Introduction to Corporate Finance, Abridged Edition (with SMARTMoves Printed Access Card & Thomson ONE)

Front Cover......Page 1
Title Page......Page 4
Copyright Page......Page 5
Brief Contents......Page 15
Contents......Page 16
Part 1: Introduction......Page 26
Opening Focus: Apple Succeeds with iTunes Where Others Had Failed......Page 27
1-1 The Role of Corporate Finance in Modern Business......Page 28
1-2 Corporate Finance Essentials......Page 34
1-3 Legal Forms of Business Organization......Page 40
Comparative Corporate Finance: The Growth of Stock Market Capitalization......Page 47
1-4 The Corporate Financial Manager’s Goals......Page 48
Key Terms......Page 54
Problems......Page 55
Minicase: The Scope of Corporate Finance......Page 58
Opening Focus: Big Oil Profits, Big Investment, and Big Problems......Page 59
2-1 Financial Statements......Page 61
Comparative Corporate Finance: Assessing the Market Values of Global Brands......Page 65
2-2 Cash Flow Analysis......Page 67
2-3 Analyzing Financial Performance Using Ratio Analysis......Page 73
Finance in Your Life: Analyzing Your Personal Financial Statements......Page 81
2-4 Corporate Taxes......Page 86
Summary......Page 88
Self-Test Problems......Page 89
Questions......Page 92
Problems......Page 93
Minicase: Financial Statement and Cash Flow Analysis......Page 103
Appendix......Page 105
Opening Focus: Why Is a “$340 Million Jackpot” Really Worth Only $164 Million?......Page 109
3-1 Future Value of a Lump Sum......Page 110
3-2 Present Value of a Lump Sum......Page 114
Comparative Corporate Finance: Save Money? Not Me; I’m an American......Page 115
3-3 Future Value of Cash Flow Streams......Page 118
3-4 Present Value of Cash Flow Streams......Page 124
3-5 Special Applications of Time Value......Page 131
Finance in Your Life: Saving for Your Retirement......Page 137
3-6 Additional Applications of Time-Value Techniques......Page 140
Summary......Page 145
Self-Test Problems......Page 146
Questions......Page 148
Problems......Page 149
Minicase: Present Value......Page 161
Appendix......Page 162
Part 2: Valuation, Risk, and Return......Page 174
Opening Focus: The Godfather of Soul’s Bowie Bond Lawsuit Still Lives......Page 175
4-1 Valuation Basics......Page 177
4-2 Bond Prices and Interest Rates......Page 179
Finance in Your Life: How Expensive a Home Can You Afford?......Page 184
4-3 Types of Bonds......Page 188
4-4 Bond Markets......Page 195
4-5 Advanced Bond Valuation—The Term Structure of Interest Rates (Optional)......Page 200
Comparative Corporate Finance: Is the Yield Curve a Good Economic Predictor?......Page 203
Summary......Page 206
Self-Test Problems......Page 207
Questions......Page 208
Problems......Page 209
Minicase: Valuing Bonds......Page 213
Appendix......Page 214
Opening Focus: The Value of Washington Group International Inc.......Page 219
5-1 The Essential Features of Preferred and Common Stock......Page 220
5-2-Primary Markets and Issuing New Securities......Page 225
5-3 Secondary Markets for Equity Securities......Page 233
Comparative Corporate Finance: NYSE Euronext…on to Asia......Page 236
5-4 Stock Valuation......Page 237
Finance in Your Life: Should I Buy a 25% Interest in Sawft, Inc.?......Page 245
5-5 Valuing the Enterprise—The Free Cash Flow Approach......Page 247
5-6 Other Approaches to Common Stock Valuation......Page 249
Key Terms......Page 252
Questions......Page 253
Problems......Page 254
Minicase: Valuing Stocks......Page 260
Appendix......Page 262
Opening Focus: Sky Falls on Chicken Little Fund......Page 268
6-1 Understanding Returns......Page 270
6-2 The History of Returns (or How to Get Rich Slowly)......Page 274
Finance in Your Life: Planning Your Pension......Page 279
6-3 Volatility and Risk......Page 280
6-4 The Power of Diversification......Page 285
Finance in Your Life: Combining Stocks and Bonds......Page 288
Self-Test Problems......Page 294
Questions......Page 295
Problems......Page 296
Minicase: The Trade-off Between Risk and  Return......Page 303
Appendix......Page 305
Opening Focus: Moody’s Downgrades GIC Due to High Beta Risk......Page 310
7-1 Expected Returns......Page 311
7-2 Risk and Return for Portfolios......Page 318
Finance in Your Life: Why Portfolio Weights Shift......Page 320
Comparative Corporate Finance: How Risky Are Emerging Markets?......Page 322
7-3 The Security Market Line and the CAPM......Page 324
7-4 Are Stock Returns Predictable?......Page 327
Self-Test Problems......Page 330
Questions......Page 331
Problems......Page 332
Minicase: Risk, Return, and the Capital Asset Pricing Model......Page 339
Appendix......Page 341
Part 3: Capital Budgeting......Page 350
Opening Focus: Coal Mountain......Page 351
8-1 Introduction to Capital Budgeting......Page 352
8-2 Accounting-Based Methods......Page 354
8-3 Payback Methods......Page 356
8-4 Net Present Value......Page 360
Finance in Your Life: The IRR of a Master’s Degree......Page 365
8-6 Profitability Index......Page 374
8-7 Which Techniques Do Firms Actually Use?......Page 375
Comparative Corporate Finance: Capital Budgeting in Other Countries......Page 376
Self-Test Problems......Page 377
Questions......Page 379
Problems......Page 380
Minicase: Capital Budgeting Process and Techniques......Page 388
Appendix......Page 389
Opening Focus: Vintner to IRS: Fence Me in, Please......Page 395
9-1 Types of Cash Flows......Page 396
Comparative Corporate Finance: Depreciation Rules and Gas Prices......Page 400
9-2 The Relevant Cash Flows......Page 405
Finance in Your Life: The Value of an MBA......Page 406
9-3 Cash Flows for Classicaltunes.com......Page 408
9-5 The Human Face of Capital Budgeting......Page 413
Self-Test Problems......Page 421
Questions......Page 423
Problems......Page 425
Minicase: Cash Flow and Capital Budgeting......Page 437
Opening Focus: Alcoa Publicly Discusses Its Cost of Capital......Page 438
10-1-Choosing the Right Discount Rate......Page 439
Comparative Corporate Finance: Does Opening Up to the World Reduce the Corporate Cost of Capital?......Page 447
10-2 A Closer Look at Risk......Page 449
10-3 Real Options......Page 456
10-4 Strategy and Capital Budgeting......Page 460
Summary......Page 462
Self-Test Problems......Page 463
Questions......Page 464
Problems......Page 465
Minicase: Risk and Capital Budgeting......Page 470
Appendix......Page 471
Part 4: Capital Structure and Dividend Policy......Page 476
Opening Focus: Record IPO Debuts Successfully—In Hong Kong and Shanghai......Page 477
11-1 The Basic Choices in Long-Term Financing......Page 479
11-2 Investment Banking and the Public Sale of Securities......Page 483
11-3 The U.S. Market for Initial Public Offerings (IPOs)......Page 489
11-4 Seasoned Equity Offerings in the United States......Page 496
Finance in Your Life: Choosing the Right Pension Plan at Your First Job......Page 498
11-5 International Common-Stock Offerings......Page 499
Comparative Corporate Finance: Average First-Day Returns on IPOs for 38 Countries......Page 501
Self-Test Problems......Page 507
Questions......Page 508
Problems......Page 509
Minicase: Raising Long-Term Financing......Page 513
Opening Focus: Capital Structures of America’s Most Admired Companies......Page 514
12-1 What Is Financial Leverage and Why Do Firms Use It?......Page 515
12-2 The Modigliani and Miller Capital Structure Irrelevance Propositions......Page 521
12-3 The M&M Capital Structure Model with Corporate and Personal Taxes......Page 524
12-4 The Agency Cost/Tax Shield Trade-Off Model of Corporate Leverage......Page 529
Comparative Corporate Finance: How Important Is R&D Spending to Modern Economies?......Page 530
Finance in Your Life: The Hidden Cost of Personal Debt......Page 535
12-5 Patterns Observed in Corporate Capital Structures......Page 536
Summary......Page 540
Self-Test Problems......Page 541
Questions......Page 543
Problems......Page 544
Minicase: Capital Structure......Page 551
Opening Focus: Once Floated, WorldCom’s Bonds Sink......Page 552
13-1 Characteristics of Long-Term Debt Financing......Page 553
Comparative Corporate Finance: Islamic Finance: How Do You Sell Bonds When You Cannot Pay Interest?......Page 555
13-2 Corporate Loans......Page 557
13-3 Corporate Bonds......Page 560
13-4 Leasing......Page 571
Finance in Your Life: Should I Lease or Buy the Car?......Page 577
Key Terms......Page 580
Self-Test Problems......Page 581
Questions......Page 582
Problems......Page 583
Minicase: Long-Term Debt and Leasing......Page 589
Opening Focus: Germany’s E.ON Launches a Share Repurchase Program and Raises Its Dividend Payout......Page 590
14-1 Dividend Fundamentals......Page 593
14-2 Patterns Observed in Payout Policies Worldwide......Page 600
14-3 Dividend Irrelevance in a World with Perfect Capital Markets......Page 608
14-4 Real-World Influences on Dividend Policy......Page 610
Finance in Your Life: To Dividend or Not to Dividend......Page 614
14-5 A Checklist for Dividend Payments......Page 617
Comparative Corporate Finance: Dividend Policies of the 25 Most Valuable Non-U.S. Public Companies in 2007......Page 618
Summary......Page 619
Self-Test Problems......Page 620
Questions......Page 621
Problems......Page 622
Minicase: Dividend Policy......Page 628
Part 5: Financial Planning and Management......Page 630
Opening Focus: Dell’s Challenges and Plans......Page 631
15-1 Overview of the Planning Process......Page 633
Comparative Corporate Finance: Public Versus Private Forecasts......Page 635
15-2 Planning for Growth......Page 636
15-3 Planning and Control......Page 646
Finance in Your Life: Can I Make Ends Meet?......Page 653
Summary......Page 655
Self-Test Problems......Page 656
Questions......Page 658
Problems......Page 659
Minicase: Financial Planning......Page 665
Appendix......Page 666
Opening Focus: Apple’s Abundant Cash......Page 672
16-1 The Cash Conversion Cycle......Page 675
16-2 Cost Trade-Offs in Short-Term Financial Management......Page 679
16-3 Inventory Management......Page 682
Finance in Your Life: Should I Buy in Large Quantities?......Page 686
16-4 Accounts Receivable Standards and Terms......Page 688
Comparative Corporate Finance: Trade Credit Practices Around the World......Page 690
16-5 Collecting, Monitoring, and Applying Cash to Receivables......Page 698
Summary......Page 702
Self-Test Problems......Page 704
Questions......Page 705
Problems......Page 706
Minicase: Cash Conversion, Inventory, and Receivables Management......Page 715
Appendix......Page 716
17-1 Cash Management......Page 721
17-2 Collections......Page 725
Comparative Corporate Finance: Please Send Money......Page 727
17-3 Accounts Payable and Disbursements......Page 732
Finance in Your Life: Finding Credit Card Finance Charges and Minimum Payments......Page 733
17-4 Short-Term Investing and Borrowing......Page 737
Summary......Page 742
Self-Test Problems......Page 743
Questions......Page 745
Problems......Page 746
Minicase: Cash, Payables, and Liquidity Management......Page 750
Part 6: Special Topics......Page 752
Opening Focus: Kiwi Dollar Rough on Roughy......Page 753
18-1 Exchange Rate Fundamentals......Page 754
Finance in Your Life: Pilgrimage to Mata Mata......Page 757
18-2 The Parity Conditions in International Finance......Page 762
18-3 Managing Financial and Political Risk......Page 771
Comparative Corporate Finance: How Risky Are Different Countries......Page 774
18-4 Long-Term Investment Decisions......Page 775
Summary......Page 778
Questions......Page 779
Problems......Page 780
Minicase: International Financial Management......Page 785
Appendix......Page 786
19. Options......Page 790
20. Entrepreneurial Finance and Venture Capital......Page 842
21. Mergers, Acquisitions, and Corporate Control......Page 871
22. Bankruptcy and Financial Distress......Page 912
23. Risk Management......Page 943
Appendix A: Financial Tables......Page 975
Appendix B: Cumulative Probabilities......Page 981
Glossary......Page 983
Name & Company Index......Page 1005
Subject Index......Page 1009