Financial Management: Principles and Applications, 13/e

Financial Management: Principles and Applications, 13/e

Read it now on the O’Reilly learning platform with a 10-day free trial.

O’Reilly members get unlimited access to books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.

Book description

Develop and begin to apply financial principles

People often struggle to see how financial concepts relate to their personal lives and prospective careers. Financial Management: Principles and Applications gives readers a big picture perspective of finance and how it is important in their personal and professional lives. Utilizing five key principles, the 13th Edition provides an approachable introduction to financial decision-making, weaving in real world issues to demonstrate the practical applications of critical financial concepts.

Show and hide more Table of contents Product information

Table of contents

  1. Financial Management Principles and Applications
  2. Financial Management Principles and Applications
  3. Brief Contents
  4. Contents
  5. Teaching Students the of Finance
  6. Preface
    1. Our Approach to Financial Management
    2. New to This Edition
    3. A Total Learning Package
    4. Learning Aids in the Text
    5. Content Updating
    6. Learning Aids Supplemental to the Text
    1. Chapter 1 Getting Started Principles of Finance
      1. Chapter Outline
      2. Principles , , , , and Applied
      3. 1.1 Finance: An Overview
        1. What Is Finance?
        2. Why Study Finance?
        3. Concept Check 1.1
        1. Sole Proprietorship
        2. Partnership
        3. Corporation
        4. How Does Finance Fit into the Firm’s Organizational Structure?
        5. Concept Check 1.2
        1. Maximizing Shareholder Wealth
        2. Ethical Considerations in Corporate Finance
        3. Regulation Aimed at Making the Goal of the Firm Work: The Sarbanes–Oxley Act
        4. Concept Check 1.3
        1. Principle 1: Money Has a Time Value
        2. Principle 2: There Is a Risk-Return Tradeoff
        3. Principle 3: Cash Flows Are the Source of Value
        4. Principle 4: Market Prices Reflect Information
        5. Principle 5: Individuals Respond to Incentives
        6. Concept Check 1.4
        1. 1.1 Understand the importance of finance in your personal and professional lives and identify the three primary business decisions that financial managers make. (pgs. 4–5)
          1. Summary:
          2. Key Terms
          3. Concept Check 1.1
          1. Summary:
          2. Key Terms
          3. Concept Check 1.2
          1. Summary:
          2. Concept Check 1.3
          1. Summary:
          2. Key Terms
          3. Concept Check 1.4
          1. Chapter Outline
          2. Principles ,, and Applied
          3. 2.1 The Basic Structure of the U.S. Financial Markets
          4. 2.2 The Financial Marketplace: Financial Institutions
            1. Commercial Banks: Everyone’s Financial Marketplace
            2. Nonbank Financial Intermediaries
              1. Financial Services Corporations
              2. Insurance Companies
              3. Investment Banks
              4. Investment Companies
                1. Mutual Funds and Exchange-Traded Funds (ETFs)
                2. Hedge Funds
                3. Private Equity Firms
                1. How Securities Markets Bring Corporations and Investors Together
                2. Types of Securities
                  1. Debt Securities
                  2. Equity Securities
                    1. Common Stock
                    2. Preferred Stock
                    1. The Financial Markets and the Financial Crisis
                    1. 2.1 Describe the structure and functions of financial markets. (pg. 20)
                      1. Summary:
                      2. Key Terms
                      1. Summary:
                      2. Key Terms
                      3. Concept Check 2.2
                      1. Summary:
                      2. Key Terms
                      3. Concept Check 2.3
                      1. Chapter Outline
                      2. Principles , , , and Applied
                      3. 3.1 An Overview of the Firm’s Financial Statements
                        1. Basic Financial Statements
                        2. Why Study Financial Statements?
                        3. What Are the Accounting Principles Used to Prepare Financial Statements?
                        4. Concept Check 3.1
                        1. The Income Statement of H. J. Boswell, Inc.
                          1. Reading and Interpreting Boswell’s Income Statement
                          2. Evaluating Boswell’s per Share Earnings and Dividends
                          1. Computing Taxable Income
                          2. Federal Income Tax Rates for Corporate Income
                          3. Marginal and Average Tax Rates
                          4. Dividend Exclusion for Corporate Stockholders
                          5. Concept Check 3.3
                          1. The Balance Sheet of H. J. Boswell, Inc.
                            1. Assets: The Left-Hand Side of the Balance Sheet
                              1. Current Assets
                              2. Fixed Assets
                              1. Sources and Uses of Cash
                              2. H. J. Boswell’s Cash Flow Statement
                                1. Evaluating the Cash Flow Statement
                                2. Quality of Earnings—Evaluating Cash Flow from Operations
                                3. Sustainable Capital Expenditures—Evaluating Investment Activities
                                1. 3.1 Describe the content of the four basic financial statements and discuss the importance of financial statement analysis to the financial manager. (pgs. 40–42)
                                  1. Summary:
                                  2. Key Terms
                                  3. Concept Check 3.1
                                  1. Summary:
                                  2. Key Terms
                                  3. Key Equation
                                  4. Concept Check 3.2
                                  1. Summary:
                                  2. Key Terms
                                  3. Concept Check 3.3
                                  1. Summary:
                                  2. Key Terms
                                  3. Key Equations
                                  4. Concept Check 3.4
                                  1. Summary:
                                  2. Key Terms
                                  3. Key Equations
                                  4. Concept Check 3.5
                                  1. The Income Statement
                                  2. Corporate Income Tax
                                  3. The Balance Sheet
                                  4. Cash Flow Statement
                                  1. Chapter Outline
                                  2. Principles and Applied
                                  3. 4.1 Why Do We Analyze Financial Statements?
                                    1. Concept Check 4.1
                                    1. The Common-Size Income Statement: H. J. Boswell, Inc.
                                    2. The Common-Size Balance Sheet: H. J. Boswell, Inc.
                                    3. Concept Check 4.2
                                    1. Liquidity Ratios
                                      1. Measuring the Overall Liquidity of a Firm
                                        1. Current Ratio.
                                        2. Acid-Test (Quick) Ratio.
                                        1. How Long Does It Take to Convert the Firm’s Accounts Receivable to Cash?
                                          1. Average Collection Period.
                                          2. Accounts Receivable Turnover.
                                          1. Inventory Turnover.
                                          2. Days’ Sales in Inventory.
                                          1. Cost Control: Is the Firm Earning Reasonable Profit Margins?
                                          2. Return on Invested Capital
                                          3. Is the Firm Providing a Reasonable Return on the Owners’ Investment?
                                          1. Price-Earnings Ratio
                                          1. Trend Analysis
                                          2. Peer-Firm Comparisons
                                            1. Industry Average Financial Ratios
                                            1. Concept Check 4.5
                                            1. 4.1 Explain what we can learn by analyzing a firm’s financial statements. (pg. 80)
                                              1. Summary:
                                              2. Concept Check 4.1
                                              1. Summary:
                                              2. Concept Check 4.2
                                              1. Summary:
                                              2. Key Terms
                                              3. Key Equations
                                              4. Concept Check 4.3
                                              1. Summary:
                                              2. Key Term
                                              3. Concept Check 4.4
                                              1. Summary:
                                              2. Concept Check 4.5
                                              1. Common-Size Statements
                                              2. Using Financial Ratios
                                              3. Selecting a Performance Benchmark
                                              1. Chapter 5 The Time Value of Money The Basics
                                                1. Chapter Outline
                                                2. Principle Applied
                                                3. 5.1 Using Timelines to Visualize Cash Flows
                                                  1. Concept Check 5.1
                                                  1. Compound Interest and Time
                                                  2. Compound Interest and the Interest Rate
                                                  3. Techniques for Moving Money Through Time
                                                  4. Applying Compounding to Things Other Than Money
                                                  5. Compound Interest with Shorter Compounding Periods
                                                  6. Concept Check 5.2
                                                  1. The Mechanics of Discounting Future Cash Flows
                                                  2. Two Additional Types of Discounting Problems
                                                    1. Solving for the Number of Periods
                                                    1. Solving for the Rate of Interest
                                                    1. Calculating the Interest Rate and Converting It to an EAR
                                                    2. To the Extreme: Continuous Compounding
                                                    3. Concept Check 5.4
                                                    1. 5.1 Construct cash flow timelines to organize your analysis of problems involving the time value of money. (pgs. 130–131)
                                                      1. Summary:
                                                      2. Key Term
                                                      3. Concept Check 5.1
                                                      1. Summary:
                                                      2. Key Terms
                                                      3. Key Equations
                                                      4. Concept Check 5.2
                                                      1. Summary:
                                                      2. Key Terms
                                                      3. Key Equations
                                                      4. Concept Check 5.3
                                                      1. Summary:
                                                      2. Key Terms
                                                      3. Key Equations
                                                      4. Concept Check 5.4
                                                      1. Compound Interest
                                                      2. Discounting and Present Value
                                                      3. Making Interest Rates Comparable
                                                        1. Questions
                                                        1. Chapter Outline
                                                        2. Principles and Applied
                                                        3. 6.1 Annuities
                                                          1. Ordinary Annuities
                                                            1. The Future Value of an Ordinary Annuity
                                                              1. The Formula for the Future Value of an Ordinary Annuity
                                                              2. Using the Mathematical Formulas.
                                                              3. Using a Financial Calculator.
                                                              4. Using an Excel Spreadsheet.
                                                              5. Solving for the Payment in an Ordinary Annuity
                                                              6. Solving for the Interest Rate in an Ordinary Annuity
                                                                1. Using the Mathematical Formulas.
                                                                2. Using a Financial Calculator.
                                                                3. Using an Excel Spreadsheet.
                                                                1. Using a Financial Calculator.
                                                                2. Using an Excel Spreadsheet.
                                                                1. Amortized Loans with Monthly Payments
                                                                2. Computing Your Outstanding Balance
                                                                1. Calculating the Present Value of a Level Perpetuity
                                                                2. Calculating the Present Value of a Growing Perpetuity
                                                                3. Concept Check 6.2
                                                                1. Concept Check 6.3
                                                                1. 6.1 Distinguish between an ordinary annuity and an annuity due, and calculate the present and future values of each. (pgs. 160–173)
                                                                  1. Summary:
                                                                  2. Key Terms
                                                                  3. Concept Check 6.1
                                                                  4. Key Equations
                                                                  1. Summary:
                                                                  2. Key Terms
                                                                  3. Key Equations
                                                                  4. Concept Check 6.2
                                                                  1. Summary:
                                                                  2. Concept Check 6.3
                                                                  1. Annuities
                                                                  2. Perpetuities
                                                                  3. Complex Cash Flow Streams
                                                                    1. Questions
                                                                    1. Chapter Outline
                                                                    2. Principles and Applied
                                                                    3. 7.1 Realized and Expected Rates of Return and Risk
                                                                      1. Calculating the Realized Return from an Investment
                                                                      2. Calculating the Expected Return from an Investment
                                                                      3. Measuring Risk
                                                                        1. Calculating the Variance and Standard Deviation of the Rate of Return on an Investment
                                                                        1. U.S. Financial Markets: Domestic Investment Returns
                                                                        2. Lessons Learned
                                                                        3. U.S. Stocks Versus Other Categories of Investments
                                                                        4. Global Financial Markets: International Investing
                                                                        5. Concept Check 7.2
                                                                        1. Computing the Geometric or Compound Average Rate of Return
                                                                        2. Choosing the Right “Average”
                                                                        3. Concept Check 7.3
                                                                        1. The Efficient Markets Hypothesis
                                                                        2. Do We Expect Financial Markets to Be Perfectly Efficient?
                                                                          1. The Behavioral View
                                                                          1. 7.1 Calculate realized and expected rates of return and risk. (pgs. 194–202)
                                                                            1. Summary:
                                                                            2. Key Terms
                                                                            3. Key Equations
                                                                            4. Concept Check 7.1
                                                                            1. Summary:
                                                                            2. Key Terms
                                                                            3. Concept Check 7.2
                                                                            1. Summary:
                                                                            2. Key Terms
                                                                            3. Key Equations
                                                                            4. Concept Check 7.3
                                                                            1. Summary:
                                                                            2. Key Terms
                                                                            3. Concept Check 7.4
                                                                            1. Realized and Expected Rates of Return and Risk
                                                                            2. Geometric vs. Arithmetic Average Rates of Return
                                                                              1. Questions
                                                                              1. Chapter Outline
                                                                              2. Principles and Applied
                                                                              3. 8.1 Portfolio Returns and Portfolio Risk
                                                                                1. Calculating the Expected Return of a Portfolio
                                                                                2. Evaluating Portfolio Risk
                                                                                  1. Portfolio Diversification
                                                                                  2. Diversification Lessons
                                                                                  1. Diversification and Unsystematic Risk
                                                                                  2. Diversification and Systematic Risk
                                                                                  3. Systematic Risk and Beta
                                                                                  4. Calculating the Portfolio Beta
                                                                                  5. Concept Check 8.2
                                                                                  1. Using the CAPM to Estimate Expected Rates of Return
                                                                                  2. Concept Check 8.3
                                                                                  1. 8.1 Calculate the expected rate of return and volatility for a portfolio of investments and describe how diversification affects the returns of a portfolio of investments. (pgs. 224–233)
                                                                                    1. Summary:
                                                                                    2. Key Terms
                                                                                    3. Key Equations
                                                                                    4. Concept Check 8.1
                                                                                    1. Summary:
                                                                                    2. Key Terms
                                                                                    3. Key Equations
                                                                                    4. Concept Check 8.2
                                                                                    1. Summary:
                                                                                    2. Key Terms
                                                                                    3. Key Equations
                                                                                    4. Concept Check 8.3
                                                                                    1. Portfolio Returns and Portfolio Risk
                                                                                    2. Systematic Risk and the Market Portfolio
                                                                                    3. The Security Market Line and the CAPM
                                                                                    1. Chapter Outline
                                                                                    2. Principles , , and Applied
                                                                                    3. 9.1 Overview of Corporate Debt
                                                                                      1. Borrowing Money in the Private Financial Market
                                                                                        1. Private Debt Placements
                                                                                        2. Floating-Rate Loans
                                                                                        1. Corporate Bonds
                                                                                        1. Bond Indenture
                                                                                        2. Claims on Assets and Income
                                                                                          1. Par or Face Value
                                                                                          2. “Clean Price” and “Dirty Price”
                                                                                          1. Valuing Bonds by Discounting Future Cash Flows
                                                                                          2. Step 1: Determine Bondholder Cash Flows
                                                                                          3. Step 2: Estimate the Appropriate Discount Rate
                                                                                            1. Calculating a Bond’s Yield to Maturity
                                                                                            2. Using Market-Yield-to-Maturity Data
                                                                                            3. Promised or Contractual Versus Expected Yield to Maturity
                                                                                            4. Quoted Yields to Maturity for Corporate Bonds
                                                                                            1. Semiannual Interest Payments
                                                                                            1. Relationship 1
                                                                                            2. Relationship 2
                                                                                            3. Relationship 3
                                                                                            4. Relationship 4
                                                                                            5. Concept Check 9.3
                                                                                            1. Secured Versus Unsecured
                                                                                            2. Priority of Claims
                                                                                            3. Initial Offering Market
                                                                                            4. Abnormal Risk
                                                                                            5. Coupon Level
                                                                                            6. Amortizing or Non-amortizing
                                                                                            7. Convertibility
                                                                                            8. Concept Check 9.4
                                                                                            1. Inflation and Real Versus Nominal Interest Rates
                                                                                              1. Fisher Effect: The Nominal and Real Rates of Interest
                                                                                              1. Real Risk-Free Interest Rate and Risk-Free Interest Rate
                                                                                              2. Inflation Premium
                                                                                              3. Default-Risk Premium
                                                                                              4. Maturity-Risk Premium
                                                                                              5. Liquidity-Risk Premium
                                                                                              1. The Shape of the Yield Curve
                                                                                              2. Shifts in the Yield Curve
                                                                                              1. 9.1 Identify the key features of bonds and describe the difference between private and public debt markets. (pgs. 256–265)
                                                                                                1. Summary:
                                                                                                2. Key Terms
                                                                                                3. Key Equation
                                                                                                4. Concept Check 9.1
                                                                                                1. Summary:
                                                                                                2. Key Terms
                                                                                                3. Key Equations
                                                                                                4. Concept Check 9.2
                                                                                                1. Summary:
                                                                                                2. Key Terms
                                                                                                3. Concept Check 9.3
                                                                                                1. Summary:
                                                                                                2. Key Terms
                                                                                                3. Concept Check 9.4
                                                                                                1. Summary:
                                                                                                2. Key Terms
                                                                                                3. Key Equations
                                                                                                4. Concept Check 9.5
                                                                                                1. Overview of Corporate Debt
                                                                                                2. Valuing Corporate Debt
                                                                                                3. Bond Valuation: Four Key Relationships
                                                                                                4. Determinants of Interest Rates
                                                                                                1. Chapter Outline
                                                                                                2. Principles , , , , and Applied
                                                                                                3. 10.1 Common Stock
                                                                                                  1. Characteristics of Common Stock
                                                                                                    1. Claim on Income
                                                                                                    2. Claim on Assets
                                                                                                    3. Voting Rights
                                                                                                    1. Three-Step Procedure for Valuing Common Stock
                                                                                                    2. Basic Concept of the Stock Valuation Model
                                                                                                    3. The Constant Dividend Growth Rate Model
                                                                                                    4. What Causes Stock Prices to Go Up and Down?
                                                                                                    5. Determinants of the Investor’s Required Rate of Return
                                                                                                    6. Determinants of the Growth Rate of Future Dividends
                                                                                                    1. Defining the P/E Ratio Valuation Model
                                                                                                    2. What Determines the P/E Ratio for a Stock?
                                                                                                    3. An Aside on Managing for Shareholder Value
                                                                                                    4. A Word of Caution About P/E Ratios
                                                                                                    5. Concept Check 10.2
                                                                                                    1. Features of Preferred Stock
                                                                                                      1. Multiple Classes
                                                                                                      2. Claim on Assets and Income
                                                                                                      3. Preferred Stock as a Hybrid Security
                                                                                                      1. Dealing with Reality: Promised Versus Expected Returns for Preferred Stock
                                                                                                      1. 10.1 Identify the basic characteristics and features of common stock and use the discounted cash flow model to value common shares. (pgs. 302–311)
                                                                                                        1. Summary:
                                                                                                        2. Key Terms
                                                                                                        3. Concept Check 10.1
                                                                                                        4. Key Equations
                                                                                                        1. Summary:
                                                                                                        2. Key Term
                                                                                                        3. Key Equations
                                                                                                        4. Concept Check 10.2
                                                                                                        1. Summary:
                                                                                                        2. Key Terms
                                                                                                        3. Key Equations
                                                                                                        4. Concept Check 10.3
                                                                                                        1. Common Stock
                                                                                                        2. Comparables Approach to Valuing Common Stock
                                                                                                        3. Preferred Stock
                                                                                                        1. Chapter 11 Investment Decision Criteria
                                                                                                          1. Chapter Outline
                                                                                                          2. Principles , , , and Applied
                                                                                                          3. 11.1 An Overview of Capital Budgeting
                                                                                                            1. The Typical Capital-Budgeting Process
                                                                                                            2. What Are the Sources of Good Investment Projects?
                                                                                                            3. Types of Capital Investment Projects
                                                                                                              1. Revenue-Enhancing Investments
                                                                                                              2. Cost-Reducing Investments
                                                                                                              3. Mandated Investments
                                                                                                              1. Why Is the NPV the Right Criterion?
                                                                                                              2. Calculating an Investment’s NPV
                                                                                                              3. Independent Versus Mutually Exclusive Investment Projects
                                                                                                                1. Evaluating an Independent Investment Opportunity
                                                                                                                2. Evaluating Mutually Exclusive Investment Opportunities
                                                                                                                3. Choosing Between Mutually Exclusive Investments
                                                                                                                1. Profitability Index
                                                                                                                2. Internal Rate of Return
                                                                                                                  1. Complications with the IRR: Multiple Rates of Return
                                                                                                                  2. Using the IRR with Mutually Exclusive Investments
                                                                                                                  1. Concept Check 11.4
                                                                                                                  1. 11.1 Understand how to identify the sources and types of profitable investment opportunities. (pgs. 330–332)
                                                                                                                    1. Summary:
                                                                                                                    2. Concept Check 11.1
                                                                                                                    1. Summary:
                                                                                                                    2. Concept Check 11.2
                                                                                                                    3. Key Terms
                                                                                                                    4. Key Equations
                                                                                                                    1. Summary:
                                                                                                                    2. Key Terms
                                                                                                                    3. Key Equations
                                                                                                                    4. Concept Check 11.3
                                                                                                                    1. Summary:
                                                                                                                    2. Concept Check 11.4
                                                                                                                    1. Net Present Value
                                                                                                                    2. Other Investment Criteria
                                                                                                                      1. Questions
                                                                                                                      1. Chapter Outline
                                                                                                                      2. Principles and Applied
                                                                                                                      3. 12.1 Project Cash Flows
                                                                                                                        1. Incremental Cash Flows Are What Matters
                                                                                                                        2. Guidelines for Forecasting Incremental Cash Flows
                                                                                                                          1. Sunk Costs Are Not Incremental Cash Flows
                                                                                                                          2. Overhead Costs Are Generally Not Incremental Cash Flows
                                                                                                                          3. Look for Synergistic Effects
                                                                                                                            1. Don’t Overlook Positive Synergies
                                                                                                                            2. Beware of Cash Flows Diverted from Existing Products
                                                                                                                            1. Dealing with Depreciation Expense, Taxes, and Cash Flow
                                                                                                                            2. Four-Step Procedure for Calculating Project Cash Flows
                                                                                                                              1. Step 1: Estimate the Project’s Operating Cash Flows
                                                                                                                              2. Step 2: Calculate the Project’s Working-Capital Requirements
                                                                                                                              3. Step 3: Calculate the Project’s Capital Expenditure Requirements
                                                                                                                              4. Step 4: Calculate the Project’s Free Cash Flow
                                                                                                                              1. Estimating Nominal Cash Flows
                                                                                                                              2. Concept Check 12.3
                                                                                                                              1. Category 1: Initial Outlay, CF0
                                                                                                                              2. Category 2: Annual Cash Flows
                                                                                                                                1. Changes in Depreciation and Taxes
                                                                                                                                2. Changes in Working Capital
                                                                                                                                3. Changes in Capital Spending
                                                                                                                                1. 12.1 Identify incremental cash flows that are relevant to project valuation. (pgs. 374–377)
                                                                                                                                  1. Summary:
                                                                                                                                  2. Key Terms
                                                                                                                                  3. Key Equation
                                                                                                                                  4. Concept Check 12.1
                                                                                                                                  1. Summary:
                                                                                                                                  2. Key Term
                                                                                                                                  3. Key Equations
                                                                                                                                  4. Concept Check 12.2
                                                                                                                                  1. Summary:
                                                                                                                                  2. Key Terms
                                                                                                                                  3. Concept Check 12.3
                                                                                                                                  1. Summary:
                                                                                                                                  2. Key Terms
                                                                                                                                  3. Concept Check 12.4
                                                                                                                                  1. Forecasting Project Cash Flows
                                                                                                                                  2. Inflation and Capital Budgeting
                                                                                                                                  3. Replacement Project Cash Flows
                                                                                                                                  1. What Does All of This Mean?
                                                                                                                                    1. Study Problems
                                                                                                                                    1. Chapter Outline
                                                                                                                                    2. Principles , , and Applied
                                                                                                                                    3. 13.1 The Importance of Risk Analysis
                                                                                                                                      1. Concept Check 13.1
                                                                                                                                      1. Key Concepts: Expected Values and Value Drivers
                                                                                                                                        1. Expected Values
                                                                                                                                        2. Value Drivers
                                                                                                                                        1. Accounting Break-Even Analysis
                                                                                                                                          1. Fixed Costs
                                                                                                                                          2. Variable Costs
                                                                                                                                          3. Total Revenues or Volume of Output
                                                                                                                                          4. Calculating the Accounting Break-Even Point
                                                                                                                                          1. The Option to Delay the Launch of a Project
                                                                                                                                          2. The Option to Expand a Project
                                                                                                                                          3. The Option to Reduce the Scale and Scope of a Project
                                                                                                                                          4. Concept Check 13.4
                                                                                                                                          1. 13.1 Explain the importance of risk analysis in the capital-budgeting decision-making process. (pg. 410)
                                                                                                                                            1. Summary:
                                                                                                                                            2. Concept Check 13.1
                                                                                                                                            1. Summary:
                                                                                                                                            2. Concept Check 13.2
                                                                                                                                            3. Key Terms
                                                                                                                                            1. Summary:
                                                                                                                                            2. Key Terms
                                                                                                                                            3. Concept Check 13.3
                                                                                                                                            4. Key Equations
                                                                                                                                            1. Summary:
                                                                                                                                            2. Key Term
                                                                                                                                            3. Concept Check 13.4
                                                                                                                                            1. Tools for Analyzing the Risk of Project Cash Flows
                                                                                                                                            2. Break-Even Analysis
                                                                                                                                            3. Options in Capital Budgeting
                                                                                                                                            1. Chapter Outline
                                                                                                                                            2. Principles , , , , and Applied
                                                                                                                                            3. 14.1 The Cost of Capital: An Overview
                                                                                                                                              1. Investor’s Required Return and the Firm’s Cost of Capital
                                                                                                                                              2. WACC Equation
                                                                                                                                              3. Three-Step Procedure for Estimating the Firm’s WACC
                                                                                                                                              4. Concept Check 14.1
                                                                                                                                              1. Concept Check 14.2
                                                                                                                                              1. The Cost of Debt
                                                                                                                                              2. The Cost of Preferred Equity
                                                                                                                                              3. The Cost of Common Equity
                                                                                                                                                1. The Dividend Growth Model: Discounted Cash Flow Approach
                                                                                                                                                  1. Estimating the Rate of Growth, g
                                                                                                                                                  2. Pros and Cons of the Constant Dividend Growth Rate Model Approach
                                                                                                                                                  1. Advantages of the CAPM Approach
                                                                                                                                                  2. Disadvantages of the CAPM Approach
                                                                                                                                                  1. Use Market-Based Weights
                                                                                                                                                  2. Use Market-Based Costs of Capital
                                                                                                                                                  3. Use Forward-Looking Weights and Opportunity Costs
                                                                                                                                                  4. Weighted Average Cost of Capital in Practice
                                                                                                                                                  5. Concept Check 14.4
                                                                                                                                                  1. The Rationale for Using Multiple Discount Rates
                                                                                                                                                    1. Why Don’t Firms Typically Use Project Costs of Capital?
                                                                                                                                                    1. Using Pure Play Firms to Estimate Divisional WACCs
                                                                                                                                                    1. WACC, Flotation Costs, and the NPV
                                                                                                                                                    2. Concept Check 14.6
                                                                                                                                                    1. 14.1 Understand the concepts underlying the firm’s overall cost of capital and the purpose for its calculation. (pgs. 446–449)
                                                                                                                                                      1. Summary:
                                                                                                                                                      2. Key Terms
                                                                                                                                                      3. Key Equation
                                                                                                                                                      4. Concept Check 14.1
                                                                                                                                                      1. Summary:
                                                                                                                                                      2. Concept Check 14.2
                                                                                                                                                      1. Summary:
                                                                                                                                                      2. Key Terms
                                                                                                                                                      3. Key Equations
                                                                                                                                                      4. Concept Check 14.3
                                                                                                                                                      1. Summary:
                                                                                                                                                      2. Concept Check 14.4
                                                                                                                                                      1. Summary:
                                                                                                                                                      2. Key Term
                                                                                                                                                      3. Concept Check 14.5
                                                                                                                                                      1. Summary:
                                                                                                                                                      2. Key Term
                                                                                                                                                      3. Key Equation
                                                                                                                                                      4. Concept Check 14.6
                                                                                                                                                      1. Determining the Firm’s Capital Structure Weights
                                                                                                                                                      2. Estimating the Cost of Individual Sources of Capital
                                                                                                                                                      3. Calculating the Firm’s WACC
                                                                                                                                                      4. Flotation Costs
                                                                                                                                                      1. Chapter 15 Capital Structure Policy
                                                                                                                                                        1. Chapter Outline
                                                                                                                                                        2. Principles , , and Applied
                                                                                                                                                        3. 15.1 A Glance at Capital Structure Choices in Practice
                                                                                                                                                          1. Defining a Firm’s Capital Structure
                                                                                                                                                          2. Financial Leverage
                                                                                                                                                          3. How Do Firms in Different Industries Finance Their Assets?
                                                                                                                                                          4. Concept Check 15.1
                                                                                                                                                          1. A First Look at the Modigliani and Miller Capital Structure Theorem
                                                                                                                                                          2. Yogi Berra and the M&M Capital Structure Theory
                                                                                                                                                          3. Capital Structure, the Cost of Equity, and the Weighted Average Cost of Capital
                                                                                                                                                          4. Why Capital Structure Matters in Reality
                                                                                                                                                            1. Violations of Assumption 2
                                                                                                                                                            2. Violations of Assumption 1
                                                                                                                                                              1. Corporate Taxes and Capital Structure
                                                                                                                                                                1. Corporate Taxes and the WACC.
                                                                                                                                                                1. Concept Check 15.3
                                                                                                                                                                1. Benchmarking the Firm’s Capital Structure
                                                                                                                                                                2. Evaluating the Effect of Financial Leverage on Firm Earnings per Share
                                                                                                                                                                  1. Financial Leverage and the Level of EPS
                                                                                                                                                                  2. Financial Leverage and the Volatility of EPS
                                                                                                                                                                  1. Computing EPS Indifference Points for Capital Structure Alternatives
                                                                                                                                                                  1. How Does Buying Differ from Leasing?
                                                                                                                                                                  2. Why Would a Firm Choose Leasing Versus Buying?
                                                                                                                                                                    1. Residual Value
                                                                                                                                                                    2. Tax Consequences
                                                                                                                                                                    3. Operating and Maintenance Expenses
                                                                                                                                                                    1. 15.1 Describe a firm’s capital structure. (pgs. 484–488)
                                                                                                                                                                      1. Summary:
                                                                                                                                                                      2. Key Terms
                                                                                                                                                                      3. Key Equations
                                                                                                                                                                      4. Concept Check 15.1
                                                                                                                                                                      1. Summary:
                                                                                                                                                                      2. Key Terms
                                                                                                                                                                      3. Key Equations
                                                                                                                                                                      4. Concept Check 15.2
                                                                                                                                                                      1. Summary:
                                                                                                                                                                      2. Concept Check 15.3
                                                                                                                                                                      1. Summary:
                                                                                                                                                                      2. Key Terms
                                                                                                                                                                      3. Key Equations
                                                                                                                                                                      4. Concept Check 15.4
                                                                                                                                                                      1. Capital Structure Policies
                                                                                                                                                                      2. Capital Structure Theory
                                                                                                                                                                      3. Making Financing Decisions
                                                                                                                                                                      1. Arbitrage and the Valuation of Levered and Unlevered Firms
                                                                                                                                                                      2. Summing Up
                                                                                                                                                                      1. Chapter Outline
                                                                                                                                                                      2. Principles , , and Applied
                                                                                                                                                                      3. 16.1 How Do Firms Distribute Cash to Their Shareholders?
                                                                                                                                                                        1. Cash Dividends
                                                                                                                                                                          1. Dividend Payment Procedures
                                                                                                                                                                          1. Rationale for a Stock Dividend or Split
                                                                                                                                                                          1. The Irrelevance of the Distribution Choice
                                                                                                                                                                            1. The Timing of Dividends Is Irrelevant
                                                                                                                                                                              1. The Form of Payment (Cash Dividends Versus Share Repurchases) Is Irrelevant
                                                                                                                                                                              2. Individual Investor Wealth Effects: No Personal Taxes
                                                                                                                                                                              1. Transactions are Costly
                                                                                                                                                                              2. The Information Conveyed by Dividend and Share Repurchase Announcements
                                                                                                                                                                              3. The Information Conveyed by Stock Dividend and Stock Split Announcements
                                                                                                                                                                              1. Stable Dividend Payout Policy
                                                                                                                                                                              2. Residual Dividend Payout Policy
                                                                                                                                                                              3. Other Factors Playing a Role in How Much to Distribute
                                                                                                                                                                                1. Liquidity Position
                                                                                                                                                                                2. Lack of Other Sources of Financing
                                                                                                                                                                                3. Earnings Predictability
                                                                                                                                                                                1. 16.1 Distinguish between the use of cash dividends and share repurchases. (pgs. 528–532)
                                                                                                                                                                                  1. Summary:
                                                                                                                                                                                  2. Key Terms
                                                                                                                                                                                  3. Concept Check 16.1
                                                                                                                                                                                  1. Summary:
                                                                                                                                                                                  2. Key Term
                                                                                                                                                                                  3. Concept Check 16.2
                                                                                                                                                                                  1. Summary:
                                                                                                                                                                                  2. Key Term
                                                                                                                                                                                  3. Concept Check 16.3
                                                                                                                                                                                  1. How Do Firms Distribute Cash?
                                                                                                                                                                                  2. Does Dividend Policy Matter?
                                                                                                                                                                                  1. Chapter 17 Financial Forecasting and Planning
                                                                                                                                                                                    1. Chapter Outline
                                                                                                                                                                                    2. Principle Applied
                                                                                                                                                                                    3. 17.1 An Overview of Financial Planning
                                                                                                                                                                                      1. Concept Check 17.1
                                                                                                                                                                                      1. Financial Forecasting Example: Ziegen, Inc.
                                                                                                                                                                                        1. Sources of Spontaneous Financing: Accounts Payable and Accrued Expenses
                                                                                                                                                                                        2. Sources of Discretionary Financing
                                                                                                                                                                                        3. Summarizing Ziegen’s Financial Forecast
                                                                                                                                                                                        4. Analyzing the Effects of Profitability and Dividend Policy on the Firm’s DFN (Discretionary Financing Needs)
                                                                                                                                                                                        5. Analyzing the Effects of Sales Growth on a Firm’s DFN
                                                                                                                                                                                        1. Cash Budget Example: Melco Furniture, Inc.
                                                                                                                                                                                        2. Uses of the Cash Budget
                                                                                                                                                                                        3. Concept Check 17.3
                                                                                                                                                                                        1. 17.1 Understand the goals of financial planning. (pgs. 554–555)
                                                                                                                                                                                          1. Summary:
                                                                                                                                                                                          2. Key Terms
                                                                                                                                                                                          3. Concept Check 17.1
                                                                                                                                                                                          1. Summary:
                                                                                                                                                                                          2. Key Terms
                                                                                                                                                                                          3. Key Equation
                                                                                                                                                                                          4. Concept Check 17.2
                                                                                                                                                                                          1. Summary:
                                                                                                                                                                                          2. Concept Check 17.3
                                                                                                                                                                                          1. Developing a Long-Term Financial Plan
                                                                                                                                                                                          2. Developing a Short-Term Financial Plan
                                                                                                                                                                                          1. Chapter Outline
                                                                                                                                                                                          2. Principle Applied
                                                                                                                                                                                          3. 18.1 Working-Capital Management and the Risk-Return Tradeoff
                                                                                                                                                                                            1. Measuring Firm Liquidity
                                                                                                                                                                                            2. Managing Firm Liquidity
                                                                                                                                                                                            3. Risk-Return Tradeoff
                                                                                                                                                                                            4. Concept Check 18.1
                                                                                                                                                                                            1. The Principle of Self-Liquidating Debt
                                                                                                                                                                                              1. Permanent and Temporary Asset Investments
                                                                                                                                                                                              2. Spontaneous, Temporary, and Permanent Sources of Financing
                                                                                                                                                                                              1. Measuring Working-Capital Efficiency
                                                                                                                                                                                              2. Calculating the Operating and Cash Conversion Cycles
                                                                                                                                                                                              3. Concept Check 18.3
                                                                                                                                                                                              1. Calculating the Cost of Short-Term Financing
                                                                                                                                                                                              2. Evaluating the Cost of Trade Credit
                                                                                                                                                                                                1. Credit Terms and Cash Discounts
                                                                                                                                                                                                1. Managing Cash and Marketable Securities
                                                                                                                                                                                                  1. Costs of Managing Cash and Marketable Securities
                                                                                                                                                                                                  2. Problem 1: Maintaining a Sufficient Cash Balance
                                                                                                                                                                                                  3. Problem 2: Managing the Composition of the Firm’s Marketable Securities Portfolio
                                                                                                                                                                                                  1. Determinants of the Size of a Firm’s Investment in Accounts Receivable
                                                                                                                                                                                                  2. Terms of Sale
                                                                                                                                                                                                  3. Customer Quality
                                                                                                                                                                                                  4. Collection Efforts
                                                                                                                                                                                                  1. 18.1 Describe the risk-return tradeoff involved in managing a firm’s working capital. (pgs. 578–579)
                                                                                                                                                                                                    1. Summary:
                                                                                                                                                                                                    2. Concept Check 18.1
                                                                                                                                                                                                    1. Summary:
                                                                                                                                                                                                    2. Key Terms
                                                                                                                                                                                                    3. Concept Check 18.2
                                                                                                                                                                                                    1. Summary:
                                                                                                                                                                                                    2. Key Terms
                                                                                                                                                                                                    3. Key Equations
                                                                                                                                                                                                    4. Concept Check 18.3
                                                                                                                                                                                                    1. Summary:
                                                                                                                                                                                                    2. Key Terms
                                                                                                                                                                                                    3. Concept Check 18.4
                                                                                                                                                                                                    1. Summary:
                                                                                                                                                                                                    2. Key Terms
                                                                                                                                                                                                    3. Key Equation
                                                                                                                                                                                                    4. Concept Check 18.5
                                                                                                                                                                                                    1. Working-Capital Management and the Risk-Return Tradeoff
                                                                                                                                                                                                    2. Working-Capital Policy
                                                                                                                                                                                                    3. Operating and Cash Conversion Cycles
                                                                                                                                                                                                    4. Managing Current Liabilities
                                                                                                                                                                                                    1. Chapter Outline
                                                                                                                                                                                                    2. Principles and Applied
                                                                                                                                                                                                    3. 19.1 Foreign Exchange Markets and Currency Exchange Rates
                                                                                                                                                                                                      1. What a Change in the Exchange Rate Means for Business
                                                                                                                                                                                                      2. Foreign Exchange Rates
                                                                                                                                                                                                        1. Reading Exchange Rate Quotes
                                                                                                                                                                                                        2. Exchange Rates and Arbitrage
                                                                                                                                                                                                        3. Asked and Bid Rates
                                                                                                                                                                                                        4. Cross Rates
                                                                                                                                                                                                        1. Interest Rate Parity
                                                                                                                                                                                                        2. Purchasing-Power Parity and the Law of One Price
                                                                                                                                                                                                        3. The International Fisher Effect
                                                                                                                                                                                                        4. Concept Check 19.2
                                                                                                                                                                                                        1. Foreign Investment Risks
                                                                                                                                                                                                          1. Political Risk
                                                                                                                                                                                                          2. Exchange Rate Risk
                                                                                                                                                                                                          1. 19.1 Understand the nature and importance of the foreign exchange market and learn to read currency exchange rate quotes. (pgs. 608–615)
                                                                                                                                                                                                            1. Summary:
                                                                                                                                                                                                            2. Key Terms
                                                                                                                                                                                                            3. Key Equations
                                                                                                                                                                                                            4. Concept Check 19.1
                                                                                                                                                                                                            1. Summary:
                                                                                                                                                                                                            2. Key Terms
                                                                                                                                                                                                            3. Key Equations
                                                                                                                                                                                                            4. Concept Check 19.2
                                                                                                                                                                                                            1. Summary:
                                                                                                                                                                                                            2. Key Terms
                                                                                                                                                                                                            3. Concept Check 19.3
                                                                                                                                                                                                            4. Key Equation
                                                                                                                                                                                                            1. Foreign Exchange Markets and Currency Exchange Rates
                                                                                                                                                                                                            2. Interest Rate and Purchasing-Power Parity
                                                                                                                                                                                                            3. Capital Budgeting for Direct Foreign Investment
                                                                                                                                                                                                            1. Chapter Outline
                                                                                                                                                                                                            2. Principles and Applied
                                                                                                                                                                                                            3. 20.1 Five-Step Corporate Risk Management Process1
                                                                                                                                                                                                              1. Step 1 : Identify and Understand the Firm’s Major Risks
                                                                                                                                                                                                              2. Step 2 : Decide Which Types of Risks to Keep and Which to Transfer
                                                                                                                                                                                                              3. Step 3 : Decide How Much Risk to Assume
                                                                                                                                                                                                              4. Step 4 : Incorporate Risk into All the Firm’s Decisions and Processes
                                                                                                                                                                                                              5. Step 5 : Monitor and Manage the Firm’s Risk Exposures
                                                                                                                                                                                                              6. Concept Check 20.1
                                                                                                                                                                                                              1. Types of Insurance Contracts
                                                                                                                                                                                                              2. Why Purchase Insurance?
                                                                                                                                                                                                              3. Concept Check 20.2
                                                                                                                                                                                                              1. Hedging Commodity Price Risk Using Forward Contracts
                                                                                                                                                                                                              2. Hedging Currency Risk Using Forward Contracts
                                                                                                                                                                                                                1. Limitations of Forward Contracts
                                                                                                                                                                                                                1. Futures Contracts
                                                                                                                                                                                                                  1. Managing Default Risk in Futures Markets
                                                                                                                                                                                                                  2. Hedging with Futures Contracts
                                                                                                                                                                                                                  1. A Graphical Look at Option Pricing Relationships
                                                                                                                                                                                                                  2. Reading Option Price Quotes
                                                                                                                                                                                                                  1. The Black-Scholes Option Pricing Model
                                                                                                                                                                                                                    1. Key Variables in the Black-Scholes Option Pricing Equation
                                                                                                                                                                                                                    2. The Black-Scholes Option Pricing Equation
                                                                                                                                                                                                                    1. 20.1 Define risk management in the context of the five-step risk management process. (pgs. 634–637)
                                                                                                                                                                                                                      1. Summary:
                                                                                                                                                                                                                      2. Key Term
                                                                                                                                                                                                                      3. Concept Check 20.1
                                                                                                                                                                                                                      1. Summary:
                                                                                                                                                                                                                      2. Key Terms
                                                                                                                                                                                                                      3. Concept Check 20.2
                                                                                                                                                                                                                      1. Summary:
                                                                                                                                                                                                                      2. Key Terms
                                                                                                                                                                                                                      3. Concept Check 20.3
                                                                                                                                                                                                                      1. Summary:
                                                                                                                                                                                                                      2. Key Terms
                                                                                                                                                                                                                      3. Concept Check 20.4
                                                                                                                                                                                                                      1. Summary:
                                                                                                                                                                                                                      2. Key Terms
                                                                                                                                                                                                                      3. Key Equation
                                                                                                                                                                                                                      4. Concept Check 20.5
                                                                                                                                                                                                                      1. Managing Risk by Hedging with Forward Contracts
                                                                                                                                                                                                                      2. Managing Risk with Exchange-Traded Financial Derivatives
                                                                                                                                                                                                                      3. Valuing Options and Swaps
                                                                                                                                                                                                                      1. A
                                                                                                                                                                                                                      2. B
                                                                                                                                                                                                                      3. C
                                                                                                                                                                                                                      4. D
                                                                                                                                                                                                                      5. E
                                                                                                                                                                                                                      6. F
                                                                                                                                                                                                                      7. G
                                                                                                                                                                                                                      8. H
                                                                                                                                                                                                                      9. I
                                                                                                                                                                                                                      10. J
                                                                                                                                                                                                                      11. K
                                                                                                                                                                                                                      12. L
                                                                                                                                                                                                                      13. M
                                                                                                                                                                                                                      14. N
                                                                                                                                                                                                                      15. O
                                                                                                                                                                                                                      16. P
                                                                                                                                                                                                                      17. Q
                                                                                                                                                                                                                      18. R
                                                                                                                                                                                                                      19. S
                                                                                                                                                                                                                      20. T
                                                                                                                                                                                                                      21. U
                                                                                                                                                                                                                      22. V
                                                                                                                                                                                                                      23. W
                                                                                                                                                                                                                      24. Y
                                                                                                                                                                                                                      25. Z
                                                                                                                                                                                                                      1. A
                                                                                                                                                                                                                      2. B
                                                                                                                                                                                                                      3. C
                                                                                                                                                                                                                      4. D
                                                                                                                                                                                                                      5. E
                                                                                                                                                                                                                      6. F
                                                                                                                                                                                                                      7. G
                                                                                                                                                                                                                      8. H
                                                                                                                                                                                                                      9. I
                                                                                                                                                                                                                      10. J
                                                                                                                                                                                                                      11. K
                                                                                                                                                                                                                      12. L
                                                                                                                                                                                                                      13. M
                                                                                                                                                                                                                      14. N
                                                                                                                                                                                                                      15. O
                                                                                                                                                                                                                      16. P
                                                                                                                                                                                                                      17. Q
                                                                                                                                                                                                                      18. R
                                                                                                                                                                                                                      19. S
                                                                                                                                                                                                                      20. T
                                                                                                                                                                                                                      21. U
                                                                                                                                                                                                                      22. V
                                                                                                                                                                                                                      23. W
                                                                                                                                                                                                                      24. Y
                                                                                                                                                                                                                      25. Z
                                                                                                                                                                                                                      Show and hide more

                                                                                                                                                                                                                      Product information

                                                                                                                                                                                                                      • Title: Financial Management: Principles and Applications, 13/e
                                                                                                                                                                                                                      • Author(s): Sheridan Titman, Arthur J. Keown, John D. Martin
                                                                                                                                                                                                                      • Release date: January 2017
                                                                                                                                                                                                                      • Publisher(s): Pearson
                                                                                                                                                                                                                      • ISBN: 9780134417219