Accounting and Finance Management for Non-Specialist (Custom Edition EBook)

Cover
Title Page
Copyright
How to use this custom book
CONTENTS
Chapter 1 Introduction to accounting
	LEARNING OBJECTIVES
	ACCOUNTING AND YOU: MAKING DECISIONS
	NATURE AND ROLE OF ACCOUNTING
		Accounting as a service function
			Further qualities
		Costs and benefi ts of accounting information
		Accounting as an information system
	USERS OF ACCOUNTING INFORMATION
	FINANCIAL AND MANAGEMENT ACCOUNTING
	WHAT IS THE FINANCIAL OBJECTIVE OF A BUSINESS?
		Stakeholder theory
		REAL WORLD 1.1: Short-term gains, long-term problems
		REAL WORLD 1.2: Stakeholder theory—current thinking
		Balancing risk and return
	THE MAIN FINANCIAL REPORTS—AN OVERVIEW
		Financial accounting
		Management accounting
	BUSINESS AND ACCOUNTING
		What kinds of business ownership exist?
			Sole proprietorship
			Partnership
			Limited company
		How are businesses managed?
			Steps in the planning process
			Control
		Not-for-profi t organisations
	THE CHANGING FACE OF BUSINESS AND ACCOUNTING
		Ethics and ethical behaviour in business
		REAL WORLD 1.3: Ethical failures
	HOW USEFUL IS ACCOUNTING INFORMATION?
		REAL WORLD 1.4: Impact of fi nancial results on share price
		Why do I need to know anything about accounting and fi nance?
	SUMMARY
	DISCUSSION QUESTIONS
	CHAPTER 1 CASE STUDY: Characteristics of successful business people
	SOLUTIONS TO ACTIVITIES
Chapter 2 Measuring and reporting fi nancial position
	LEARNING OBJECTIVES
	NATURE AND PURPOSE OF THE STATEMENT OF FINANCIAL POSITION
		Assets
		Claims against the assets
			Liabilities
			Owners’ equity (OE, or simply ‘equity’)
	THE ACCOUNTING EQUATION
		The effect of trading operations on the statement of fi nancial position
		ACCOUNTING AND YOU: DOUBLE-ENTRY BOOK-KEEPING
	THE CLASSIFICATION OF ASSETS AND CLAIMS
		The classification of assets
		The classification of liabilities
		The classification of owners’ equity
	FORMATS FOR STATEMENTS OF FINANCIAL POSITION
		Horizontal format
		Vertical or narrative format
		Financial position at a point in time
	FACTORS INFLUENCING THE FORM AND CONTENT OF THE FINANCIAL REPORTS
		Conventional accounting practice
			Business entity convention
			Historic cost convention
			Prudence convention
			Going concern (or continuity) convention
			Dual aspect convention
			Money measurement convention
			REAL WORLD 2.1: Brand leaders
			REAL WORLD 2.2: Spurs players appear on the pitch and on the statement of fi nancial position
			Stable monetary unit convention
		Valuing assets
			Non-current assets
			Fair values
			REAL WORLD 2.3: Examples of recent impairments
			REAL WORLD 2.4: Myer: Non-current assets – valuation
	USEFULNESS OF THE STATEMENT OF FINANCIAL POSITION
	STATEMENT OF FINANCIAL POSITION DEFICIENCIES
	SUMMARY
	DISCUSSION QUESTIONS
	APPLICATION EXERCISES
	CHAPTER 2 CASE STUDY: Usefulness of the statement of fi nancial position
	SOLUTIONS TO ACTIVITIES
Chapter 3 Measuring and reporting financial performance
	LEARNING OBJECTIVES
	THE STATEMENT OF FINANCIAL PERFORMANCE—ITS NATURE AND PURPOSE, AND ITS RELATIONSHIP WITH THE STATEMENT OF FINANCIAL POSITION
		The stock approach to calculating profit
	THE FORMAT OF THE INCOME STATEMENT
		Key terms
			Gross profit
			Operating profit
			Profit for the period
			Cost of sales
		Classifying expenses
		The reporting period
	PROFIT MEASUREMENT AND THE RECOGNITION OF REVENUES AND EXPENSES
		Recognition of revenues
			Long-term contracts
			Services
			REAL WORLD 3.1: The Hewlett Packard/Autonomy takeover
			Cash versus accrual revenue recognition
			REAL WORLD 3.2: Revenue recognition
		Recognition of expenses
			Recognising expenses where the expense for the period is more than the cash paid during the period
			Recognising expenses where the amount paid during the year is more than the full expense for the period
		Profit, cash and accruals accounting—a review
	PROFIT MEASUREMENT AND THE CALCULATION OF DEPRECIATION
		Calculating depreciation
			The cost (or fair value) of the asset
			The useful life of the asset
			Estimated residual value (disposal value)
			Depreciation method
		Selecting a depreciation method
		Impairment and depreciation
		Depreciation and the replacement of fi xed assets
		Depreciation and judgement
	PROFIT MEASUREMENT AND THE VALUATION OF INVENTORY
		What is inventory?
		What is the cost of inventory?
		What is the basis for transferring the inventory cost to cost of sales?
			Last in, first out
			Weighted average cost
			Perpetual inventory system
			Physical or periodic inventory system
		The net realisable value of inventory
	PROFIT MEASUREMENT AND THE PROBLEM OF BAD AND DOUBTFUL DEBTS
		The traditional approach
		The impairment of assets approach
		REAL WORLD 3.3: Accounting policies relating to this chapter
	PREPARING AN INCOME STATEMENT FROM RELEVANT FINANCIAL INFORMATION
	USES AND USEFULNESS OF THE INCOME STATEMENT
		ACCOUNTING AND YOU: INCOME TAX
	SUMMARY
	DISCUSSION QUESTIONS
	APPLICATION EXERCISES
	CHAPTER 3 CASE STUDY
	SOLUTIONS TO ACTIVITIES
Chapter 4 Introduction to limited companies
	LEARNING OBJECTIVES
	THE MAIN FEATURES OF COMPANIES
		Legal nature
		Unlimited (perpetual) life
		Limited liability
		Legal safeguards
		Public and proprietary (private) companies
		Transferring share ownership—the role of the stock exchange
		REAL WORLD 4.1
			1. Distribution of listed shares in Telstra as disclosed in the 2016 annual report
			2. Distribution of listed shares in New Zealand Oil and Gas Limited as disclosed in the 2016 annual report
		Separation of ownership and management
		Extensive regulation
		REAL WORLD 4.2: Target infl ates profit
		Advantages and disadvantages of the company entity structure
		ACCOUNTING AND YOU: FRAUD AND EMBEZZLEMENT
	EQUITY AND BORROWINGS IN A COMPANY CONTEXT
		Equity/capital (owners’ claim) of limited companies
		Reserves
		Bonus shares
		Raising share capital
		Borrowings
	RESTRICTIONS ON THE RIGHTS OF SHAREHOLDERS TO MAKE DRAWINGS OR REDUCTIONS OF CAPITAL
		REAL WORLD 4.3: Dividend policy and distributions
		THE MAIN FINANCIAL STATEMENTS
			The income statement
				Profit
				Audit fee
		The statement of financial position
			Taxation
			Other reserves
		Dividends
		REAL WORLD 4.4: Reserves and retained profits
	SUMMARY
	DISCUSSION QUESTIONS
	APPLICATION EXERCISES
	CHAPTER 4 CASE STUDY
	SOLUTIONS TO ACTIVITIES
Chapter 5 Regulatory framework for companies
	LEARNING OBJECTIVES
	THE DIRECTORS’ DUTY TO ACCOUNT—THE ROLE OF COMPANY LAW (CORPORATIONS ACT)
		Auditors
		REAL WORLD 5.1: ASIC comments on recent audits
	SOURCES OF RULES AND REGULATION
		The need for accounting rules
		Sources of accounting rules
			Australia and the International Accounting Standards
			The role of the Australian Securities Exchange (ASX) in company accounting
		Corporate governance
		REAL WORLD 5.2: Corporate governance statement of New Zealand Gas and Oil Limited summary
		ACCOUNTING AND YOU
	PRESENTATION OF PUBLISHED FINANCIAL STATEMENTS
		Statement of financial position
		Statement of comprehensive income
		REAL WORLD 5.3: Example of statement of comprehensive income
		Statement of changes in equity
		Statement of cash fl ows
		Notes
	ACCOUNTING FOR GROUPS OF COMPANIES
	SUMMARY
	DISCUSSION QUESTIONS
	APPLICATION EXERCISES
	CHAPTER 5 CASE STUDY: How boards can be more eff ective and challenge management more eff ectively
	SOLUTIONS TO ACTIVITIES
Chapter 6 Measuring and reporting cash flows
	LEARNING OBJECTIVES
	ACCOUNTING AND YOU: MANAGING YOUR CASH
	THE IMPORTANCE OF CASH AND CASH FLOW
	REAL WORLD 6.1
	THE STATEMENT OF CASH FLOWS
	REAL WORLD 6.2
	PREPARATION OF THE STATEMENT OF CASH FLOWS— A SIMPLE EXAMPLE
		Deducing cash fl ows from operating activities
		Deducing cash fl ows from investing activities
		Deducing cash fl ows from fi nancing activities
		REAL WORLD 6.3: Example of a statement of cash flows
	RECONCILING PROFIT FOR THE YEAR WITH CASH FROM OPERATING ACTIVITIES
		REAL WORLD 6.4: Example of reconciliation of net (deficit)/surplus after tax to net cash flows from operations
	SOME COMPLEXITIES IN STATEMENT PREPARATION
		The investing section
		The fi nancing section
	WHAT DOES THE STATEMENT OF CASH FLOWS TELL US?
	SUMMARY
	DISCUSSION QUESTIONS
	APPLICATION EXERCISES
	CHAPTER 6 CASE STUDY
	SOLUTIONS TO ACTIVITIES
Chapter 7 Corporate social responsibility and sustainability accounting
	LEARNING OBJECTIVES
	SOCIAL ISSUES IN ACCOUNTING
		General background
		Stakeholder concept
		REAL WORLD 7.1: The milk wars
		What is social responsibility?
		REAL WORLD 7.2: Social responsibility issues
	CORPORATE SOCIAL RESPONSIBILITY (CSR)—WHAT DOES IT MEAN?
		REAL WORLD 7.3: Putting trust in ethical companies
	ACCOUNTING FOR CORPORATE SOCIAL RESPONSIBILITIES
	TRIPLE BOTTOM LINE REPORTING
	THE GLOBAL REPORTING INITIATIVE (GRI)
		General background
		Background and development of the GRI Guidelines
		Current position—the GRI Standards
			Foundation
			General Disclosures
			Management approach
			Economic performance
			Environmental impacts
			Social
			REAL WORLD 7.4: Sustainability reporting at BHP
			REAL WORLD 7.5: GRI current position
			Integrated reporting
	THE BALANCED SCORECARD APPROACH
		ACCOUNTING AND YOU
		The financial perspective
		The business process perspective
		The customer perspective
		The learning and growth perspective
	OVERALL CONCLUSION
	SUMMARY
	REFERENCES
	DISCUSSION QUESTIONS
	APPLICATION EXERCISES
	CHAPTER 7 CASE STUDY
	SOLUTIONS TO ACTIVITIES
Chapter 8 Analysis and interpretation of fi nancial statements
	LEARNING OBJECTIVES
	FINANCIAL RATIOS
		Financial ratio classification
		The need for comparison
			Past periods
			Similar businesses
			Planned performance
		The key steps in fi nancial ratio analysis
		The ratios calculated
		A brief overview
	PROFITABILITY RATIOS
		Return on ordinary shareholders’ funds (ROSF) (also known as return on equity (ROE))
		Return on capital employed (ROCE)
		Operating profit margin
		Gross profit margin
		REAL WORLD 8.1: Return on equity achieved by various companies
	EFFICIENCY RATIOS
		Average inventories turnover period
		Average settlement period for accounts receivable (debtors)
		Average settlement period for accounts payable (creditors)
		Sales revenue to capital employed
		Sales revenue per employee
		Alternative formats
		The relationship between profi tability and effi ciency
	LIQUIDITY
		Current ratio
		Acid test ratio
	FINANCIAL GEARING (LEVERAGE) RATIOS
		Gearing ratio
		Interest cover ratio (times interest earned)
		REAL WORLD 8.2: 8.2
Changing gear
		An aside on personal debt
	INVESTMENT RATIOS
		Dividend payout ratio
		Dividend yield ratio
		Earnings per share ratio
		Price/earnings ratio
		REAL WORLD 8.3: Market statistics for some well-known businesses
	OTHER ASPECTS OF RATIO ANALYSIS
		Trend analysis
		Index or percentage analysis
		Ratios and prediction models
		REAL WORLD 8.4: Woolworths fi ve-year summary
		Limitations of ratio analysis
			Quality of fi nancial statements
			Inflation
			Over-reliance on ratios
			The basis for comparison
			Financial position ratios
		ACCOUNTING AND YOU: USING RATIOS IN PERFORMANCE APPRAISAL
	SUMMARY
	DISCUSSION QUESTIONS
	APPLICATION EXERCISES
	CHAPTER 8 CASE STUDY
	SOLUTIONS TO ACTIVITIES
Chapter 9 Cost–volume–profi t analysis and relevant costing
	LEARNING OBJECTIVES
	THE BEHAVIOUR OF COSTS
		Fixed costs
		Variable costs
		Semi-fi xed (semi-variable) costs
	BREAK-EVEN ANALYSIS
	REAL WORLD 9.1: Load factors and break-even analysis
	CONTRIBUTION
		Profit–volume charts
		Margin of safety and operating gearing
		REAL WORLD 9.2: Operating gearing
		Weaknesses of break-even analysis
		REAL WORLD 9.3: Break-even position
		Expected costs rather than historic costs
		Use of spreadsheets
	RELEVANT COST, OUTLAY COST AND OPPORTUNITY COST
	MARGINAL ANALYSIS/RELEVANT COSTING
		Accepting/rejecting special contracts
		The most effi cient use of scarce resources
		Make or buy decisions
		Closing or continuing a section or department
		REAL WORLD 9.4: Examples of outsourcing
		ACCOUNTING AND YOU
	SUMMARY
	DISCUSSION QUESTIONS
	APPLICATION EXERCISES
	CHAPTER 9 CASE STUDY: Budget appraisal—consideration of options
	SOLUTIONS TO ACTIVITIES
Chapter 12 Capital investment decisions
	LEARNING OBJECTIVES
	FEATURES OF INVESTMENT DECISIONS AND ASSOCIATED APPRAISAL METHODS
		The nature of investment decisions
		REAL WORLD 12.1: Major investment decisions
		Methods of investment appraisal
	ACCOUNTING RATE OF RETURN (ARR)
		ARR and ROCE
		Problems with ARR
	PAYBACK PERIOD (PP)
		Problems with PP
	NET PRESENT VALUE (NPV)
		Interest lost
		Inflation
		Risk
		Actions of a logical investor
		ACCOUNTING AND YOU
		Using discount (present value) tables
		The discount rate and the cost of capital
		Why NPV is superior to ARR and PP
		Discounted payback
	INTERNAL RATE OF RETURN (IRR)
		REAL WORLD 12.2: Hurdle rates set
		Problems with IRR
	SOME PRACTICAL POINTS
		The basis of the cash fl ow calculations
		More practical points
	INVESTMENT APPRAISAL IN PRACTICE
		Methods used
		REAL WORLD 12.3: Techniques used in practice
		Investment appraisal and planning systems
	SUMMARY
	REFERENCES
	DISCUSSION QUESTIONS
	APPLICATION EXERCISES
	CHAPTER 12 CASE STUDY: Evaluating investment decisions
	SOLUTIONS TO ACTIVITIES
	APPENDIX 12.1
Chapter 13 The management of working capital
	LEARNING OBJECTIVES
	THE NATURE AND PURPOSE OF WORKING CAPITAL
		REAL WORLD 13.1: Working capital requirements
	THE MANAGEMENT OF INVENTORIES
		Budgets of future demand
		Financial ratios
		Recording and reordering systems
		Levels of control
		Stock/inventory management models
			Economic order quantity
			Just-in-time (JIT) stock/inventory management
			REAL WORLD 13.2: JIT at Nissan
	THE MANAGEMENT OF ACCOUNTS RECEIVABLE (DEBTORS)
		Which customers should receive credit, and how much should they be offered?
		Length of credit period
		An alternative approach to evaluating the credit decision
		Cash discounts (early settlement)
		Collection policies
		REAL WORLD 13.3: Trade payments analysis
	THE MANAGEMENT OF CASH
		Why hold cash?
		How much cash should be held?
		Statements of cash fl ows and the management of cash
		Operating cash cycle (OCC)
		REAL WORLD 13.4
		Cash transmission
		Bank overdrafts
	THE MANAGEMENT OF ACCOUNTS PAYABLE (CREDITORS)
		Taking advantage of cash discounts
		Controlling accounts payable
		ACCOUNTING AND YOU: ONE IN THREE AUSSIES TO PAY THEIR BILLS LATE IN THE YEAR AHEAD
	SUMMARY
	DISCUSSION QUESTIONS
	APPLICATION EXERCISES
	CHAPTER 13 CASE STUDY
	SOLUTIONS TO ACTIVITIES
Chapter 14 Financing the business
	LEARNING OBJECTIVES
	SOURCES OF FINANCE
		Internal sources of fi nance
			Internal sources of long-term finance—retained earnings
			Internal sources of short-term finance
	EXTERNAL SOURCES OF FINANCE
		External sources of long-term fi nance
			Ordinary shares
			Preference shares
			Borrowings
			Finance leases, and sale and lease-back arrangements
			Securitisation
			REAL WORLD 14.1: Examples of corporate borrowing
		External sources of short-term fi nance
			Bank overdra
			Debt factoring
			Invoice discounting
			REAL WORLD 14.2: Size of discounting and factoring market
		Long-term vs short-term borrowing
	GEARING AND THE LONG-TERM FINANCING DECISION
	RAISING LONG-TERM EQUITY FINANCE
		The role of the Australian Securities Exchange
		Share issues
			Rights issues
			Dividend reinvestment plans
			Offer for sale
			Public issue
		Private placing
		REAL WORLD 14.3: Recent/prospective share issues
		Venture capital and long-term fi nancing
			REAL WORLD 14.4: How private equity operates
				Business angels
			ACCOUNTING AND YOU
	SUMMARY
	DISCUSSION QUESTIONS
	APPLICATION EXERCISES
	CHAPTER 14 CASE STUDY: How to apply for financing
	SOLUTIONS TO ACTIVITIES
Chapter 1 Getting started—Principles of finance
	Chapter outline
	1.1 Finance: an overview
		What is finance?
		Why study finance?
	1.2 Three types of business organisation
		Sole proprietorship
		Partnership
		Corporation
		How does finance fit into a firm’s organisational structure?
	1.3 The goal of the financial manager
		Maximising shareholder wealth
		Ethical considerations in corporate finance
	1.4 The five basic principles of finance
		Principle 1: Money has a time value
		Principle 2: There is a risk–return trade-off
		Principle 3: Cash flows are the source of value
		Principle 4: Market prices reflect information
		Principle 5: Individuals respond to incentives
	CHAPTER SUMMARY
	STUDY QUESTIONS
	ENDNOTES
Chapter 4 Financial analysis—Sizing up firm performance
	Chapter outline
	4.1 Why do we analyse financial statements?
	4.2 Common-size statements: standardising financial information
		The common-size income statement: H. J. Boswell Ltd
		The common-size balance sheet: H. J. Boswell Ltd
	4.3 Using financial ratios
		Liquidity ratios
		Checkpoint 4.1: Evaluating James Hardie Industries PLC’s liquidity
		Capital structure ratios
		Asset management efficiency ratios
		Checkpoint 4.2: Comparing the financing decisions of Wesfarmers Ltd and Woolworths Ltd
		Profitability ratios
		Checkpoint 4.3: Evaluating the return on assets for Wesfarmers Ltd and Woolworths Ltd
		Market value ratios
		Checkpoint 4.4: Comparing Treasury Wine Estates with Australian Vintage using market value ratios
		Summing up the financial analysis of H. J. Boswell Ltd
	4.4 Selecting a performance benchmark
		Trend analysis
		Peer-firm comparisons
	4.5 Limitations of ratio analysis
	CHAPTER SUMMARY
	STUDY QUESTIONS
	STUDY PROBLEMS
	MINI-CASE
	ENDNOTES
Chapter 5 The time value of money—The basics
	Chapter outline
	5.1 Using timelines to visualise cash flows
		Checkpoint 5.1: Creating a timeline
	5.2 Compounding and future value
		Compound interest and time
		Compound interest and the interest rate
		Techniques for valuing cash flows at different points in time
		Applying compounding to things other than money
			Checkpoint 5.2: Calculating the future value of a cash flow
		Compound interest with shorter compounding periods
			Checkpoint 5.3: Calculating future values using non-annual compounding periods
	5.3 Discounting and present value
		The mechanics of discounting future cash flows
			Checkpoint 5.4: Solving for the present value of a future cash flow
		Discounting with shorter discounting periods
		Two additional types of discounting problem
		The Rule of 72
			Checkpoint 5.5: Solving for the number of periods, n
			Checkpoint 5.6: Solving for the interest rate, i
	5.4 Making interest rates comparable
		Calculating the interest rate and converting it to an EAR
		Checkpoint 5.7: Calculating an effective annual rate (EAR)
		To the extreme: continuous compounding
	CHAPTER SUMMARY
	STUDY QUESTIONS
	STUDY PROBLEMS
	MINI-CASE
Chapter 8 Risk and return—Capital market theory
	Chapter outline
	8.1 Portfolio returns and portfolio risk
		Calculating the expected return of a portfolio
		Checkpoint 8.1: Calculating a portfolio’s expected rate of return
		Evaluating portfolio risk
		Calculating the standard deviation of a portfolio’s returns
		Checkpoint 8.2: Evaluating a portfolio’s risk and return
	8.2 Systematic risk and the market portfolio
		Diversification and unsystematic risk
		Diversification and systematic risk
		Systematic risk and beta
		Calculating the portfolio beta
	8.3 The security market line and the CAPM
		Using the CAPM to estimate expected rates of return
		Checkpoint 8.3: Estimating the expected rate of return using the CAPM
	CHAPTER SUMMARY
	STUDY QUESTIONS
	STUDY PROBLEMS
	MINI-CASE
	ENDNOTES
Chapter 11 Investment decision criteria
	Chapter outline
	11.1 An overview of capital budgeting
		The typical capital budgeting process
		What are the sources of good investment projects?
		Types of capital investment project
	11.2 Net present value
		Why is NPV the right criterion?
		Calculating an investment’s NPV
		Independent versus mutually exclusive investment projects
		Checkpoint 11.1: Calculating the NPV for Project Long
		Checkpoint 11.2: Calculating the equivalent annual cost (EAC)
	11.3 Other investment criteria
		Profitability index
		Checkpoint 11.3: Calculating the profitability index for Project Long
		Internal rate of return
		Checkpoint 11.4: Calculating the IRR for Project Long
		Checkpoint 11.5: The problem of multiple IRRs for projects
		Modified internal rate of return
		Checkpoint 11.6: Calculating the modified internal rate of return (MIRR)
		Payback period
		Discounted payback period
		Summarising the alternative decision rules
	11.4 A glance at actual capital budgeting practices
	CHAPTER SUMMARY
	STUDY QUESTIONS
	STUDY PROBLEMS
	MINI-CASES
Chapter 12 Analysing project cash flows
	Chapter outline
	12.1 Project cash flows
		Incremental cash flows are what matters
		Guidelines for forecasting incremental cash flows
	12.2 Forecasting project cash flows
		Dealing with depreciation expense, tax and cash flow
		Four-step procedure for calculating project cash flows
		Checkpoint 12.1: Forecasting a project’s operating cash flow
		Calculating project NPV
	12.3 Inflation and capital budgeting
		Estimating nominal cash flows
	12.4 Replacement project cash flows
		Category 1: initial outlay,
		Category 2: annual cash flows
		Changes in depreciation and tax
		Changes in working capital
		Changes in capital spending
		Replacement example
		Checkpoint 12.2: Calculating free cash flows for a replacement investment
	CHAPTER SUMMARY
	STUDY QUESTIONS
	STUDY PROBLEMS
	MINI-CASES
	APPENDIX: THE DIMINISHING VALUE DEPRECIATION METHOD
	STUDY PROBLEMS
	ENDNOTE
Chapter 13 Risk analysis and project evaluation
	Chapter outline
	13.1 The importance of risk analysis
	13.2 Relevant measures of risk in capital budgeting
		Measuring risk for capital budgeting purposes, and a dose of reality—is systematic risk all there is?
	13.3 Incorporating risk into the capital-budgeting process
		Risk-adjusted discount rates
		Checkpoint 13.1: Risk-adjusted discount rate
		Certainty-equivalent approach
		Checkpoint 13.2: Certainty equivalents in capital budgeting
		Certainty-equivalent versus risk-adjusted discount rate methods
		Risk-adjusted discount rate and measurement of a project’s systematic risk
	13.4 Tools for analysing the risk of project cash flows
		Key concepts: expected values and value drivers
		Checkpoint 13.3: Forecasting revenue using expected values
		Sensitivity analysis
		Checkpoint 13.4: Project risk analysis: sensitivity analysis
		Scenario analysis
		Checkpoint 13.5: Project risk analysis: scenario analysis
		Simulation analysis
		Probability trees
	13.5 Real options in capital budgeting
		The option to delay the launch of a project
		The option to expand a project
		The option to reduce the scale and scope of a project
		Checkpoint 13.6: Analysing real options: option to expand
	CHAPTER SUMMARY
	STUDY QUESTIONS
	STUDY PROBLEMS
	MINI-CASE
	ENDNOTE
Chapter 14 The cost of capital
	Chapter outline
	14.1 The cost of capital: an overview
		Investor’s required return and the firm’s cost of capital
		WACC equation
		Three-step procedure for estimating the firm’s WACC
	14.2 Determining the firm’s capital-structure weights
		Checkpoint 14.1: Calculating the WACC for Templeton Extended Care Facilities Ltd
	14.3 Estimating the cost of individual sources of capital
		The cost of debt
		The cost of preference shares
		The cost of ordinary shares
		Checkpoint 14.2:  Estimating the cost of ordinary shares for Qantas Airways Ltd [QAN] using the dividend growth model
		Checkpoint 14.3: Estimating the cost of ordinary shares for Qantas Airways Ltd [QAN] using the CAPM
	14.4 Summing up: calculating the firm’s weighted average cost of capital
		Use market-based weights
		Use market-based opportunity costs
		Use forward-looking weights and opportunity costs
	14.5 Estimating project costs of capital
		The rationale for using multiple discount rates
		Why don’t firms typically use project costs of capital?
		Estimating divisional WACCs
	14.6 Flotation costs and project NPV
		WACC, flotation costs and NPV
		Checkpoint 14.4: Incorporating flotation costs into the calculation of NPV
	CHAPTER SUMMARY
	STUDY QUESTIONS
	STUDY PROBLEMS
	MINI-CASE
	ENDNOTES
Chapter 15 Analysis and impact of leverage
	Chapter outline
	15.1 Business and financial risk
	15.2 Break-even analysis
		Accounting break-even analysis
		Checkpoint 15.1: Project risk analysis: accounting break-even analysis
		NPV break-even analysis
		Limitations of break-even analysis
	15.3 Operating and financial leverage
		Operating leverage
		Financial leverage
		Combination of operating leverage and financial leverage
		Checkpoint 15.2: Operating, financial and combined leverage
		Implications of leverage analysis
	15.4 EBIT–EPS analysis
		Evaluating the effect of financial leverage on firm earnings per share
		Checkpoint 15.3: Evaluating the effect of financing decisions on EPS
	CHAPTER SUMMARY
	STUDY QUESTIONS
	STUDY PROBLEMS
	MINI-CASE
	ENDNOTE
Chapter 16 Capital-structure policy
	Chapter outline
	16.1 A glance at capital-structure choices in practice
		Defining a firm’s capital structure
		Financial leverage
		How do firms in different industries finance their assets?
	16.2 Capital-structure theory
		A first look at the Modigliani and Miller capital-structure theorem
		Yogi Berra and the M&M capital-structure theorem
		Capital structure, the cost of equity and the weighted average cost of capital
		Why capital structure matters in reality
		The trade-off theory and the optimal capital structure
		Capital-structure decisions and agency costs
		Making financing choices when managers are better informed than shareholders
		Managerial implications
	16.3 Why do capital structures differ across industries?
	16.4 Making financing decisions
		Benchmarking the firm’s capital structure
		Checkpoint 16.1: Benchmarking a financing decision
		Can the firm afford more debt?
		Survey evidence: factors that influence CFO debt policy
	CHAPTER SUMMARY
	STUDY QUESTIONS
	STUDY PROBLEMS
	MINI-CASE
	APPENDIX: DEMONSTRATING THE MODIGLIANI AND MILLER THEOREM
	ENDNOTES
Chapter 18 Financial Forecasting and Planning
	Chapter outline
	18.1 An overview of financial planning
	18.2 Developing a long-term financial plan
		Financial forecasting example: Ziegen Ltd
		Checkpoint 18.1: Estimating discretionary financing needed
	18.3 Developing a short-term financial plan
		Example cash budget: Melco Furniture Ltd
		Uses of the cash budget
	CHAPTER SUMMARY
	STUDY QUESTIONS
	STUDY PROBLEMS
	MINI-CASE
Chapter 19 Working capital management
	19.1 Working capital management and the risk–return trade-off
		Measuring firm liquidity
		Managing firm liquidity
		Risk–return trade-off
		Checkpoint 19.1: Measuring firm liquidity
	19.2 Working capital policy
		The principle of self-liquidating debt
		A graphic illustration of the principle of self-liquidating debt
	19.3 Operating cycle and cash conversion cycle
		Measuring working capital efficiency
		Calculating the operating cycle and cash conversion cycle
		Checkpoint 19.2: Analysing the cash conversion cycle
	19.4 Managing current liabilities
		Calculating the cost of short-term financing
		Evaluating the cost of trade credit
		Evaluating the cost of bank loans
		Checkpoint 19.3: Calculating the APR for a line of credit
	19.5 Managing the firm’s investment in current assets
		Cash and marketable securities
		Managing accounts receivable
		Managing inventories
	CHAPTER SUMMARY
	STUDY QUESTIONS
	STUDY PROBLEMS
	MINI-CASE
	ENDNOTES
Chapter 21 Corporate risk management
	Chapter outline
	21.1 Five-step corporate risk-management process
		Step 1: Identify and understand the firm’s major risks
		Step 2: Decide which types of risk to keep and which to transfer
		Step 3: Decide how much risk to assume
		Step 4: Incorporate risk into all the firm’s decisions and processes
		Step 5: Monitor and manage the risks the firm assumes
	21.2 Managing risk with insurance contracts
		Types of insurance contract
		Why purchase insurance?
	21.3 Managing risk by hedging with forward contracts
		Hedging commodity-price risk using forward contracts
		Hedging currency risk using forward contracts
		Checkpoint 21.1: Hedging crude-oil price risk using forward contracts
	21.4 Managing risk with exchange-traded financial derivatives
		Futures contracts
		Options contracts
		Checkpoint 21.2: Determining the break-even point and profit or loss on a call option
	21.5 Valuing options and swaps
		The Black–Scholes option pricing model
		Checkpoint 21.3: Valuing a call option using the Black–Scholes model
		Swap contracts
		Credit default swaps
	CHAPTER SUMMARY
	STUDY QUESTIONS
	STUDY PROBLEMS
	MINI-CASE
	ENDNOTES