigliani-Miller and Dividend Policy
Irrelevance 531
I COMMON MISTAKE: The Bird in the Hand
Fallacy 532
Dividend Policy with Perfect Capital
Markets 533
I INTERVIEW WITH David Hollon, Goldman
Sachs 561
562
17.1 Goals of Long-Term Financial Planning
Identify Important Linkages 562
Analyze the Impact of Potential Business
Plans 562
Plan for Future Funding Needs 563
17.2 Forecasting Financial Statements: The Percent
of Sales Method 563
Percent of Sales Method 563
Pro Forma Income Statement 564
Pro Forma Balance Sheet 565
I COMMON MISTAKE: Confusing Stockholders'
with Retained Earnings 567
The Plug: Net New Financing 567
XVI
Detailed Contents
17.3 Forecasting a Planned Expansion 568
KMS Design's Expansion: Financing
Needs 569
KMS Design's Expansion: Pro Forma
Income Statement 570
Forecasting the Balance Sheet 572
17.4 Valuing the Planned Expansion 573
Forecasting Free Cash Flows 573
I COMMON MISTAKE: Confusing Total and
Incremental New Working Capita! 574
KMS Design's Expansion: Effect on Firm
Value 575
Optimal Timing and the Option to
Delay 578
17.5 Growth and Firm Value 578
Sustainable Growth Rate and External
Financing 579
Summary 582* Review
Questions 5841 Problems 584
Chapter 17 Appendix: The Balance Sheet and
Statement of Cash Flows 588
10 Working Capital Management 590
I INTERVIEW WITH Waleed Husain,
Comcast 591
18.1 Overview of Working Capital 592
The Cash Cycle 592
Working Capital Needs by Industry 595
Firm Value and Working Capital 596
18.2 Trade Credit 597
Trade Credit Terms 597
Trade Credit and Market Frictions 597
I COMMON MISTAKE: Using APR Instead of EAR
to Compute the Cost of Trade Credit 598
Managing Float 599
18.3 Receivables Management 600
Determining the Credit Policy 600
ft The 5 C?s of Credit 601
Monitoring Accounts Receivable 602
18.4 Payables Management 604
Determining Accounts Payable Days
Outstanding 605
Stretching Accounts Payable 605
18.5 Inventory Management 606
Benefits of Holding Inventory 607
Costs of Holding Inventory 607
• Inventory Management Adds to the Bottom Line
at Gap 608
18.6 Cash Management 608
Motivation for Holding Cash 609
Alternative Investments 609
I Cash Balances 609
I yflaiiceiab1 Summary 611 Review
Questions 6121 Problems 6131 Data Case 616
19 Short-Term Financial Planning 618
I INTERVIEW WITH Teresa Wendt, Lockheed
Martin 619
19.1 Forecasting Short-Term Financing Needs 620
Application: Springfield Snowboards,
Inc. 620
Seasonalities 621
Negative Cash Flow Shocks 623
Positive Cash Flow Shocks 624
19.2 The Matching Principle 625
Permanent Working Capital 625
Temporary Working Capital 625
Permanent Versus Temporary Working
Capital 625
Financing Policy Choices 626
19.3 Short-Term Financing with Bank Loans 628
Single, End-of-Period Payment Loan 628
Line of Credit 628
Bridge Loan 629
Common Loan Stipulations and Fees 629
19.4 Short-Term Financing with Commercial
Paper 631
19.5 Short-Term Financing with Secured
Financing 633
Accounts Receivable as Collateral 633
I A Seventeenth-Century Financing Solution 634
Inventory as Collateral 634
19.6 Putting It All Together: Creating a Short-Term
Financial Plan 636
l^myflnancelabj Summary 6371 Review
Questions 6391 Problems 640
Part/ IntegrativeCase 643
Special Topics 649
Z 0 Option Applications and Corporate
PART 8
finance 650
I INTERVIEW WITH Dan Ross, Simon-Kucher
Partners 651
Detailed Contents
XVII
20.1 Option Basics 652
Option Contracts 652
Stock Option Quotations 654
Options on Other Financial Securities 655
I Options Are for More Than Just Stocks 656
20.2 Option Payoffs at Expiration 656
The Long Position in an Option
Contract 656
The Short Position in an Option
Contract 658
Profits for Holding an Option to
Expiration 659
Returns for Holding an Option to
Expiration 661
20.3 Factors Affecting Option Prices 663
Strike Price and Stock Price 663
Option Prices and the Exercise Date
Option Prices and the Risk-Free Rate
Option Prices and Volatility 664
20.4 The Black-Scholes Option Pricing
Formula 665
Interest Rate Risk Measurement:
Duration 693
Duration-Based Hedging 694
The Savings and Loan Crisis 694
Swap-Based Hedging 695
663
664
20.5 Put-Call Parity 667
Portfolio Insurance
667
20.6 Options and Corporate Finance 670
[^ myfinancelab] Summary 672 Review
Questions 6731 Problems 674 ? Data Case 675
L\ Risk Management 677
) INTERVIEW WITH Randy Newsom, Real Sports
Interactive 678
21.1 Insurance 679
The Role of Insurance: An Example 680
Insurance Pricing in a Perfect Market 680
The Value of Insurance 682
The Costs of Insurance 684
The Insurance Decision 686
21.2 Commodity Price Risk 687
Hedging with Vertical Integration and
Storage 687
I Hedging Strategy Leads to Promotion 688
Hedging with Long-Term Contracts 688
Hedging with Futures Contracts 690
COMMON MISTAKE: Mistakes When Hedging
Risk 692
Deciding to Hedge Commodity
Price Risk 692
I Differing Hedging Strategies 693
21.3 Interest Rate Risk 693
Eniyfinancelabl Summary 697% Review
Questions 698 * Problems 698
LI International Corporate
Finance 70Z
I INTERVIEW WITH Sean West, Eurasia Group 703
22.1 Foreign Exchange 705
The Foreign Exchange Market 706
Exchange Rates 707
22.2 Exchange Rate Risk 708
Exchange Rate Fluctuations 708
Hedging with Forward Contracts 710
Cash-and-Carry and the Pricing of Currency
Forwards 712
Hedging Exchange Rate Risk with
Options 715
22.3 Internationally Integrated Capital Markets 716
COMMON MISTAKES: Forgetting to Flip the
Exchange Rate 718
22.4 Valuation of Foreign Currency Cash Flows 719
Application: Ityesi, Inc. 719
The Law of One Price as a Robustness
Check 721
22.5 Valuation and International Taxation 723
A Single Foreign Project with Immediate
Repatriation of Earnings 723
Multiple Foreign Projects and Deferral of
Earnings Repatriation 723
22.6 Internationally Segmented Capital
Markets 724
Differential Access to Markets 724
Macro-Level Distortions 725
Implications of Internationally Segmented
Capital Markets 726
22.7 Capital Budgeting with Exchange Rate
Risk 728
Application: Ityesi, Inc. 728
Conclusion 729
|^ myfinancelab | Summary 730 Review Questions
732» Problems 7321 Data Case 736
Credits CR-1
Index 1-1 |
| any_adam_object | 1 |
| any_adam_object_boolean | 1 |
| author | Berk, Jonathan B. 1962- DeMarzo, Peter M. Harford, Jarrad V. T. |
| author_GND | (DE-588)11200881X (DE-588)112327796 (DE-588)13354396X |
| author_facet | Berk, Jonathan B. 1962- DeMarzo, Peter M. Harford, Jarrad V. T. |
| author_role | aut aut aut |
| author_sort | Berk, Jonathan B. 1962- |
| author_variant | j b b jb jbb p m d pm pmd j v t h jvt jvth |
| building | Verbundindex |
| bvnumber | BV035181078 |
| classification_rvk | QP 700 |
| ctrlnum | (OCoLC)496228057 (DE-599)GBV573815569 |
| dewey-full | 658.15 |
| dewey-hundreds | 600 - Technology (Applied sciences) |
| dewey-ones | 658 - General management |
| dewey-raw | 658.15 |
| dewey-search | 658.15 |
| dewey-sort | 3658.15 |
| dewey-tens | 650 - Management and auxiliary services |
| discipline | Wirtschaftswissenschaften |
| discipline_str_mv | Wirtschaftswissenschaften |
| edition | International financial reporting standards ed., Pearson International ed. |
| format | Book |
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| genre | (DE-588)4123623-3 Lehrbuch gnd-content |
| genre_facet | Lehrbuch |
| id | DE-604.BV035181078 |
| illustrated | Illustrated |
| index_date | 2024-07-02T22:57:55Z |
| indexdate | 2024-07-09T21:26:51Z |
| institution | BVB |
| isbn | 0321580419 9780321580412 |
| language | English |
| oai_aleph_id | oai:aleph.bib-bvb.de:BVB01-016987836 |
| oclc_num | 496228057 |
| open_access_boolean | |
| owner | DE-703 DE-188 |
| owner_facet | DE-703 DE-188 |
| physical | XXXVIII, 737, 15 S. Ill., graph. Darst. |
| publishDate | 2009 |
| publishDateSearch | 2009 |
| publishDateSort | 2009 |
| publisher | Pearson Prentice Hall |
| record_format | marc |
| series2 | The Prentice-Hall series in finance |
| spelling | Berk, Jonathan B. 1962- Verfasser (DE-588)11200881X aut Fundamentals of corporate finance Jonathan Berk ; Peter DeMarzo ; Jarrad Harford International financial reporting standards ed., Pearson International ed. Boston ; Munich [u.a.] Pearson Prentice Hall 2009 XXXVIII, 737, 15 S. Ill., graph. Darst. txt rdacontent n rdamedia nc rdacarrier The Prentice-Hall series in finance Corporations Finance Corporate Finance (DE-588)4269795-5 gnd rswk-swf Finanzmanagement (DE-588)4139075-1 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 Finanzmanagement (DE-588)4139075-1 s DE-604 Finanzierung (DE-588)4017182-6 s DE-188 DeMarzo, Peter M. Verfasser (DE-588)112327796 aut Harford, Jarrad V. T. Verfasser (DE-588)13354396X aut http://www.gbv.de/dms/zbw/573815569.pdf lizenzfrei Inhaltsverzeichnis HBZ Datenaustausch application/pdf http://bvbr.bib-bvb.de:8991/F?func=service&doc_library=BVB01&local_base=BVB01&doc_number=016987836&sequence=000002&line_number=0001&func_code=DB_RECORDS&service_type=MEDIA Inhaltsverzeichnis |
| spellingShingle | Berk, Jonathan B. 1962- DeMarzo, Peter M. Harford, Jarrad V. T. Fundamentals of corporate finance Corporations Finance Corporate Finance (DE-588)4269795-5 gnd Finanzmanagement (DE-588)4139075-1 gnd Finanzierung (DE-588)4017182-6 gnd |
| subject_GND | (DE-588)4269795-5 (DE-588)4139075-1 (DE-588)4017182-6 (DE-588)4123623-3 |
| title | Fundamentals of corporate finance |
| title_auth | Fundamentals of corporate finance |
| title_exact_search | Fundamentals of corporate finance |
| title_exact_search_txtP | Fundamentals of corporate finance |
| title_full | Fundamentals of corporate finance Jonathan Berk ; Peter DeMarzo ; Jarrad Harford |
| title_fullStr | Fundamentals of corporate finance Jonathan Berk ; Peter DeMarzo ; Jarrad Harford |
| title_full_unstemmed | Fundamentals of corporate finance Jonathan Berk ; Peter DeMarzo ; Jarrad Harford |
| title_short | Fundamentals of corporate finance |
| title_sort | fundamentals of corporate finance |
| topic | Corporations Finance Corporate Finance (DE-588)4269795-5 gnd Finanzmanagement (DE-588)4139075-1 gnd Finanzierung (DE-588)4017182-6 gnd |
| topic_facet | Corporations Finance Corporate Finance Finanzmanagement Finanzierung Lehrbuch |
| url | http://www.gbv.de/dms/zbw/573815569.pdf http://bvbr.bib-bvb.de:8991/F?func=service&doc_library=BVB01&local_base=BVB01&doc_number=016987836&sequence=000002&line_number=0001&func_code=DB_RECORDS&service_type=MEDIA |
| work_keys_str_mv | AT berkjonathanb fundamentalsofcorporatefinance AT demarzopeterm fundamentalsofcorporatefinance AT harfordjarradvt fundamentalsofcorporatefinance |
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Indexes