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Principles of Corporate Finance + Student CD + Ethics in Finance PowerWeb + Standard and Poor's

ISBN: 9780073130828 | 0073130826
Edition: 8th
Format: Hardcover
Publisher: McGraw-Hill/Irwin
Pub. Date: 1/25/2005

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SummaryTable of ContentsAuthor Biography
Principles of Corporate Finance is the worldwide leading text that describes the theory and practice of corporate finance. Throughout the book the authors show how managers use financial theory to solve practical problems and as a way of learning how to respond to change by showing not just how but why companies and management act as they do. The text is comprehensive, authoritative, and modern and yet the material is presented at a common sense level. The discussions and illustrations are unique due to the depth of detail blended with a distinct sense of humor for which the book is well known and highly regarded. This text is a valued reference for thousands of practicing financial managers.Richard A. Brealey and Stewart C. Myers welcome Franklin Allen as a new coauthor to this Eighth Edition. Sometimes the addition of a new coauthor means that one of the existing authors proposes to take a back seat. That is not the case with this team. Dr. Allen's addition represents a genuine increase in capacity and brings fresh expertise and ideas to an already tremendously successful textbook and partnership.
Part One VALUE
1(143)
Finance and the Financial Manager
4(10)
What Is a Corporation?
... MORE5(1)
The Role of the Financial Manager
6(2)
Who Is the Financial Manager?
8(1)
Separation of Ownership and Management
9(2)
Topics Covered in this Book
11(3)
Summary
12(1)
Further Reading
12(1)
Concept Review Questions
13(1)
Quiz
13(1)
Present Values, the Objectives of the Firm, and Corporate Governance
14(20)
Introduction to Present Value
15(5)
Calculating Future and Present Value
Net Present Value
Risk and Present Value
Present Values and Rates of Return
The Opportunity Cost of Capital
A Source of Confusion
Foundations of the Net Present Value Rule
20(5)
How Capital Markets Reconcile Preferences for Current vs. Future Consumption
A Fundamental Result
Other Corporate Goals
Corporate Goals and Corporate Governance
25(9)
Should Managers Look after the Interests of Shareholders?
Should Firms Be Managed for Shareholders or All Stakeholders?
Summary
28(2)
Further Reading
30(1)
Concept Review Questions
30(1)
Quiz
30(1)
Practice Questions
31(1)
Challenge Questions
32(2)
How to Calculate Present Values
34(22)
Valuing Long-Lived Assets
35(4)
Valuing Cash Flows in Several Periods
Why the Discount Factor Declines As Futurity Increases---And a Digression on Money Machines
Calculating PVs and NPVs
Looking for Shortcuts---Perpetuities and Annuities
39(5)
How to Value Growing Perpetuities
How to Value Annuities
Compound Interest and Present Values
44(5)
A Note on Compounding Intervals
Continuous Compounding
Nominal and Real Rates of Interest
49(7)
Summary
50(1)
Web Exercises
51(1)
Concept Review Questions
52(1)
Quiz
52(1)
Practice Questions
53(2)
Challenge Questions
55(1)
The Value of Bonds and Common Stocks
56(28)
Using Present Value Formulas to Value Bonds
57(3)
A Short Trip to Germany to Value a Government Bond
What Happens When Interest Rates Change?
Back in the United States: Semiannual Coupons and Bond Prices
How Common Stocks Are Traded
60(1)
How Common Stocks Are Valued
61(4)
Today's Price
But What Determines Next Year's Price?
Estimating the Cost of Equity Capital
65(7)
Using the DCF Model to Set Gas and Electricity Prices
Some Warnings about Constant-Growth Formulas
DCF Valuation with Varying Growth Rates
The Link between Stock Price and Earnings per Share
72(12)
Calculating the Present Value of Growth Opportunities for Fledgling Electronics
Some Examples of Growth Opportunities?
Summary
76(1)
Further Reading
77(1)
Concept Review Questions
78(1)
Quiz
78(1)
Practice Questions
79(2)
Challenge Questions
81(1)
Mini-case: Reeby Sports
82(2)
Why Net Present Value Leads to Better Investment Decisions than Other Criteria
84(28)
A Review of the Basics
85(4)
Net Present Value's Competitors
Three Points to Remember about NPV
NPV Depends on Cash Flow, Not on Book Returns
Payback
89(2)
The Payback Rule
Internal (or Discounted-Cash-Flow) Rate of Return
91(9)
Calculating the IRR
The IRR Rule
Pitfall 1---Lending or Borrowing?
Pitfall 2---Multiple Rates of Return
Pitfall 3---Mutually Exclusive Projects
Pitfall 4---What Happens When We Can't Finesse the Term Structure of Interest Rates?
The Verdict on IRR
Choosing Capital Investments When Resources Are Limited
100(12)
An Easy Problem in Capital Rationing
Uses of Capital Rationing Models
Summary
103(1)
Further Reading
104(1)
Concept Review Questions
105(1)
Quiz
105(1)
Practice Questions
106(2)
Challenge Questions
108(1)
Mini-case: Vegetron's CFO Calls Again
109(3)
Making Investment Decisions with the Net Present Value Rule
112(32)
What to Discount
113(5)
Only Cash Flow Is Relevant
Estimate Cash Flows on an Incremental Basis
Treat Inflation Consistently
Example---IM&C'S Fertilizer Project
118(7)
Separating Investment and Financing Decisions
Investments in Working Capital
A Further Note on Depreciation
A Final Comment on Taxes
Project Analysis
Calculating NPV in Other Countries and Currencies
Equivalent Annual Costs
125(5)
Investing to Produce Reformulated Gasoline at California Refineries
Choosing between Long- and Short-Lived Equipment
Deciding When to Replace an Existing Machine
Cost of Excess Capacity
Project Interactions
130(14)
Case 1: Optimal Timing of Investment
Case 2: Fluctuating Load Factors
Summary
133(1)
Concept Review Questions
134(1)
Quiz
134(2)
Practice Questions
136(4)
Challenge Questions
140(1)
Mini-case: New Economy Transport (A) and (B)
141(3)
Part Two RISK
144(98)
Introduction to Risk, Return, and the Opportunity Cost of Capital
146(34)
Over a Century of Capital Market History in One Easy Lesson
147(7)
Arithmetic Averages and Compound Annual Returns
Using Historical Evidence to Evaluate Today's Cost of Capital
An Alternative Measure of the Risk Premium
Measuring Portfolio Risk
154(9)
Variance and Standard Deviation
Measuring Variability
How Diversification Reduces Risk
Calculating Portfolio Risk
163(4)
General Formula for Computing Portfolio Risk
Limits to Diversification
How Individual Securities Affect Portfolio Risk
167(4)
Market Risk Is Measured by Beta
Why Security Betas Determine Portfolio Risk
Diversification and Value Additivity
171(9)
Summary
172(1)
Further Reading
173(1)
Concept Review Questions
173(1)
Quiz
174(1)
Practice Questions
175(3)
Challenge Questions
178(2)
Risk and Return
180(34)
Harry Markowitz and the Birth of Portfolio Theory
181(7)
Combining Stocks into Portfolios
We Introduce Borrowing and Lending
The Relationship between Risk and Return
188(4)
Some Estimates of Expected Returns
Review of the Capital Asset Pricing Model
What If a Stock Did Not Lie on the Security Market Line?
Validity and Role of the Capital Asset Pricing Model
192(5)
Tests of the Capital Asset Pricing Model
Assumptions behind the Capital Asset Pricing Model
Some Alternative Theories
197(17)
Consumption Betas versus Market Betas
Arbitrage Pricing Theory
A Comparison of the Capital Asset Pricing Model and Arbitrage Pricing Theory
APT Example
The Three-Factor Model
Summary
204(2)
Further Reading
206(1)
Concept Review Questions
206(1)
Quiz
206(2)
Practice Questions
208(4)
Challenge Questions
212(2)
Capital Budgeting and Risk
214(28)
Company and Project Costs of Capital
215(4)
Perfect Pitch and the Cost of Capital
Debt and the Company Cost of Capital
Measuring the Cost of Equity
219(3)
Estimating Beta
The Expected Return on Union Pacific Corporation's Common Stock
Setting Discount Rates When You Do Not Have a Beta
222(4)
Avoid Fudge Factors in Discount Rates
What Determines Asset Betas?
Certainty Equivalents---Another Way of Adjusting for Risk
226(5)
Valuation by Certainty Equivalents
When to Use a Single Risk-Adjusted Discount Rate for Long-Lived Assets
A Common Mistake
When You Cannot Use a Single Risk-Adjusted Discount Rate for Long-Lived Assets
Discount Rates for International Projects
231(11)
Foreign Investments Are Not Always Riskier
Foreign Investment in the United States
Do Some Countries Have a Lower Cost of Capital?
Summary
234(1)
Further Reading
235(1)
Concept Review Questions
235(1)
Quiz
235(1)
Practice Questions
236(3)
Challenge Questions
239(1)
Mini-case: The Jones Family, Incorporated
240(2)
Part Three PRACTICAL PROBLEMS IN CAPITAL BUDGETING
242(86)
A Project is not a Black Box
244(30)
Sensitivity Analysis
245(8)
Value of Information
Limits to Sensitivity Analysis
Scenario Analysis
Break-Even Analysis
Operating Leverage and Break-Even Points
Monte Carlo Simulation
253(4)
Simulating the Electric Scooter Project
Simulation of Pharmaceutical Research and Development
Real Options and Decision Trees
257(17)
The Option to Expand
The Option to Abandon
Two Other Real Options
More on Decision Trees
An Example: Magna Charter
Pro and Con Decision Trees
Decision Trees and Monte Carlo Simulation
Summary
267(1)
Further Reading
268(1)
Concept Review Questions
268(1)
Quiz
268(1)
Practice Questions
269(2)
Challenge Questions
271(1)
Mini-case: Waldo County
271(3)
Strategy and the Capital Investment Decision
274(24)
Look First to Market Values
275(5)
The Cadillac and the Movie Star
Example: Investing in a New Department Store
Another Example: Opening a Gold Mine
Economic Rents and Competitive Advantage
280(4)
How One Company Avoided a $100 Million Mistake
Example: Marvin Enterprises Decides to Exploit a New Technology
284(14)
Forecasting Prices of Gargle Blasters
The Value of Marvin's New Expansion
Alternative Expansion Plans
The Value of Marvin Stock
The Lessons of Marvin Enterprises
Summary
292(1)
Further Reading
292(1)
Concept Review Questions
292(1)
Quiz
292(1)
Practice Questions
293(2)
Challenge Questions
295(2)
Mini-case: Ecsy-Cola
297(1)
Agency Problems, Management Compensation, and the Measurement of Performance
298(30)
The Capital Investment Process
299(3)
Project Authorizations
Some Investments May Not Show Up in the Capital Budget
Postaudits
Decision Makers Need Good Information
302(2)
Establishing Consistent Forecasts
Reducing Forecast Bias
Getting Senior Management the Information That It Needs
Eliminating Conflicts of Interest
Incentives
304(5)
Overview: Agency Problems in Capital Budgeting
Monitoring
Providing Incentives for Managers
Management Compensation
Measuring and Rewarding Performance: Residual Income and EVA
309(5)
Pros and Cons of EVA
Biases in Accounting Measures of Performance
314(2)
Example: Measuring the Profitability of the Nodhead Supermarket
Measuring Economic Profitability
316(12)
Do the Biases Wash Out in the Long Run?
What Can We Do about Biases in Accounting Profitability Measures?
Do Managers Worry Too Much about Book Profitability?
Summary
321(1)
Further Reading
322(1)
Concept Review Questions
322(1)
Quiz
323(1)
Practice Questions
324(1)
Challenge Questions
325(3)
Part Four FINANCING DECISIONS AND MARKET EFFICIENCY
328(84)
Corporate Financing and the Six Lessons of Market Efficiency
330(30)
We Always Come Back to NPV
332(1)
Differences between Investment and Financing Decisions
What Is an Efficient Market?
333(9)
A Startling Discovery: Price Changes Are Random
Three Forms of Market Efficiency
Efficient Markets: The Evidence
Puzzles and Anomalies---What Do They Mean for the Financial Manager?
342(7)
Do Investors Respond Slowly to New Information?
Stock Market Anomalies and Behavioral Finance
Irrational Exuberance and the Dot.com Bubble
The Dot.com Boom and Relative Efficiency
Market Anomalies and the Financial Manager
The Six Lessons of Market Efficiency
349(11)
Lesson 1: Markets Have No Memory
Lesson 2: Trust Market Prices
Lesson 3: Read the Entrails
Lesson 4: There Are No Financial Illusions
Lesson 5: The Do-It-Yourself Alternative
Lesson 6: Seen One Stock, Seen Them All
Summary
354(1)
Further Reading
355(1)
Concept Review Questions
355(1)
Quiz
356(1)
Practice Questions
357(2)
Challenge Questions
359(1)
An Overview of Corporate Financing
360(22)
Patterns of Corporate Financing
361(5)
Do Firms Rely Too Much on Internal Funds?
How Much Do Firms Borrow?
Common Stock
366(6)
Ownership of the Corporation
Voting Procedures and the Value of Votes
Equity in Disguise
Preferred Stock
Debt
372(3)
Debt Comes in Many Forms
Variety's the Very Spice of Life
Financial Markets and Institutions
375(7)
Financial Institutions
Summary
378(1)
Further Reading
379(1)
Web Exercises
379(1)
Concept Review Questions
379(1)
Quiz
379(1)
Practice Questions
380(1)
Challenge Questions
381(1)
How Corporations Issue Securities
382(30)
Venture Capital
383(4)
The Venture Capital Market
The Initial Public Offering
387(7)
Arranging an Initial Public Offering
The Sale of Marvin Stock
The Underwriters
Costs of a New Issue
Underpricing of IPOs
Other New-Issue Procedures
394(2)
Types of Auctions
Security Sales by Public Companies
396(7)
General Cash Offers
International Security Issues
The Costs of a General Cash Offer
Market Reaction to Stock Issues
Rights Issues
Private Placements and Public Issues
403(9)
Summary
403(1)
Appendix: Marvin's New-Issue Prospectus
404(4)
Further Reading
408(1)
Web Exercises
408(1)
Concept Review Questions
408(1)
Quiz
409(1)
Practice Questions
410(1)
Challenge Questions
411(1)
Part Five PAYOUT POLICY AND CAPITAL STRUCTURE
412(126)
Payout Policy
414(30)
The Choice of Payout Policy
415(1)
Dividend Payments and Stock Repurchases
416(2)
How Dividends Are Paid
How Firms Repurchase Stock
How Do Companies Decide on the Payout
418(1)
The Information in Dividends and Stock Repurchases
419(3)
The Information Content of Share Repurchase
The Payout Controversy
422(5)
Dividend Policy Is Irrelevant in Perfect Capital Markets
Dividend Irrelevance---An Illustration
Calculating Share Price
Share Repurchase
Stock Repurchase and Valuation
The Rightists
427(2)
Payout Policy, Investment Policy, and Management Incentives
Taxes and the Radical Left
429(6)
Why Pay Any Dividends at All?
Empirical Evidence on Dividends and Taxes
The Taxation of Dividends and Capital Gains
The Middle-of-the-Roaders
435(9)
Alternative Tax Systems
Summary
436(1)
Further Reading
437(1)
Concept Review Questions
437(1)
Quiz
437(2)
Practice Questions
439(2)
Challenge Questions
441(3)
Does Debt Policy Matter?
444(24)
The Effect of Financial Leverage in a Competitive Tax-free Economy
445(7)
Enter Modigliani and Miller
The Law of Conservation of Value
An Example of Proposition 1
Financial Risk and Expected Returns
452(4)
Proposition 2
How Changing Capital Structure Affects Beta
The Weighted-Average Cost of Capital
456(5)
Two Warnings
Rates of Return on Levered Equity---The Traditional Position
Today's Unsatisfied Clienteles Are Probably Interested in Exotic Securities
Imperfections and Opportunities
A Final Word on the After-Tax Weighted-Average Cost of Capital
461(7)
Union Pacific's WACC
Summary
462(1)
Further Reading
463(1)
Concept Review Questions
464(1)
Quiz
464(1)
Practice Questions
465(2)
Challenge Questions
467(1)
How Much Should a Firm Borrow?
468(34)
Corporate Taxes
469(4)
How Do Interest Tax Shields Contribute to the Value of Stockholders' Equity?
Recasting Pfizer's Capital Structure
MM and Taxes
Corporate and Personal Taxes
473(3)
Costs of Financial Distress
476(14)
Bankruptcy Costs
Evidence on Bankruptcy Costs
Direct versus Indirect Costs of Bankruptcy
Financial Distress without Bankruptcy
Debt and Incentives
Risk Shifting: The First Game
Refusing to Contribute Equity Capital: The Second Game
And Three More Games, Briefly
What the Games Cost
Costs of Distress Vary with Type of Asset
The Trade-off Theory of Capital Structure
The Pecking Order of Financing Choices
490(12)
Debt and Equity Issues with Asymmetric Information
Implications of the Pecking Order
The Trade-Off Theory vs. the Pecking-Order Theory---Some Recent Tests
The Bright Side and the Dark Side of Financial Slack
Summary
495(2)
Further Reading
497(1)
Concept Review Questions
497(1)
Quiz
498(1)
Practice Questions
499(2)
Challenge Questions
501(1)
Financing and Valuation
502(36)
The After-Tax Weighted-Average Cost of Capital
503(4)
Example: Sangria Corporation
Review of Assumptions
Valuing Businesses
507(6)
Valuing Rio Corporation
Estimating Horizon Value
WACC vs. the Flow-to-Equity Method
Using WACC in Practice
513(8)
Some Tricks of the Trade
Mistakes People Make in Using the Weighted-Average Formula
Adjusting WACC When Debt Ratios or Business Risks Differ
Unlevering and Relevering Betas
The Importance of Rebalancing
The Modigliani-Miller Formula, Plus Some Final Advice
Adjusted Present Value
521(4)
APV for the Perpetual Crusher
Other Financing Side Effects
APV for Businesses
APV for International Investments
Your Questions Answered
525(13)
Summary
527(2)
Appendix: Discounting Safe, Nominal Cash Flows
529(3)
Further Reading
532(1)
Concept Review Questions
532(1)
Quiz
533(1)
Practice Questions
534(3)
Challenge Questions
537(1)
Part Six OPTIONS
538(84)
Understanding Options
540(24)
Calls, Puts, and Shares
542(4)
Call Options and Position Diagrams
Put Options
Selling Calls, Puts, and Shares
Position Diagrams Are Not Profit Diagrams
Financial Alchemy with Options
546(6)
Spotting the Option
What Determines Option Values?
552(12)
Risk and Option Values
Summary
558(1)
Further Reading
558(1)
Concept Review Questions
559(1)
Quiz
559(1)
Practice Questions
560(2)
Challenge Questions
562(2)
Valuing Options
564(32)
A Simple Option-Valuation Model
565(5)
Why Discounted Cash Flow Won't Work for Options
Constructing Option Equivalents from Common Stocks and Borrowing
Valuing the Amgen Put Option
The Binomial Method for Valuing Options
570(5)
Example: The Two-Stage Binomial Method
The General Binomial Method
The Binomial Method and Decision Trees
The Black--Scholes Formula
575(4)
Using the Black--Scholes Formula
The Black--Scholes Formula and the Binomial Method
Black--Scholes in Action
579(3)
Executive Stock Options
Warrants
Portfolio Insurance
Calculating Implied Volatilities
Option Values at a Glance
582(14)
Summary
585(1)
Appendix: How Dilution Affects Option Value
585(4)
Further Reading
589(1)
Concept Review Questions
589(1)
Quiz
589(1)
Practice Questions
590(3)
Challenge Questions
593(1)
Mini-case: Bruce Honiball's Invention
593(3)
Real Options
596(26)
The Value of Follow-on Investment Opportunities
597(5)
Questions and Answers about Blitzen's Mark II
Other Expansion Options
The Timing Option
602(3)
Valuing the Malted Herring Option
Optimal Timing for Real Estate Development
The Abandonment Option
605(5)
The Zircon Subductor Project
Abandonment Value and Project Life
Temporary Abandonment
Flexible Production---and Another Look at Aircraft Purchase Options
610(4)
Another Look at Aircraft Purchase Options
A Conceptual Problem?
614(8)
Practical Challenges
Summary
615(1)
Further Reading
616(1)
Concept Review Questions
617(1)
Quiz
617(1)
Practice Questions
617(2)
Challenge Questions
619(3)
Part Seven DEBT FINANCING
622(96)
Valuing Government Bonds
624(24)
Real and Nominal Rates of Interest
626(3)
Indexed Bonds and the Real Rate of Interest
Inflation and Nominal Interest Rates
How Well Does Fisher's Theory Explain Interest Rates?
Term Structure and Yields to Maturity
629(3)
Yield to Maturity
Measuring the Term Structure
How Interest Rate Changes Affect Bond Prices
632(4)
Duration and Bond Volatility
Managing Interest Rate Risk
A Cautionary Note
Explaining the Term Structure
636(12)
The Expectations Theory
The Liquidity-Preference Theory
Introducing Inflation
Relationships between Bond Returns
Summary
641(1)
Further Reading
642(1)
Web Exercise
642(1)
Concept Review Questions
643(1)
Quiz
643(1)
Practice Questions
644(2)
Challenge Questions
646(2)
Credit Risk
648(20)
The Value of Corporate Debt
649(7)
The Difference between Safe and Risky Debt
Valuing the Default Option
Valuing Government Loan Guarantees
Bond Ratings and the Probability of Default
656(3)
Predicting the Probability of Default
659(4)
Credit Scoring
Market-Based Risk Models
Value at Risk
663(5)
Summary
665(1)
Further Reading
666(1)
Concept Review Questions
666(1)
Quiz
666(1)
Practice Questions
667(1)
Challenge Questions
667(1)
The Many Different Kinds of Debt
668(30)
Domestic Bonds, Foreign Bonds, and Eurobonds
670(1)
The Bond Contract
670(3)
Indenture, or Trust Deed
The Bond Terms
Security and Seniority
673(2)
Asset-Backed Securities
Repayment Provisions
675(3)
Sinking Funds
Call Provisions
Debt Covenants
678(2)
Convertible Bonds and Warrants
680(6)
What Is a Convertible Bond?
The Value of a Convertible at Maturity
Forcing Conversion
Why Do Companies Issue Convertibles?
Valuing Convertible Bonds
Some Variations on Convertible Bonds: Mandatory Convertibles and Reverse Convertibles
A Third Variation on Convertible Bonds: The Bond-Warrant Package
Private Placements and Project Finance
686(4)
Project Finance
Project Finance---Some Common Features
The Role of Project Finance
Innovation in the Bond Market
690(8)
Summary
692(1)
Further Reading
693(1)
Concept Review Questions
693(1)
Quiz
693(1)
Practice Questions
694(2)
Challenge Questions
696(1)
Mini-case: The Shocking Demise of Mr. Thorndike
697(1)
Leasing
698(20)
What Is a Lease?
699(1)
Why Lease?
700(3)
Sensible Reasons for Leasing
Some Dubious Reasons for Leasing
Operating Leases
703(3)
Example of an Operating Lease
Lease or Buy?
Valuing Financial Leases
706(6)
Example of a Financial Lease
Who Really Owns the Leased Asset?
Leasing and the Internal Revenue Service
A First Pass at Valuing a Lease Contract
The Story So Far
When Do Financial Leases Pay?
712(6)
Summary
713(1)
Further Reading
714(1)
Concept Review Questions
714(1)
Quiz
715(1)
Practice Questions
716(1)
Challenge Questions
717(1)
Part Eight RISK MANAGEMENT
718(62)
Managing Risk
720(34)
Why Manage Risk?
721(3)
Reducing the Risk of Cash Shortfalls or Financial Distress
Agency Costs May Be Mitigated by Risk Management
The Evidence on Risk Management
Insurance
724(3)
How British Petroleum (BP) Changed Its Insurance Strategy
Forward and Futures Contracts
727(8)
A Simple Forward Contract
Futures Exchanges
The Mechanics of Futures Trading
Trading and Pricing Financial Futures Contracts
Spot and Futures Prices---Commodities
More about Forward Contracts
Homemade Forward Rate Contracts
Swaps
735(4)
Interest Rate Swaps
Currency Swaps
Credit Derivatives
How to Set Up a Hedge
739(4)
Using Theory to Set Up the Hedge: An Example
Options, Deltas, and Betas
Is ``Derivative'' a Four-Letter Word?
743(11)
Summary
746(1)
Further Reading
747(1)
Concept Review Questions
747(1)
Quiz
748(1)
Practice Questions
749(4)
Challenge Questions
753(1)
Managing International Risks
754(26)
The Foreign Exchange Market
755(2)
Some Basic Relationships
757(8)
Interest Rates and Exchange Rates
The Forward Premium and Changes in Spot Rates
Changes in the Exchange Rate and Inflation Rates
Interest Rates and Inflation Rates
Is Life Really That Simple?
Hedging Currency Risk
765(3)
Transaction Exposure and Economic Exposure
Currency Speculation
Exchange Risk and International Investment Decisions
768(3)
More about the Cost of Capital
Political Risk
771(9)
Summary
773(1)
Further Reading
774(1)
Web Exercise
775(1)
Concept Review Questions
775(1)
Quiz
775(1)
Practice Questions
776(2)
Challenge Questions
778(1)
Mini-case: Exacta, s.a.
779(1)
Part Nine FINANCIAL PLANNING AND THE MANAGEMENT OF WORKING CAPITAL
780(88)
Financial Analysis and Planning
782(30)
Financial Statements
783(1)
Executive Paper's Financial Statements
784(5)
The Balance Sheet
The Income Statement
Sources and Uses of Funds
Measuring Executive Paper's Financial Condition
789(8)
How Much Has Executive Paper Borrowed?
How Liquid Is Executive Paper?
How Productively Is Executive Paper Using Its Assets?
How Profitable Is Executive Paper?
How Highly Is Executive Paper Valued by Investors?
The Dupont System
Financial Planning
797(1)
Financial Planning Models
798(3)
Pitfalls in Model Design
There Is No Finance in Financial Planning Models
Growth and External Financing
801(11)
Summary
802(1)
Further Reading
803(1)
Web Exercises
804(1)
Concept Review Questions
804(1)
Quiz
804(3)
Practice Questions
807(4)
Challenge Questions
811(1)
Working Capital Management
812(28)
Credit Management
814(7)
Terms of Sale
The Promise to Pay
Credit Analysis
The Credit Decision
Collection Policy
Inventory Management
821(1)
Cash
821(5)
Using Cash Efficiently
Electronic Funds Transfer
International Cash Management
Paying for Bank Services
Marketable Securities
826(14)
Calculating the Yield on Money-Market Investments
Yields on Money-Market Investments
The International Money Market
Money-Market Instruments
Summary
832(2)
Further Reading
834(1)
Web Exercises
834(1)
Concept Review Questions
834(1)
Quiz
835(1)
Practice Questions
836(2)
Challenge Questions
838(2)
Short-Term Financial Planning
840(28)
Links between Long-Term and Short-Term Financing Decisions
841(4)
Tracing Changes in Cash and Working Capital
845(4)
Tracing Changes in Net Working Capital
Profits and Cash Flow
Cash Budgeting
849(3)
Preparing the Cash Budget: Inflow
Preparing the Cash Budget: Outflow
The Short-Term Financing Plan
852(4)
Options for Short-Term Financing
Dynamic's Financing Plan
Evaluating the Plan
A Note on Short-Term Financial Planning Models
Sources of Short-Term Borrowing
856(12)
Bank Loans
Commercial Paper
Medium-Term Notes
Summary
861(2)
Further Reading
863(1)
Web Exercise
863(1)
Concept Review Questions
863(1)
Quiz
863(2)
Practice Questions
865(2)
Challenge Questions
867(1)
Part Ten MERGERS, CORPORATE CONTROL, AND GOVERNANCE
868(87)
Mergers
870(34)
Sensible Motives for Mergers
871(6)
Economies of Scale
Economies of Vertical Integration
Complementary Resources
Surplus Funds
Eliminating Inefficiencies
Industry Consolidation
Some Dubious Reasons for Mergers
877(4)
To Diversify
Increasing Earnings per Share: The Bootstrap Game
Lower Financing Costs
Estimating Merger Gains and Costs
881(5)
Right and Wrong Ways to Estimate the Benefits of Mergers
More on Estimating Costs---What If the Target's Stock Price Anticipates the Merger
Estimating Cost When the Merger Is Financed by Stock
Asymmetric Information
The Mechanics of a Merger
886(3)
Mergers and Antitrust Law
The Form of Acquisition
Merger Accounting
Some Tax Considerations
Takeover Battles and Tactics
889(7)
Boone Pickens Tries to Take Over Cities Service, Gulf Oil, and Phillips Petroleum
Takeover Defenses
AlliedSignal vs. AMP
Who Gains Most in Mergers?
Mergers and the Economy
896(8)
Merger Waves
Do Mergers Generate Net Benefits?
Summary
897(1)
Appendix: Conglomerate Mergers and Value Additivity
898(2)
Further Reading
900(1)
Concept Review Questions
901(1)
Quiz
901(1)
Practice Questions
902(1)
Challenge Questions
903(1)
Corporate Restructuring
904(26)
Leveraged Buyouts
905(5)
RJR Nabisco
Barbarians at the Gate?
Leveraged Restructurings
LBOs and Leveraged Restructurings
Fusion and Fission in Corporate Finance
910(5)
Spin-offs
Carve-outs
Asset Sales
Privatization
Conglomerates
915(6)
Fifteen Years after Reading This Chapter
Financial Architecture of Traditional U.S. Conglomerates
Temporary Conglomerates
Bankruptcy
921(9)
Is Chapter 11 Efficient?
Workouts
Alternative Bankruptcy Procedures
Summary
926(1)
Further Reading
927(1)
Concept Review Questions
928(1)
Quiz
929(1)
Practice Questions
929(1)
Governance and Corporate Control Around the World
930(25)
Financial Markets and Institutions
931(5)
Investor Protection and the Development of Financial Markets
Ownership, Control, and Governance
936(9)
Ownership and Control in Japan
Ownership and Control in Germany
European Boards of Directors
Ownership and Control in Other Countries
Conglomerates Revisited
Do These Differences Matter?
945(10)
Risk and Short-termism
Growth Industries and Declining Industries
Transparency and Governance
Summary
949(2)
Further Reading
951(1)
Concept Review Questions
951(1)
Quiz
951(1)
Practice Questions
952(3)
Part Eleven CONCLUSION
955(13)
Conclusion: What We Do and Do Not Know About Finance
956(12)
What We Do Know: The Seven Most Important Ideas in Finance
957(3)
Net Present Value
The Capital Asset Pricing Model
Efficient Capital Markets
Value Additivity and the Law of Conservation of Value
Capital Structure Theory
Option Theory
Agency Theory
What We Do Not Know: 10 Unsolved Problems in Finance
960(7)
What Determines Project Risk and Present Value?
Risk and Return---What Have We Missed?
How Important Are the Exceptions to the Efficient-Market Theory?
Is Management an Off-Balance-Sheet Liability?
How Can We Explain the Success of New Securities and New Markets?
How Can We Resolve the Payout Controversy?
What Risks Should a Firm Take? What Is the Value of Liquidity?
How Can We Explain Merger Waves?
How Can We Explain International Differences in Financial Architecture?
A Final Word
967(1)
Appendix A Present Value Tables968(6)
Appendix B Answers to Quizzes974(18)
Glossary992(15)
Global Index1007(4)
General Index1011
Franklin Allen is Nippon Life Professor of Finance at the Wharton School of the University of Pennsylvania.

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