Financial Management 30

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1 The First Cash Flow Assets 62 The Component: Cash Flow to Fundamental Concepts and Basic FinanCG 29 TheThird Component: Cash Flow to Owners 64 1 Financial Management 30 Putting Cash Flow 1.1 The of Money 31 The Statement of Cash 65 Free Cash Flow of Areas Financial Performance Financial Markets 33 Regulation Fair Disclosure The Finance Manager and Financial Notes to the Financial Statements 68 Management Financial Statements on the Internet Objective of the Finance Manager 36 PUTTING FINANCE TO WORK Look Before Profit Maximization 36 Current Stock Price 37 Leap 71 Maximizing EquityValue 37 Terms Internal and External Players The Legal Business 39 Prepping for 73 Proprietorship 39 Problems 75 Partnership 40 Advanced Problems for Spreadsheet Corporations 40 Application 78 Hybrid Corporations 41 Realty 80 Not-for-Profit Corporations 42 ry rd at d of text 1.8 The Financial Management Setting: 1.9 Corporate Governance and Business Ethics Money The Financial Meltdown of Value and Compounding Interest 83..., The Study Finance? 48 The Scenario 83 PUTTING FINANCE T0 WORK 48 Methods Future Value Problems 85 Terms PresentValue and Discounting 88 Questions 50 The Single-Period Scenario 88 Prepping for Exams 51 The Multiple-Period Scenario 89 Farm The Use Lines One Equation and FourVariables 91 Card end 3,4 Applications Value of Money Equation 93 2 Financial Statements PUTTING Sports Agent Financial Statements 55 The Balance Sheet 56 Doubling of Money:The of The Statement 58 Terms 100 Statement of Earnings 61 Questions Cash the of Prepping for Exams 101 Cash Flows 61 Problems 103 Brooks, Raymond M. Financial management 2016 digitalisiert durch: 21 IDS Luzern

2 4 Advanced Problems for Spreadsheet 5.3 Loans and Application 107 Schedules 150 Richardses'Tree Farm, lnc.:the 5.4 Nominal and Real Interest Rates 154 Continuing Saga Risk-Free Rate and 156 Card end oftext Maturity Premiums Curves 159 TheTime Value Of Money 5.7 A Brief History of Interest Rates and Inflation (Part 2) 109 the United States Terms Future an Annuity 111 Questions 164 Future Value of an Annuity: An Application Prepping for Exams 4.3 Annuity 115 Problems Annuity Due and 118 Problems for Spreadsheet PUTTING FINANCE T0 WORK Modeling the Future with Actuarial Science 119 Perpetuity Application 170 MINI-CASE Sweetening the Deal: Povero Construction Company 171 Summary Card end oftext 4.5 Loan Methods 122 ' Interest and Principal at Maturity of Loan (Discount Loan) 122 Interest as You Go, Principal at Maturity of Loan 123 Stocks and and Interest and Principal asyou Go 173 Loan) Amortization Schedules 124 Bonds and Bond Valuation and Interest Rates for Annuities Solving a Problem 128 Bond Pricing 175 Key Components of a Bond Ten aboutthetvm Equation 131 Pricing a Bond in Steps 6.2 Semiannual Bonds and Zero-Coupon 131 Questions 132 Pricing Bonds after Original 182 Prepping for Exams 132 Zero-Coupon Bonds 183 Problems 134 Amortization of a Zero-Coupon Bond 185 Advanced Problems for Spreadsheet.,. Application, and Coupon Rates 186 The First Interest Rate: Yield to Maturity MINI-CASE Fitchminster Injection Molding, The "Other" Interest Rate: Coupon Rate 188 Rose High 141 Relationship Yield to Maturity and Coupon Summary Card end oftext Interest Rates Bond Ratings 190 Bond History and More Bond 5.1 How Financial Institutions Quote Interest Features 192 Rates: Annual and Periodic Interest Rates U.S. Government Bonds Effect of on PUTTING FINANCE T0 WORK Municipal Value of Money Equations 146 Manager 197 Tool:

3 Pricing a U.S. Government Note or Bond 197 Terms 231 Pricing atreasury Bill 198 Questions 232 Terms 200 Prepping for Exams 232 Questions 200 Problems 234 Prepping for Exams 201 Advanced Problems for Spreadsheet Problems 202 Application 238 Advanced Problems for Spreadsheet MINI-CASE Lawrence's Legacy: Part Application 205 Summary Card at end MINI-CASE Bay Path Cranberry Products 206 Risk and Return 240 «oftext 8.1 Returns 241 Dollar Profits and Percentage Returns 241 StOCk Valuation 208 Converting Holding Period Returns Returns Characteristics of Common Stock 209 Extrapolating Holding Period Returns 244 Ownership Risk (Certainty and Uncertainty) 245 Claim on Assets and Cash Flow (Residual Claim) 209 FINANCE F0LLIES "Dangerous toyour Vote (Voice in Management) 210 Investing Just 245 No Maturity Date 210 Historical Returns 246 Dividends Effect Variance and Standard Deviation as a Authorized, Issued, and Outstanding Measure of Risk Normal Distributions 252 Treasury Stock Returns in an Uncertain World (Expectations Rights 211 and Probabilities) Markets 211 F0LLIES of the Century": Bernie Markets 211 Billion Fraud 255 Secondary Markets: How Stocks Trade Determining the Probabilities of All Potential Bull Markets and Bear Markets 213 Outcomes Stock Valuation The Risk-and-ReturnTrade-Off 258 The Constant Dividend Model with an Infinite Investment 259 Horizon Diversification: Minimizing Risk or The Constant Dividend Model with a Finite Uncertainty 260 Horizon 217 Diversification Works 261 The Constant Growth Dividend Model with Adding More Stocks to the Portfolio: an Infinite Horizon 220 and Risk 264 The Constant Growth Dividend Model with 8.8 Beta:The Measure of Risk in a a Finite Horizon 222 Diversified Portfolio 264 Nonconstant Growth Dividends 223 The Capital Asset Pricing Model and the FINANCE F0LLIES Irrational Expectations: Security Market Line 266 and Bubbles 224 The Capital Asset Pricing Model Dividend Model 225 Application the SML Preferred Stock 228 Terms Efficient Markets 229 Questions 271 Operational Efficiency 230 Prepping for Exams 272 Efficiency 230 Problems

4 Advanced Problems for Spreadsheet Application Cash Flow Estimation 323 MINI-CASE Lawrence's Legacy: Part The Importance of Cash Flow 324 Summary Card at end of text 10.2 Cash Flow for Projects: Incremental Cash Flow 326 Sunk Costs 326 Opportunity Costs Capital 283 Costs 327 Synergy Gains Working Capital Capital Budgeting FINANCE FOLLIES Bostons Gets 284 DugUnder and Long-Term Decisions Capital Spending and Depreciation Payback Period 286 Straight-Line Depreciation 333 FINANCE FOLLIES Exits the Cost Recovery System 334 Software Market: Misreading Future 10.4 Cash Flow and the Disposal of Capital Cash Flows Discounted Payback Period Projected Cash Flow For a New Product Value 291 Terms 342 Mutually Exclusive versus Independent Questions 342 Projects 292 Prepping for Exams 343 Projects 294 Problems 344 Value Equation and Advanced Problems for Spreadsheet Function 296 Application Internal Return 297 MINI-CASE Part 2, Evaluating a Appropriate Discount Rate or Hurdle Rate 299 New Product Line 350 Problems with the Internal Rate of, Summary Card end oftext Return 301 ' Multiple Internal Rates of Return PUTTING WORK Marketing and The Cost Capital 351 Sales:Your Product = Your Customer's Capital Budgeting Decision 302 The Cost of Capital: A Starting Point 352 Rates 303 of the Weighted Average Cost Modified Internal Rate of Return 306 Capital 355 Debt Component Profitability 308 Preferred Stock Component Overview of Six Decision 309 Equity Component 357 Capital Budgeting Using a Spreadsheet 311 Retained Earnings 359 Terms 313 The Debt Component andtaxes 360 Questions Weighting the Components: Value or Prepping for Exams 313 MarketValue? 360 Problems 315 Book Value 361 Advanced Problems for Spreadsheet Weighted Average of Capital 362 Application 321 MarketValue 363 MINI-CASE BioCom, Part Using the Weighted Average Cost of Capital Summary Card end oftext in a Budgeting Decision 364

5 Individual Weighted Average Cost of Capital for Advanced Problems for Spreadsheet Individual Projects 365 Application Selecting Appropriate Betas for MINI-CASE Midwest Properties: Quarterly Projects 367 Forecasting Constraints on Borrowing and Selecting Summary Card at end of text Projects for the Portfolio 369 Terms 371 Working Capital Questions 371 Management 411 Prepping for Exams The Cash 412 Problems 374,,,,,., Average Cycle Advanced Problems for Spreadsheet,... Average Cycle Application 378 Average Payment Cycle 416 MINI-CASE BioCom, Part 3, A Fresh Look Putting Cash Conversion 379 Cycle Summary Card at end 13.2 Accounts Receivable and Setting Credit Policy 418 Collecting Accounts Receivable 418 Credit: A Two-Sided Coin for Credit 420 Financial and Evaluating setting Payment 381 Collecting Overdue Debt The 425 Forecasting and Short-Term Financial Planning and Cash 384 the 428 Speeding Up the Collection Float (Shortening the Lag Time) 427 Extending Disbursement Float (Lengthening 12.2 Cash Budgeting and the Inventory Management: Carrying Costs and Forecast 385 Ordering Costs 428 Cash Inflow Sales 388 ABC Inventory Management 429 Other Cash Receipts 389 Redundant Inventory from Production 390 Economic Order Quantity The Cash Forecast: Short-Term Deficits and The Effect of Working Capital on Capital Short-Term Surpluses 391 Budgeting 435 Funding Cash Deficits 392 PUTTING FINANCE T0 WORK Operations Investing Cash Surpluses 394 Management Planning with Pro Forma Financial Inventories and Daily Operations 437 Statements Pro Forma Income Statement 395 Questions 439 Pro Forma Balance Sheet 397 Prepping for Exams 440 PUTTING T0 WORK Information Problems 442 Technology 400 Advanced Problems for Spreadsheet Application 445 KeyTerms 401 Questions 401 MINI-CASE Part Cranston Dispensers, Inc.: Prepping for Exams 402 Problems 403 Card at end text 25

6 VI... _ Borrowing for a Stable and Mature Business: Financial and 491 Performance 449 Straight Loans Financial Statements 450 Discount Loans 492 Benchmarking 451 Letters of Credit or Lines of Credit Financial Ratios 455 Compensating Balance Loans 493 Short-Term Solvency: Liquidity Ratios Borrowing for a Stable and Mature Business: Long-Term Solvency: Solvency or Financial Selling Bonds 494 Leverage Ratios Borrowing For a Stable and Mature Asset Management Ratios 459 Business: Selling Stock 496 Profitability Ratios 461 Initial Public Offerings and Underwriting 497 Market Value Ratios 462 Registration, Prospectus, and DuPont Analysis External Uses of Financial Statements and Marketing Process: Road Show Cola Wars 466 The Aftermarket: Dealer in the Shares 501 Industry Ratios 468 PUTTING TO WORK Corporate Law 503 ; Cooking the Books at 15.6 Other Borrowing Options for a Mature Enron and WorldCom 469 Business 504 KeyTerms 470 Questions 471 Prepping for Exams The Final Phase: the Business 506 Straight Liquidation: Chapter Reorganization: Chapter Problems 473 KeyTerms 508 Advanced Problems for Spreadsheet Questions 508 Application 479 Prepping for Exams 508 MINI-CASE Cranston Dispensers, Inc.: Problems 510 Part Advanced Problems for Spreadsheet Summary Card end oftext Application Summary Card end oftext 514 Other Selected Capital Structure Capital Review Raising Capital of Debt 519 Earnings per Share as a Measure of the 15.1 The Business Life Cycle 485 Benefits of Borrowing a and Growing Earnings for Different Capital Business 485 Structures 521 Personal Funds and Family Loans 486 Commercial Bank Loans ,,. Prefer Internal First 525 Commercial Bank Loans through the, _.,,... Choose to the Cheapest Business Administration 486 First and as a Last Angel Financing and Venture Capital 487 Resort

7 16.5 Modigliani and Miller on Optimal Capital 17.4 Stock Dividends, Stock Splits, and Reverse Structure 527 Splits 561 Capital Structure in a World of No Taxes and No Reasons for Stock Splits 562 Bankruptcy 527 Reverse Splits 563 Capital Structure in a World of Corporate Taxes 17.5 Specialized Dividend Plans 564 and No Bankruptcy 531 Stock Repurchase 564 Debt and thetax Shield 531 Dividend Plans The StaticTheory of Capital Structure 534 Bankruptcy 534 Static Theory of Capital Structure Hedge Funds: Really Smart Guys Get into Big Trouble 536 KeyTerms 568 Questions 568 Prepping for Exams 569 Problems 570 Advanced Problems for Spreadsheet Application 573 KeyTerms 538 MINI GASE East CoastWarehouse Questions 538 Club 574 Prepping for Exams 539 Summary Card at end Problems 541 Problems for Spreadsheet Financial Application 543 MINI-CASE General Energy Storage Management 576 Systems: How Much Debt and How 18.1 Managing Multinational Much Equity? 544 Operations 577 Summary Card at end of text Cultural Risk 577 Business Risk 580 Dividends, Dividend Policy, and Stock Political Risk Rino International Foreign Exchange Cash Dividends 547 Purchasing Power Parity 583 Buying and Selling Stock 547 Currency Exchange Rates 585 Declaring and Paying a Cash Dividend: A Cross Rates 586 Chronology 548 Arbitrage 588 Types of Dividends 550 Forward Rates Dividend Policy 551 Using Forward Rates 591 Dividend Clienteies 552 Changing Spot Rates 593 Dividend Policy Irrelevance 552 Transaction, Operating, andtranslation Dividend Policy in a World of No Taxes and No res 593 Transaction Costs 552 Transaction Exposure 594 Reasons Favoring a No-Dividend- Operating Exposure 594 Translation Exposure 595 Reasons Favoring a High-Dividend-Payout.., Foreign Investment 596 Policy 557 Optimal Dividend Policy 557 KeyTerms Selecting a Dividend Policy 558 Questions 600 Some Further Considerations in the Selection Prepping for Exams 600 of a Dividend Policy 560 Problems

8 Advanced Problems for Spreadsheet Appendix 3 Future Value Interest Factors of an Application 606 Annuity 613 MINI-CASE ScholasticTravel Appendix 4 Present Value Interest Factors of an Services, Inc. 607 Annuity 615 Summary Card at end of text Appendix 5 Answers to Prepping for Questions 617 Glossary 627 Appendix 1 Future Value Interest Factors Appendix 2 PresentValue Interest Factors 611 Credits

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This page intentionally left blank Financial Management: International Edition Table of Contents Cover Contents Part 1 Fundamental Concepts and Basic Tools of Finance 1 Financial Management 1.1 The Cycle