ISBN: 9780538877763 | 0538877766

Edition: 7thFormat: Paperback

Publisher: South-Western College Pub

Pub. Date: 9/19/1997

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The 7th edition of this successful text provides a comprehensive and contemporary introduction to financial management, incorporating recent changes in the financial operation of firms, such as: the increased focus on shareholder wealth maximization and cash flow management, an emphasis on international aspects of financial management, a concern for the ethical behavior of managers, and a reflection of the increased impact of the Internet in business practice.

R. Charles Moyer holds the Integon Chair in Finance and is Dean of the Babcock Graduate School of Management, Wake Forest University James R. Mcguigan owns and operates his own numismatic investment firm William J. Kretlow is an Associate Professor of Finance at the University of Houston

Introduction | p. 1 |

The Role and Objective of Financial Management | p. 2 |

Key Chapter Concepts | p. 2 |

Financial Challenge: Financial Management Questions | p. 3 |

Introduction | p. 4 |

Forms of Business Organization | p. 5 |

Foundation Concept: Maximizing Shareholder Wealth as the Primary Goal | p. 7 |

Maximization of Shareholder Wealth: Managerial Strategies | p. 12 |

Foundation Concept: Cash Flow | p. 16 |

Ethical Issues: The Practice of Financial Management | p. 18 |

Foundation Concept: Net Present Value Rule | p. 20 |

Organization of the Financial Management Function | p. 20 |

Entrepreneurial Issues: Shareholder Wealth Maximization | p. 23 |

Financial Management and Other Disciplines | p. 24 |

Career Opportunities in Finance | p. 25 |

Professional Finance Affiliations | p. 28 |

Organization of the Text | p. 28 |

Summary | p. 30 |

Questions and Topics for Discussion | p. 31 |

The Domestic and International Financial Marketplace | p. 33 |

Key Chapter Concepts | p. 33 |

Financial Challenge: Long-Term Capital Management, L.P. | p. 34 |

Introduction | p. 35 |

Income Taxes and Financial Management | p. 35 |

An Overview of the U.S. Financial System | p. 36 |

The Structure and Operation of U.S. Security Markets | p. 42 |

The Global Economy and Multinational Enterprises | p. 44 |

Ethical Issues: Insider Trading | p. 45 |

Foreign Currency Markets and Exchange Rates | p. 46 |

Foundation Concept: Market Efficiency | p. 52 |

Foundation Concept: Holding Period Returns | p. 56 |

International Issues: Market Efficiency Outside the United States | p. 57 |

Summary | p. 58 |

Questions and Topics for Discussion | p. 58 |

Self-Test Problems | p. 59 |

Problems | p. 59 |

Solutions to Self-Test Problems | p. 61 |

Taxes | p. 63 |

Introduction | p. 63 |

Corporate Income Taxes | p. 63 |

Entreprenerial Issues: S Corporations | p. 65 |

Questions and Topics for Discussion | p. 66 |

Self-Test Problems | p. 66 |

Problems | p. 66 |

Solutions to Self-Test Problems | p. 68 |

Evaluation of Financial Performance | p. 69 |

Key Chapter Concepts | p. 69 |

Financial Challenge: Earnings Management and Financial Performance Measurement | p. 70 |

Introduction | p. 71 |

Uses of Financial Analysis | p. 71 |

Interpreting Financial Ratios | p. 72 |

Basic Classifications of Financial Ratios | p. 72 |

Summary of Financial Ratio Analysis | p. 87 |

Trend Analysis | p. 90 |

Analysis of Profitability: Return on Investment | p. 90 |

Foundation Concept: Analyzing Profitability Through Return on Stockholders' Equity | p. 93 |

Sources of Comparative Financial Data | p. 94 |

A Word of Caution About Financial Ratio Analysis | p. 95 |

Earnings and Balance Sheet Quality and Financial Analysis | p. 96 |

Market Value Added: An Alternative Measure of Performance | p. 98 |

Inflation and Financial Statement Analysis | p. 100 |

International Issues: Financial Analysis of Multinational Corporations | p. 101 |

Foundation Concept: Cash Flow Analysis | p. 102 |

Summary | p. 108 |

Questions and Topics for Discussion | p. 109 |

Self-Test Problems | p. 110 |

Problems | p. 111 |

Solutions to Self-Test Problems | p. 120 |

Determinants of Valuation | p. 123 |

The Time Value of Money | p. 124 |

Key Chapter Concepts | p. 124 |

Financial Challenge: Powerball Opportunity | p. 125 |

Introduction | p. 125 |

Interest | p. 126 |

Simple Interest | p. 127 |

Compound Interest and Future Value | p. 129 |

Present Value | p. 133 |

Annuities | p. 137 |

Present Value: Some Additional Cash Flow Patterns | p. 146 |

Compounding Periods and Effective Interest Rates | p. 150 |

Solving the Financial Challenge | p. 154 |

Summary | p. 154 |

Questions and Topics for Discussion | p. 156 |

Self-Test Problems | p. 157 |

Problems | p. 157 |

Solutions to Self-Test Problems | p. 164 |

An Integrative Case Problem: Time Value of Money | p. 166 |

Continuous Compounding and Discounting | p. 168 |

Continuous Compounding | p. 168 |

Continuous Discounting | p. 169 |

Effective Rate Calculations | p. 169 |

Self-Test Problems | p. 170 |

Problems | p. 170 |

Solutions to Self-Test Problems | p. 170 |

Analysis of Risk and Return | p. 171 |

Key Chapter Concepts | p. 171 |

Financial Challenge: Risk at a Coca-Cola Company | p. 172 |

Introduction | p. 173 |

Meaning and Measurement of Risk | p. 173 |

Foundation Concept: Relationship Between Risk and Return | p. 180 |

Investment Diversification and Portfolio Risk Analysis | p. 187 |

Portfolio Risk and the Capital Asset Pricing Model | p. 196 |

International Issues: Diversification and Multinational Corporations | p. 205 |

Other Dimensions of Risk | p. 205 |

Ethical Issues: High-Risk Securities | p. 206 |

Summary | p. 207 |

Questions and Topics for Discussion | p. 208 |

Self-Test Problems | p. 210 |

Problems | p. 211 |

Solutions to Self-Test Problems | p. 216 |

Fixed-Income Securities: Characteristics and Valuation | p. 218 |

Key Chapter Concepts | p. 218 |

Financial Challenge: Marriott Corporation: Corporate Restructuring and Bond Valuation | p. 219 |

Introduction | p. 220 |

Characteristics of Long-Term Debt | p. 221 |

International Issues: The International Bond Market | p. 232 |

Foundation Concept: Valuation of Assets | p. 233 |

Bond Valuation | p. 236 |

Ethical Issues: Leveraged Buyouts and Bond Values | p. 243 |

Characteristics of Preferred Stock | p. 244 |

Valuation of Preferred Stock | p. 247 |

Summary | p. 248 |

Questions and Topics for Discussion | p. 249 |

Self-Test Problems | p. 250 |

Problems | p. 251 |

Solutions to Self-Test Problems | p. 255 |

Bond Refunding Analysis | p. 257 |

The Bond Refunding Process | p. 257 |

Problems | p. 260 |

Common Stock: Characteristics, Valuation, and Issuance | p. 262 |

Key Chapter Concepts | p. 262 |

Financial Challenge: Amazon.com | p. 263 |

Introduction | p. 264 |

Characteristics of Common Stock | p. 265 |

The Security Offering Process: Role of the Investment Banker | p. 271 |

International Issues: Global Equity Markets | p. 277 |

Foundation Concept: Valuation of Common Stock | p. 278 |

Applications of the General Dividend Valuation Model | p. 281 |

Entrepreneurial Issues: Valuation of Closely Held Firms | p. 284 |

Summary | p. 288 |

Questions and Topics for Discussion | p. 289 |

Self-Test Problems | p. 290 |

Problems | p. 290 |

Solutions to Self-Test Problems | p. 295 |

The Capital Investment Decision | p. 297 |

Capital Budgeting and Cash Flow Analysis | p. 298 |

Key Chapter Concepts | p. 298 |

Financial Challenge: Ford Motor Company's Investment in Jaguar Cars, Ltd. | p. 299 |

Introduction | p. 300 |

Key Terms and Concepts in Capital Budgeting | p. 301 |

Basic Framework for Capital Budgeting | p. 302 |

Generating Capital Investment Project Proposals | p. 304 |

Foundation Concept: Principles of Estimating Cash Flows | p. 306 |

Net Investment (NINV) | p. 308 |

Net (Operating) Cash Flows | p. 309 |

Asset Expansion Projects | p. 314 |

Asset Replacement Projects | p. 316 |

Problems in Cash Flow Estimation | p. 319 |

The Practice of Cash Flow Estimation for Capital Budgeting | p. 319 |

Ethical Issues: Cash Flow Estimation Biases | p. 320 |

Summary | p. 321 |

Questions and Topics for Discussion | p. 322 |

Self-Test Problems | p. 322 |

Problems | p. 323 |

Solutions to Self-Test Problems | p. 328 |

Depreciation | p. 330 |

Introduction to Depreciation | p. 330 |

Accelerated Depreciation | p. 332 |

Modified Accelerated Cost Recovery System | p. 332 |

Real Property | p. 335 |

Questions and Topics for Discussion | p. 335 |

Problems | p. 335 |

Capital Budgeting: Decision Criteria and Real Option Considerations | p. 337 |

Key Chapter Concepts | p. 337 |

Financial Challenge: Real Options at Enron Corporation | p. 338 |

Introduction | p. 339 |

Foundation Concept: Decision Models for Evaluating Alternatives | p. 339 |

Capital Rationing and the Capital Budgeting Decision | p. 352 |

Reviewing and Postauditing an Accepted Project | p. 355 |

A Comprehensive Example of Capital Budgeting: Opening a New Bank Branch | p. 356 |

Inflation and Capital Expenditures | p. 358 |

Real Options in Capital Budgeting | p. 359 |

International Issues: A Framework for International Capital Expenditure Decisions | p. 360 |

Entrepreneurial Issues: Capital Budgeting | p. 362 |

Ethical Issues: The Use of Shareholder Resources | p. 363 |

Summary | p. 365 |

Questions and Topics for Discussion | p. 365 |

Self-Test Problems | p. 366 |

Problems | p. 366 |

Solutions to Self-Test Problems | p. 373 |

An Integrative Case Problem: Capital Budgeting | p. 375 |

Mutually Exclusive Investments Having Unequal Lives | p. 376 |

Replacement Chains | p. 376 |

Equivalent Annual Annuities | p. 378 |

Problems | p. 379 |

Capital Budgeting and Risk | p. 381 |

Key Chapter Concepts | p. 381 |

Financial Challenge: The Boeing 747 Superjumbo Jet | p. 382 |

Introduction | p. 382 |

Total Project Risk versus Portfolio Risk | p. 383 |

Adjusting for Total Project Risk | p. 384 |

Adjusting for Beta Risk in Capital Budgeting | p. 394 |

International Issues: Special Elements of Capital Budgeting Risk | p. 398 |

Ethical Issues: Johnson and Johnson and Proprietary Competitive Information | p. 399 |

Summary | p. 399 |

Questions and Topics for Discussion | p. 400 |

Self-Test Problems | p. 401 |

Problems | p. 402 |

An Integrative Case Problem: Capital Budgeting and Risk Analysis | p. 409 |

Solutions to Self-Test Problems | p. 410 |

The Cost of Capital, Capital Structure, and Dividend Policy | p. 411 |

The Cost of Capital | p. 412 |

Key Chapter Concepts | p. 412 |

Financial Challenge: Cost of Equity Capital for Mountain Fuel Supply Company | p. 413 |

Introduction | p. 414 |

Summary of Notation | p. 414 |

Foundation Concept: Weighted Cost of Capital | p. 415 |

Relative Costs of Capital | p. 417 |

Computing the Component Costs of Capital | p. 419 |

Divisional Costs of Capital | p. 429 |

Determining the Weighted (Marginal) Cost of Capital Schedule | p. 431 |

International Issues: The Cost of Capital for Multinational Companies | p. 434 |

Determining the Optimal Capital Budget | p. 434 |

Entrepreneurial Issues: The Cost of Capital | p. 436 |

Cost of Depreciation-Generated Funds | p. 437 |

Summary | p. 437 |

Questions and Topics for Discussion | p. 438 |

Self-Test Problems | p. 439 |

Problems | p. 439 |

Solutions to Self-Test Problems | p. 447 |

An Integrative Case Problem: Cost of Capital | p. 448 |

Capital Structure Concepts | p. 450 |

Key Chapter Concepts | p. 450 |

Financial Challenge: Optimal Capital Structure in the Airline Industry: U.S. Airways vs. Southwest Airlines | p. 451 |

Introduction | p. 452 |

Capital Structure Decisions and Maximization of Shareholder Wealth | p. 452 |

Foundation Concept: Business Risk | p. 453 |

Foundation Concept: Financial Risk and Financial Leverage | p. 455 |

Capital Structure Theory | p. 458 |

Ethical Issues: LBO Stakeholder Impacts | p. 472 |

International Issues: Capital Structure | p. 473 |

Summary | p. 474 |

Questions and Topics for Discussion | p. 475 |

Self-Test Problem | p. 475 |

Problems | p. 476 |

Solution to Self-Test Problem | p. 479 |

Capital Structure Management in Practice | p. 480 |

Key Chapter Concepts | p. 480 |

Financial Challenge: Deregulation and Business Risk of Electric Utilities | p. 481 |

Introduction | p. 482 |

Operating and Financial Leverage | p. 482 |

Other Financial Risk Measures | p. 491 |

EBIT-EPS Analysis | p. 492 |

Cash Insolvency Analysis | p. 498 |

Other Factors to Consider in Making Capital Structure Decisions | p. 500 |

International Issues: Balancing Operating and Financial Risks at Nestle | p. 503 |

Summary | p. 503 |

Questions and Topics for Discussion | p. 504 |

Self-Test Problems | p. 505 |

Problems | p. 506 |

Solutions to Self-Test Problems | p. 514 |

Dividend Policy | p. 516 |

Key Chapter Concepts | p. 516 |

Financial Challenge: Florida Power and Light's Decision to Cut Its Dividend | p. 517 |

Introduction | p. 518 |

Determinants of Dividend Policy | p. 519 |

Dividend Policy and Firm Value | p. 526 |

Dividend Policies | p. 529 |

Entrepreneurial Issues: Dividend Policy | p. 534 |

How Dividends Are Paid | p. 534 |

International Issues: Dividend Policies for Multinational Firms | p. 535 |

Stock Dividends and Stock Splits | p. 536 |

Share Repurchases as Dividend Decisions | p. 538 |

Summary | p. 541 |

Questions and Topics for Discussion | p. 543 |

Self-Test Problems | p. 544 |

Problems | p. 544 |

Solutions to Self-Test Problems | p. 548 |

Working Capital Management and Financial Forecasting | p. 551 |

Financial Forecasting and Working Capital Policy | p. 552 |

Key Chapter Concepts | p. 552 |

Financial Challenge: Financial Forecasting at Boeing | p. 553 |

Introduction | p. 553 |

Financial Forecasting | p. 554 |

Working Capital Policy | p. 564 |

Ethical Issues: Use of Employee Retirement Funds | p. 565 |

Levels of Working Capital Investment | p. 569 |

Proportions of Short-Term and Long-Term Financing | p. 572 |

Overall Working Capital Policy | p. 577 |

Summary | p. 579 |

Questions and Topics for Discussion | p. 580 |

Self-Test Problems | p. 580 |

Problems | p. 582 |

Solutions to Self-Test Problems | p. 593 |

The Management of Cash and Marketable Securities | p. 595 |

Key Chapter Concepts | p. 595 |

Financial Challenge: Investing Microsoft's Cash Hoard | p. 596 |

Introduction | p. 596 |

Liquid Asset Balance | p. 598 |

Controlling the Collection and Disbursement of Cash | p. 603 |

Electronic Funds Transfer | p. 610 |

Ethical Issues: Cash Management | p. 611 |

Entrepreneurial Issues: Cash Management | p. 612 |

Investing in Marketable Securities | p. 612 |

International Issues: Cash Management | p. 617 |

Summary | p. 618 |

Questions and Topics for Discussion | p. 619 |

Self-Test Problems | p. 620 |

Problems | p. 621 |

Solutions to Self-Test Problems | p. 626 |

Management of Accounts Receivable and Inventories | p. 627 |

Key Chapter Concepts | p. 627 |

Financial Challenge: Just-in-Time Inventory Management at Dell Computer | p. 628 |

Introduction | p. 628 |

Accounts Receivable Management | p. 629 |

Evaluating Individual Credit Applicants | p. 638 |

Inventory Management | p. 641 |

Inventory Control Models | p. 644 |

Summary | p. 652 |

Questions and Topics for Discussion | p. 653 |

Self-Test Problems | p. 654 |

Problems | p. 655 |

Solutions to Self-Test Problems | p. 662 |

Short- and Intermediate-Term Funding Alternatives | p. 664 |

Key Chapter Concepts | p. 664 |

Financial Challenge: Using Inventory Loans to Save Fashion Bug from Bankruptcy | p. 665 |

Introduction | p. 666 |

Cost of Short-Term Funds | p. 667 |

Trade Credit | p. 668 |

Accrued Expenses and Deferred Income | p. 671 |

Short-Term Bank Credit | p. 672 |

Commercial Paper | p. 677 |

Accounts Receivable Loans | p. 678 |

Inventory Loans | p. 682 |

International Issues: Foreign Receivables Financing | p. 683 |

Term Loans | p. 685 |

Security Provisions and Protective Covenants | p. 688 |

Suppliers of Term Loans | p. 690 |

Equipment Loans | p. 692 |

Summary | p. 693 |

Questions and Topics for Discussion | p. 696 |

Self-Test Problems | p. 697 |

Problems | p. 698 |

Solutions to Self-Test Problems | p. 703 |

An Integrative Case Problem: Working Capital Management | p. 706 |

Advanced Topics in Contemporary Financial Management | p. 709 |

Lease Financing | p. 710 |

Key Chapter Concepts | p. 710 |

Financial Challenge: Kmart's Lease Guarantees Prove Costly | p. 711 |

Introduction | p. 711 |

Types of Leases | p. 712 |

Advantages and Disadvantages of Leasing | p. 716 |

Tax and Accounting Aspects of Leases | p. 718 |

Entrepreneurial Issues: Leasing by Small Businesses | p. 719 |

Determining Lease Payments: The Lessor's Perspective | p. 721 |

Lease-Buy Analysis: The Lessee's Perspective | p. 722 |

Ethical Issues: Continental Airlines' Leases in Bankruptcy | p. 724 |

Summary | p. 726 |

Questions and Topics for Discussion | p. 726 |

Self-Test Problem | p. 727 |

Problems | p. 727 |

Solution to Self-Test Problem | p. 730 |

An Integrative Case Problem: Lease and Term Loan Analysis | p. 731 |

Financing with Derivatives | p. 732 |

Key Chapter Concepts | p. 732 |

Financial Challenge: Repricing "Underwater Options" | p. 733 |

Introduction | p. 734 |

Options | p. 734 |

Convertible Securities | p. 738 |

Warrants | p. 743 |

Analysis of Rights Offerings | p. 746 |

Interest Rate Swaps | p. 747 |

Summary | p. 749 |

Questions and Topics for Discussion | p. 750 |

Self-Test Problems | p. 750 |

Problems | p. 751 |

Solutions to Self-Test Problems | p. 756 |

International Financial Management | p. 758 |

Key Chapter Concepts | p. 758 |

Financial Challenge: The Euro and the European Central Bank | p. 759 |

Introduction | p. 760 |

Factors That Affect Exchange Rates | p. 760 |

Forecasting Future Exchange Rates | p. 767 |

Foreign Exchange Risk | p. 769 |

Ethical Issues: Payment of Bribes Abroad | p. 774 |

Summary | p. 775 |

Questions and Topics for Discussion | p. 775 |

Self-Test Problems | p. 776 |

Problems | p. 776 |

Solutions to Self-Test Problems | p. 779 |

Corporate Restructuring | p. 780 |

Key Chapter Concepts | p. 780 |

Financial Challenge: Oil Company Mergers Sweep Through the Industry | p. 781 |

Introduction | p. 781 |

Mergers | p. 782 |

Valuation of Merger Candidates | p. 791 |

Analysis of a Leveraged Buyout | p. 796 |

Business Failure | p. 798 |

Alternatives for Failing Businesses | p. 801 |

Summary | p. 807 |

Questions and Topics for Discussion | p. 808 |

Self-Test Problem | p. 809 |

Problems | p. 810 |

Solution to Self-Test Problem | p. 813 |

An Integrative Case Problem: Mergers and Acquisitions | p. 814 |

Reference Materials | |

Future Value Interest Factor (FVIF) | |

Present Value Interest Factor (PVIF) | |

Future Value of an Annuity Interest Factor (FVIFA) | |

Present Value of an Annuity Interest Factor (PVIFA) | |

Normal Distribution | |

Glossary | |

Check Answers to Selected Problems | |

Financial Challenge Photo Credits | |

Index | |

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