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Corporate Finance : A Focused Approach

ISBN: 9780324289312 | 0324289316
Edition: 2nd
Format: Paperback
Publisher: South-Western College Pub
Pub. Date: 1/27/2005

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SummaryTable of Contents
Drawing from their experience with comprehensive textbooks, Ehrhardt & Brigham focus on the critical financial concepts, skills, and technological applications required by every MBA in the 21st century workplace. The result is a lean textbook that (1) provides an in-depth treatment of all essential topics in corporate finance yet (2) can be covered in its entirety in a single semester.
Prefaceiii
Part 1 Fundamental Concepts of Corporate Finance
1(182)
An Overview of Corporate Finance and the Financial Environment
2(3... MORE
The Five-Minute MBA
3(1)
The Corporate Life Cycle
4(2)
The Primary Objective of the Corporation: Value Maximization
6(5)
Box: Corporate Scandals and Maximizing Stock Price
10(1)
The Financial Markets
11(1)
Financial Institutions
12(4)
Secondary Markets
16(1)
The Stock Market
17(2)
Box: Measuring the Market
18(1)
The Cost of Money and Interest Rate Levels
19(2)
The Determinants of Market Interest Rates
21(4)
The Term Structure of Interest Rates
25(2)
What Determines the Shape of the Yield Curve?
27(3)
International Risk Factors
30(1)
Economic Factors That Influence Interest Rate Levels
30(2)
A Preview of What Is Ahead
32(1)
e-Resources
32(1)
Summary
33(6)
Web Extension: The Pure Expectations Theory and Estimation of Forward Rates
Time Value of Money
39(41)
Time Lines
40(1)
Box: Corporate Valuation and the Time Value of Money
41(1)
Future Value
41(6)
Box: The Power of Compound Interest
46(1)
Present Value
47(2)
Solving for Interest Rate and Time
49(3)
Future Value of an Annuity
52(3)
Present Value of an Annuity
55(3)
Annuities: Solving for Interest Rate, Number of Periods, or Payment
58(1)
Perpetuities
59(1)
Uneven Cash Flow Streams
60(3)
Growing Annuities
63(1)
Semiannual and Other Compounding Periods
64(4)
Box: Using the Internet for Personal Financial Planning
68(1)
Fractional Time Periods
68(1)
Amortized Loans
69(2)
Summary
71(9)
Web Extension: The Tabular Approach and Continuous Compounding
Financial Statements, Cash Flow, and Taxes
80(33)
Financial Statements and Reports
81(1)
Box: Corporate Valuation and Financial Statements
82(1)
The Balance Sheet
82(2)
The Income Statement
84(2)
Statement of Retained Earnings
86(1)
Net Cash Flow
86(2)
Box: Financial Analysis on the Internet
88(1)
Statement of Cash Flows
88(3)
Modifying Accounting Data for Managerial Decisions
91(6)
Box: Financial Bamboozling: How to Spot It
94(3)
MVA and EVA
97(3)
The Federal Income Tax System
100(5)
Summary
105(8)
Web Extension: Individual Taxes
Analysis of Financial Statements
113(30)
Box: Corporate Valuation and Analysis of Financial Statements
114(1)
Ratio Analysis
114(1)
Liquidity Ratios
115(2)
Asset Management Ratios
117(2)
Debt Management Ratios
119(2)
Profitability Ratios
121(3)
Box: International Accounting Differences Create Headaches for Investors
122(2)
Market Value Ratios
124(1)
Trend Analysis, Common Size Analysis, and Percent Change Analysis
125(4)
Tying the Ratios Together: The Du Pont Equation
129(1)
Comparative Ratios and ``Benchmarking''
130(2)
Box: Ratio Analysis in the Internet Age
132(1)
Uses and Limitations of Ratio Analysis
132(1)
Looking Beyond the Numbers
133(1)
Summary
134(9)
Risk and Return
143(40)
Box: Corporate Valuation and Risk
144(1)
Investment Returns
144(1)
Stand-Alone Risk
145(8)
Box: The Trade-Off Between Risk and Return
153(1)
Risk in a Portfolio Context
153(11)
Box: The Benefits of Diversifying Overseas
160(4)
Calculating Beta Coefficients
164(2)
The Relationship between Risk and Rates of Return
166(5)
Some Concerns about Beta and the CAPM
171(1)
Summary
172(11)
Web Extension: Continuous Distributions and Estimating Beta with a Calculator
Part 2 Securities and Their Valuation
183(92)
Bonds and Their Valuation
184(35)
Box: Corporate Valuation and Risk
185(1)
Who Issues Bonds?
185(1)
Key Characteristics of Bonds
186(4)
Bond Valuation
190(6)
Bond Yields
196(3)
Box: Drinking Your Coupons
199(1)
Bonds with Semiannual Coupons
199(1)
Assessing the Risk of a Bond
200(3)
Default Risk
203(7)
Bond Markets
210(2)
Summary
212(7)
Web Extension: Bond Risk, Duration, and Zero Coupon Bonds
Stocks and Their Valuation
219(32)
Legal Rights and Privileges of Common Stockholders
220(1)
Box: Corporate Valuation and Stock Risk
221(1)
Types of Common Stock
221(2)
The Market for Common Stock
223(1)
Box: Australian Bordello's IPO: First Day Performance Is Up
224(1)
Common Stock Valuation
224(2)
Constant Growth Stocks
226(4)
Expected Rate of Return on a Constant Growth Stock
230(1)
Valuing Stocks That Have a Nonconstant Growth Rate
231(3)
Stock Valuation by the Free Cash Flow Approach
234(1)
Market Multiple Analysis
235(1)
Stock Market Equilibrium
236(4)
Actual Stock Prices and Returns
240(3)
Box: A Nation of Traders
243(1)
Preferred Stock
243(1)
Summary
244(7)
Web Extension: Derivation of Valuation Equations
Financial Options, Their Valuation, and Applications in Corporate Finance
251(24)
Financial Options
252(5)
Box: Financial Statements and Employee Stock Options
257(1)
Introduction to Option Pricing Models: The Binomial Approach
257(5)
The Black-Scholes Option Pricing Model (OPM)
262(4)
Box: Taxes and Stock Options
266(1)
The Valuation of Put Options
266(1)
Applications of Option Pricing in Corporate Finance
267(2)
Summary
269(6)
Web Extension: The Binomial Approach
Part 3 Projects and Their Valuation
275(110)
The Cost of Capital
276(34)
The Weighted Average Cost of Capital
277(1)
Box: Corporate Valuation and the Cost of Capital
278(1)
Cost of Debt, rd(1 -- T)
278(2)
Cost of Preferred Stock, rps
280(1)
Cost of Common Stock, rs
280(2)
The CAPM Approach
282(4)
Dividend-Yield-plus-Growth Rate, or Discounted Cash Flow (DCF), Approach
286(3)
Bond-Yield-plus-Risk-Premium Approach
289(1)
Comparison of the CAPM, DCF, and Bond-Yield-plus-Risk-Premium Methods
289(1)
Composite, or Weighted Average, Cost of Capital, WACC
290(1)
Factors That Affect the Weighted Average Cost of Capital
291(2)
Box: Global Variations in the Cost of Capital
292(1)
Adjusting the Cost of Capital for Risk
293(2)
Techniques for Measuring Divisional Betas
295(1)
Estimating the Cost of Capital for Individual Projects
296(1)
Adjusting the Cost of Capital for Flotation Costs
297(2)
Some Problem Areas in Cost of Capital
299(1)
Four Mistakes to Avoid
300(1)
Summary
301(9)
Web Extension: Estimation Issues: Growth Rates and the Nonconstant Growth Model
The Basics of Capital Budgeting: Evaluating Cash Flows
310(34)
Box: Corporate Valuation and Capital Budgeting
311(1)
Overview of Capital Budgeting
311(1)
Project Classifications
312(1)
Capital Budgeting Decision Rules
313(6)
Comparison of the NPV and IRR Methods
319(4)
Modified Internal Rate of Return (MIRR)
323(2)
Profitability Index
325(1)
Conclusions on Capital Budgeting Methods
325(2)
Business Practices
327(1)
The Post-Audit
328(1)
Box: How Does Industry Evaluate Projects?
329(1)
Special Applications of Cash Flow Evaluation
329(3)
The Optimal Capital Budget
332(2)
Summary
334(10)
Web Extension: The ARR Method, the EAA Approach, and the Marginal WACC
Cash Flow Estimation and Risk Analysis
344(41)
Box: Corporate Valuation, Cash Flows, and Risk Analysis
345(1)
Estimating Cash Flows
345(1)
Identifying the Relevant Cash Flows
346(4)
Tax Effects
350(3)
Evaluating Capital Budgeting Projects
353(6)
Adjusting for Inflation
359(2)
Project Risk Analysis: Techniques for Measuring Stand-Alone Risk
361(8)
Box: Capital Budgeting Practices in the Asia/Pacific Region
365(1)
Box: High-Tech CFOs
366(3)
Project Risk Conclusions
369(1)
Incorporating Project Risk into Capital Budgeting
370(1)
Managing Risk through Phased Decisions: Decision Trees
370(3)
Introduction to Real Options
373(2)
Summary
375(10)
Web Extension: Replacement Project Analysis
Part 4 Corporate Valuation
385(66)
Financial Planning and Forecasting Financial Statements
386(28)
Overview of Financial Planning
387(2)
Box: Corporate Valuation and Financial Planning
388(1)
Sales Forecast
389(2)
Financial Statement Forecasting: The Percent of Sales Method
391(10)
The AFN Formula
401(2)
Forecasting Financial Requirements When the Balance Sheet Ratios Are Subject to Change
403(3)
Summary
406(8)
Web Extension: Financing Feedbacks and Alternative Forecasting Techniques
Corporate Valuation, Value-Based Management, and Corporate Governance
414(37)
Overview of Corporate Valuation
415(2)
Box: Corporate Valuation: Putting the Pieces Together
416(1)
The Corporate Valuation Model
417(7)
Value-Based Management
424(7)
Box: Value-Based Management in Practice
431(1)
Corporate Governance and Shareholder Wealth
431(9)
Box: International Corporate Governance
436(4)
Summary
440(11)
Part 5 Strategic Financing Decisions
451(68)
Capital Structure Decisions
452(35)
A Preview of Capital Structure Issues
453(2)
Box: Corporate Valuation and the Cost of Capital
454(1)
Business and Financial Risk
455(6)
Capital Structure Theory
461(7)
Box: Yogi Berra on the MM Proposition
463(5)
Capital Structure Evidence and Implications
468(3)
Estimating the Optimal Capital Structure
471(8)
Box: Taking a Look at Global Capital Structures
472(7)
Summary
479(8)
Web Extension: Degree of Leverage
Distributions to Shareholders: Dividends and Repurchases
487(32)
The Level of Distributions and Firm Value
488(4)
Box: Corporate Valuation and Distributions to Shareholders
489(3)
Box: Dividend Yields Around the World
492(1)
Clientele Effect
492(1)
Information Content, or Signaling, Hypothesis
493(1)
Implications for Dividend Stability
494(1)
Setting the Target Distribution Level: The Residual Distribution Model
495(2)
Distributions in the Form of Dividends
497(3)
Distributions through Stock Repurchases
500(3)
Comparison of Dividends and Repurchases
503(1)
Other Factors Influencing Distributions
504(1)
Overview of the Distribution Policy Decision
505(2)
Stock Splits and Stock Dividends
507(2)
Dividend Reinvestment Plans
509(1)
Summary
510(9)
Part 6 Special Topics
519(107)
Working Capital Management
520(39)
Box: Corporate Valuation and Working Capital Management
521(1)
The Cash Conversion Cycle
521(5)
Alternative Net Operating Working Capital Policies
526(1)
Cash Management
526(2)
Box: The Best At Managing Working Capital
527(1)
The Cash Budget
528(3)
Box: The Great Debate: How Much Cash is Enough?
530(1)
Cash Management Techniques
531(2)
Inventory
533(1)
Receivables Management
534(4)
Box: Supply Chain Management
535(3)
Accruals and Accounts Payable (Trade Credit)
538(3)
Alternative Short-Term Financing Policies
541(2)
Short-Term Investments: Marketable Securities
543(1)
Short-Term Financing
544(1)
Short-Term Bank Loans
545(1)
Commercial Paper
546(1)
Use of Security in Short-Term Financing
547(1)
Summary
548(11)
Web Extension: Secured Short-Term Financing
Multinational Corporate Finance
559(67)
Multinational, or Global, Corporations
560(1)
Multinational versus Domestic Financial Management
561(2)
Box: The Euro: What You Need to Know
562(1)
Exchange Rates
563(3)
The International Monetary System
566(3)
Trading in Foreign Exchange
569(2)
Interest Rate Parity
571(3)
Box: Hungry for a Big Mac? Go to the Philippines!
572(2)
Purchasing Power Parity
574(1)
Inflation, Interest Rates, and Exchange Rates
575(1)
International Money and Capital Markets
575(3)
Multinational Capital Budgeting
578(4)
Box: Stock Market Indices Around the World
581(1)
International Capital Structures
582(1)
Multinational Working Capital Management
583(3)
Summary
586(7)
Appendixes
Appendix A Solutions to Self-Test Problems
593(20)
Appendix B Answers to End-of-Chapter Problems
613(5)
Appendix C Selected Equations and Data
618(7)
Appendix D Mathematical Table
625(1)
Glossary626(13)
Name Index639(2)
Subject Index641

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