Contemporary Financial Management with infotrac (Student Edition),9780324289084

Contemporary Financial Management with infotrac (Student Edition)

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Edition: 10th
ISBN13: 9780324289084
ISBN10: 0324289081
Format: Hardcover
Pub. Date: 2005-01-11
Publisher(s): South-Western College Pub
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Summary

The tenth edition of this successful text provides a comprehensive and contemporary introduction to financial management, focusing on shareholder wealth maximization and cash flow management, the international aspects of financial management, the ethical behavior of managers, and the increased impact of the Internet in business practice. In addition, content has been added or enhanced to reflect the changing focus on finance areas including topics such as risk management, behavioral finance, the effects of inflation on financial decision-making, ethics in business, and real options.

Table of Contents

Preface xiii
Part 1: Introduction
The Role and Objective of Financial Management
2(28)
Key Chapter Concepts
2(1)
Financial Challenge: Financial Management Questions
3(1)
Introduction
4(1)
Forms of Business Organization
5(3)
Foundation Concept: Maximizing Shareholder Wealth as the Primary Goal
8(5)
Maximization of Shareholder Wealth: Managerial Strategies
13(4)
Foundation Concept: Cash Flow
17(2)
Foundation Concept: Net Present Value Rule
19(1)
Organization of the Financial Management Function
19(3)
Ethical Issues: The Practice of Financial Management
20(2)
Financial Management and Other Disciplines
22(2)
Entrepreneurial Issues: Shareholder Wealth Maximization
23(1)
Career Opportunities in Finance
24(1)
Professional Finance Affiliations
25(1)
Organization of the Text
25(5)
Summary
27(1)
Questions and Topics for Discussion
28(2)
The Domestic and International Financial Marketplace
30(34)
Key Chapter Concepts
30(1)
Financial Challenge: Long-Term Capital Management, L.P.
31(1)
Introduction
32(1)
Income Taxes and Financial Management
32(1)
An Overview of the U.S. Financial System
33(5)
The Structure and Operation of U.S. Security Markets
38(2)
The Global Economy and Multinational Enterprises
40(2)
Foreign Currency Markets and Exchange Rates
42(5)
Foundation Concept: Market Efficiency
47(6)
Ethical Issues: Insider Trading
52(1)
Foundation Concept: Holding Period Returns
53(6)
International Issues: Market Efficiency Outside the United States
54(1)
Summary
55(1)
Questions and Topics for Discussion
55(1)
Self-Test Problems
56(1)
Problems
56(3)
Appendix 2A: Taxes
59(1)
Corporate Income Taxes
59(5)
Entrepreneurial Issues: S Corporations
60(1)
Questions and Topics for Discussion
61(1)
Self-Test Problems
62(1)
Problems
62(2)
Evaluation of Financial Performance
64(45)
Key Chapter Concepts
64(1)
Financial Challenge: Earnings Management and Financial Performance Measurement
65(1)
Introduction
66(1)
Uses of Financial Analysis
67(1)
Interpreting Financial Ratios
67(1)
Basic Classifications of Financial Ratios
68(13)
Summary of Financial Ratio Analysis
81(3)
Trend Analysis
84(1)
Analysis of Profitability: Return on Investment
84(3)
Foundation Concept: Analyzing Profitability Through Return on Stockholders' Equity
87(1)
Sources of Comparative Financial Data
87(2)
A Word of Caution About Financial Ratio Analysis
89(1)
Earnings and Balance Sheet Quality and Financial Analysis
90(2)
Ethical Issues: The Sarbanes-Oxley Act and the Financial Reporting Process
92(1)
Market Value Added: An Alternative Measure of Performance
92(4)
International Issues: Financial Analysis of Multinational Corporations
95(1)
Inflation and Financial Statement Analysis
96(13)
Summary
96(1)
Questions and Topics for Discussion
97(1)
Self-Test Problems
98(2)
Problems
100(9)
Financial Planning and Forecasting
109(27)
Key Chapter Concepts
109(1)
Financial Challenge: Financial Forecasting in the Telecom Industry: What Went Wrong?
110(1)
Introduction
111(1)
Financial Planning
111(1)
Foundation Concept: Cash Flow Analysis
112(4)
Financial Forecasting
116(20)
Summary
127(1)
Questions and Topics for Discussion
128(1)
Self-Test Problems
128(1)
Problems
129(7)
Part 2: Determinants of Valuation
The Time Value of Money
136(44)
Key Chapter Concepts
136(1)
Financial Challenge: The Powerball Winner's ``Dilemma''
137(1)
Introduction
137(1)
The Use of Financial Calculators and Spreadsheets
138(2)
Interest
140(1)
Simple Interest
141(1)
Compound Interest and Future Value
142(4)
Present Value
146(3)
Annuities
149(9)
Present Value: Some Additional Cash Flow Patterns
158(5)
Compounding Periods and Effective Interest Rates
163(3)
Solving the Financial Challenge
166(10)
Summary
167(1)
Questions and Topics for Discussion
167(2)
Self-Test Problems
169(1)
Problems
169(7)
Integrative Case Problem
176(1)
Appendix 5A: Continuous Compounding And Discounting
177(1)
Continuous Compounding
177(1)
Continuous Discounting
177(1)
Effective Rate Calculations
178(2)
Self-Test Problems
178(1)
Problems
178(2)
Analysis of Risk and Return
180(46)
Key Chapter Concepts
180(1)
Financial Challenge: Risk and Return on AT&T Common Stock
181(1)
Introduction
182(1)
Meaning and Measurement of Risk
182(7)
Foundation Concept: Relationship Between Risk and Return
189(6)
Investment Diversification and Portfolio Risk Analysis
195(9)
Portfolio Risk and the Capital Asset Pricing Model
204(10)
International Issues: Diversification and Multinational Corporations
212(1)
Ethical Issues: High-Risk Securities
213(1)
Other Dimensions of Risk
214(12)
Summary
215(1)
Questions and Topics for Discussion
216(2)
Self-Test Problems
218(1)
Problems
219(7)
Fixed-Income Securities: Characteristics and Valuation
226(35)
Key Chapter Concepts
226(1)
Financial Challenge: The Bondholders of MCI Worldcom
227(1)
Introduction
227(1)
Characteristics of Long-Term Debt
228(12)
International Issues: The International Bond Market
240(1)
Foundation Concept: Valuation of Assets
240(3)
Bond Valuation
243(6)
Ethical Issues: Leveraged Buyouts and Bond Values
248(1)
Characteristics of Preferred Stock
249(3)
Valuation of Preferred Stock
252(9)
Summary
253(1)
Questions and Topics for Discussion
254(2)
Self-Test Problems
256(1)
Problems
256(5)
Common Stock: Characteristics, Valuation, and Issuance
261(35)
Key Chapter Concepts
261(1)
Financial Challenge: Google Goes Public
262(1)
Introduction
263(1)
Characteristics of Common Stock
264(6)
The Security Offering Process: Role of the Investment Banker
270(6)
Foundation Concept: Valuation of Common Stock
276(3)
International Issues: Global Equity Markets
277(2)
Applications of the General Dividend Valuation Model
279(17)
Entrepreneurial Issues: Valuation of Closely Held Firms
282(3)
Summary
285(1)
Questions and Topics for Discussion
286(1)
Self-Test Problems
287(1)
Problems
287(9)
Part 3: The Capital Investment Decision
Capital Budgeting and Cash Flow Analysis
296(36)
Key Chapter Concepts
296(1)
Financial Challenge: Capital Investment Opportunities During a Business Downturn: The Case of Cleveland Cliffs Inc.
297(1)
Introduction
298(1)
Key Terms and Concepts in Capital Budgeting
299(1)
Basic Framework for Capital Budgeting
300(2)
Generating Capital Investment Project Proposals
302(1)
Foundation Concept: Principles of Estimating Cash Flows
303(2)
Net Investment (NINV)
305(2)
Net (Operating) Cash Flows
307(4)
Asset Expansion Projects
311(1)
Asset Replacement Projects
312(3)
Problems in Cash Flow Estimation
315(1)
The Practice of Cash Flow Estimation for Capital Budgeting
315(11)
Ethical Issues: Cash Flow Estimation Biases
318(1)
Summary
318(1)
Questions and Topics for Discussion
319(1)
Self-Test Problems
320(1)
Problems
320(6)
Appendix 9A: Depreciation
326(1)
Introduction to Depreciation
326(1)
Straight-Line Depreciation
326(1)
Accelerated Depreciation
327(1)
Modified Accelerated Cost Recovery System
328(2)
Real Property
330(2)
Questions and Topics for Discussion
331(1)
Problems
331(1)
Capital Budgeting: Decision Criteria and Real Option Considerations
332(42)
Key Chapter Concepts
332(1)
Financial Challenge: Real Options and the Automobile Production Process: The Case of Honda and Toyota
333(1)
Introduction
334(1)
Foundation Concept: Decision Models for Evaluating Alternatives
334(12)
Capital Rationing and the Capital Budgeting Decision
346(3)
Reviewing and Post-Auditing an Accepted Project
349(1)
A Comprehensive Example of Capital Budgeting: Opening a New Bank Branch
350(4)
International Issues: A Framework for International Capital Expenditure Decisions
352(2)
Entrepreneurial Issues: Capital Budgeting
354(1)
Inflation and Capital Expenditures
354(1)
Real Options in Capital Budgeting
355(13)
Ethical Issues: The Use of Shareholder Resources
356(3)
Summary
359(1)
Questions and Topics for Discussion
359(1)
Self-Test Problems
360(1)
Problems
360(8)
Integrative Case Problem
368(1)
Appendix 10A: Mutually Exclusive Investments Having Unequal Lives
369(1)
Replacement Chains
369(1)
Equivalent Annual Annuities
370(4)
Problems
372(2)
Capital Budgeting and Risk
374(30)
Key Chapter Concepts
374(1)
Financial Challenge: Boeing Makes a Gutsy Decision
375(1)
Introduction
376(1)
Total Project Risk Versus Portfolio Risk
376(1)
Adjusting for Total Project Risk
377(9)
Adjusting for Beta Risk in Capital Budgeting
386(16)
International Issues: Special Elements of Capital Budgeting Risk
388(1)
Ethical Issues: Johnson & Johnson and Proprietary Competitive Information
389(3)
Summary
392(1)
Questions and Topics for Discussion
392(1)
Self-Test Problems
393(1)
Problems
394(8)
Integrative Case Problem
402(2)
Part 4: The Cost of Capital, Capital Structure, and Dividend Policy
The Cost of Capital
404(36)
Key Chapter Concepts
404(1)
Financial Challenge: Cost of Equity Capital for Mountain Fuel Supply Company
405(1)
Introduction
406(1)
Summary of Notation
407(1)
Foundation Concept: Weighted Cost of Capital
407(3)
Relative Costs of Capital
410(1)
Computing the Component Costs of Capital
411(9)
Divisional Costs of Capital
420(2)
Determining the Weighted (Marginal) Cost of Capital Schedule
422(3)
International Issues: The Cost of Capital for Multinational Companies
424(1)
Determining the Optimal Capital Budget
425(2)
Entrepreneurial Issues: The Cost of Capital
426(1)
Cost of Depreciation-Generated Funds
427(11)
Summary
428(1)
Questions and Topics for Discussion
429(1)
Self-Test Problems
429(1)
Problems
430(8)
Integrative Case Problem
438(2)
Capital Structure Concepts
440(30)
Key Chapter Concepts
440(1)
Financial Challenge: Optimal Capital Structure in the Airline Industry: Delta Air Lines Versus Southwest Airlines
441(1)
Introduction
442(1)
Capital Structure Decisions and Maximization of Shareholder Wealth
442(1)
Foundation Concept: Business Risk
443(2)
Foundation Concept: Financial Risk and Financial Leverage
445(3)
Capital Structure Theory
448(22)
Ethical Issues: LBO Stakeholder Impacts
461(1)
International Issues: Capital Structure
462(1)
Summary
463(1)
Questions and Topics for Discussion
464(1)
Self-Test Problem
464(1)
Problems
465(5)
Capital Structure Management in Practice
470(46)
Key Chapter Concepts
470(1)
Financial Challenge: A Significant Deleveraging of AT&T's Balance Sheet
471(1)
Introduction
472(1)
Operating and Financial Leverage
472(9)
Other Financial Risk Measures
481(1)
EBIT-EPS Analysis
482(5)
Cash Insolvency Analysis
487(3)
Other Factors to Consider in Making Capital Structure Decisions
490(15)
International Issues: Balancing Operating and Financial Risks at Nestle
492(1)
Summary
493(1)
Questions and Topics for Discussion
494(1)
Self-Test Problems
495(1)
Problems
496(9)
Appendix 14A: Breakeven Analysis
505(1)
Graphic Breakeven Analysis
505(1)
Algebraic Breakeven Analysis
506(4)
Breakeven Analysis and Risk Assessment
510(1)
Some Limitations of Breakeven Analysis
511(1)
Cash Breakeven Point
512(4)
Questions and Topics for Discussion
513(1)
Self-Test Problems
513(1)
Problems
514(2)
Dividend Policy
516(32)
Key Chapter Concepts
516(1)
Financial Challenge: Cisco Systems Shareholders Reject a Dividend Payout Proposal
517(1)
Introduction
518(1)
Determinants of Dividend Policy
519(6)
Dividend Policy and Firm Value
525(3)
Dividend Policies
528(5)
Entrepreneurial Issues: Dividend Policy
532(1)
How Dividends Are Paid
533(2)
International Issues: Dividend Policies for Multinational Firms
535(1)
Stock Dividends and Stock Splits
535(2)
Share Repurchases as Dividend Decisions
537(11)
Summary
540(1)
Questions and Topics for Discussion
541(1)
Self-Test Problems
542(1)
Problems
542(6)
Part 5: Working Capital Management
Working Capital Policy and Short-Term Financing
548(53)
Key Chapter Concepts
548(1)
Financial Challenge: The Costs of Financial Distress: Xerox Renegotiates Its Credit Line
549(1)
Introduction
550(1)
Working Capital Policy
550(3)
Levels of Working Capital Investment
553(3)
Proportions of Short-Term and Long-Term Financing
556(5)
Overall Working Capital Policy
561(1)
Short-Term Credit
561(2)
Cost of Short-Term Funds
563(1)
Trade Credit
564(3)
Accrued Expenses and Deferred Income
567(1)
Short-Term Bank Credit
568(5)
Ethical Issues: Tying Bank Loans to Other Services
572(1)
Commercial Paper
573(2)
Accounts Receivable Loans
575(3)
Inventory Loans
578(20)
International Issues: Foreign Receivables Financing
580(1)
Summary
581(1)
Questions and Topics for Discussion
582(3)
Self-Test Problems
585(1)
Problems
586(12)
Integrative Case Problem
598(3)
The Management of Cash and Marketable Securities
601(31)
Key Chapter Concepts
601(1)
Financial Challenge: Does Microsoft Have Too Much Cash?
602(1)
Introduction
603(1)
Liquid Asset Balance
604(5)
Controlling the Collection and Disbursement of Cash
609(7)
Ethical Issues: Cash Management
615(1)
Electronic Funds Transfer
616(1)
Investing in Marketable Securities
617(15)
Entrepreneurial Issues: Cash Management
618(4)
International Issues: Cash Management
622(2)
Summary
624(1)
Questions and Topics for Discussion
624(1)
Self-Test Problems
625(1)
Problems
626(6)
Management of Accounts Receivable and Inventories
632(34)
Key Chapter Concepts
632(1)
Financial Challenge: Trade Credit in the Telecom Industry: Cisco Systems
633(1)
Introduction
634(1)
Accounts Receivable Management
634(8)
Evaluating Individual Credit Applicants
642(3)
Inventory Management
645(3)
Inventory Control Models
648(18)
Summary
654(1)
Questions and Topics for Discussion
655(1)
Self-Test Problems
656(1)
Problems
657(9)
Part 6: Additional Topics in Contemporary Financial Management
Lease and Intermediate-Term Financing
666(30)
Key Chapter Concepts
666(1)
Financial Challenge: Risks in Leasing Commercial Aircraft: International Lease Finance Corporation
667(1)
Introduction
668(1)
Leasing
668(1)
Types of Leases
669(3)
Advantages and Disadvantages of Leasing
672(2)
Entrepreneurial Issues: Leasing by Small Businesses
673(1)
Tax and Accounting Aspects of Leases
674(2)
Determining Lease Payments: The Lessor's Perspective
676(2)
Ethical Issues: Continental Airlines' Leases in Bankruptcy
678(1)
Lease-Buy Analysis: The Lessee's Perspective
678(2)
Term Loans
680(4)
Security Provisions and Protective Covenants
684(2)
Suppliers of Term Loans
686(2)
Equipment Loans
688(7)
Summary
689(1)
Questions and Topics for Discussion
689(1)
Self-Test Problems
690(1)
Problems
691(4)
Integrative Case Problem
695(1)
Financing with Derivatives
696(31)
Key Concepts
696(1)
Financial Challenge: Repricing ``Underwater Options''
697(1)
Introduction
698(1)
Options
699(3)
Convertible Securities
702(5)
Warrants
707(2)
Analysis of Rights Offerings
709(2)
Interest Rate Swaps
711(9)
Summary
712(1)
Questions and Topics for Discussion
713(1)
Self-Test Problems
714(1)
Problems
715(5)
Appendix 20A: The Black-Scholes Option Pricing Model
720(1)
The Foundations of Option Valuation
720(1)
The Black-Scholes Option Pricing Model
721(1)
Applying the Black-Scholes Model
721(2)
Problems
722(1)
Appendix 20B: Bond Refunding Analysis
723(1)
The Bond Refunding Process
723(4)
Problems
725(2)
Risk Management
727(16)
Key Chapter Concepts
727(1)
Financial Challenge: Risk and the Weakening Dollar
728(1)
Introduction
728(1)
Why Manage Risk?
729(2)
Ethical Issues: Barings Bank PLC and Nick Leeson
730(1)
Nonhedging Risk Management Strategies
731(2)
Hedging Strategies for Risk Management
733(5)
Hedging Price Risk with Options
738(5)
Summary
739(1)
Questions and Topics for Discussion
740(1)
Self-Test Problems
740(1)
Problems
741(2)
International Financial Management
743(21)
Key Chapter Concepts
743(1)
Financial Challenge: Argentina Takes a Financial Dive
744(1)
Introduction
745(1)
Factors That Affect Exchange Rates
745(7)
Forecasting Future Exchange Rates
752(1)
Foreign Exchange Risk
753(11)
Ethical Issues: Payment of Bribes Abroad
757(2)
Summary
759(1)
Questions and Topics for Discussion
759(1)
Self-Test Problems
760(1)
Problems
760(4)
Corporate Restructuring
764
Key Chapter Concepts
764(1)
Financial Challenge: The Swift Collapse of Enron
765(1)
Introduction
766(1)
Mergers
766(9)
Valuation of Merger Candidates
775(4)
Analysis of a Leveraged Buyout
779(2)
Business Failure
781(3)
Alternatives for Failing Businesses
784(13)
Summary
789(1)
Questions and Topics for Discussion
790(2)
Self-Test Problem
792(1)
Problems
792(5)
Integrative Case Problem
797
Reference Materials
Tables 1(1)
Glossary 1(1)
Solutions to Self-Test Problems 1(1)
Check Answers to Selected Problems 1(1)
Index 1

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