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Fundamentals of Contemporary Financial Management: With Thomson One, Business School Edition

ISBN: 9780324406368 | 0324406363
Edition: 2nd
Format: Paperback
Publisher: Cengage Learning
Pub. Date: 3/1/2006

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SummaryTable of Contents
This text is a streamlined text for basic financial management. It provides a brief introduction to financial management, incorporating shareholder wealth maximization and cash flow management focus, with emphasis on international financial management and ethical behavior of managers. In addition, the text provides many worked-out spreadsheet examples to provide an even greater applications approach to financial management.
Prefacexxii
PART 1 INTRODUCTION
1(62)
The Role And Objective Of Financial Management
2(27)
... MORE
Chapter Objectives
3(1)
Primary Goal of the Firm: Maximizing Shareholder Wealth
3(3)
The Problem with Profit Maximization
5(1)
Determinants of Value
6(1)
Divergent Objectives and Agency Problems
7(4)
Agency Problems
8(2)
Finance & The Real World: Maximizing Shareholder Wealth by Downsizing?
10(1)
Business Ethics and Financial Management
11(2)
Comprehension Check Questions
12(1)
Forms of Business Organization
13(4)
Sole Proprietorship
13(1)
Partnership
14(1)
Corporation
14(1)
Other Types of Business Organizations
15(2)
Comprehension Check Questions
17(1)
The Financial Management Function
17(3)
Financial Management and Other Disciplines
20(1)
Accounting
20(1)
Economics
21(1)
Marketing, Production, Quantitative Methods, Information Systems, and Human Resources
21(1)
Comprehension Check Questions
21(1)
Career Opportunities in Finance
21(4)
Professional Finance Affiliations and Certifications
25(2)
Organization of the Textbook
25(1)
Parts of the Textbook
26(1)
Summary
27(2)
Questions and Topics for Discussion
28(1)
The Business Environment
29(34)
Chapter Objectives
30(1)
Aspects of the Business Environment
30(1)
Financial Markets
30(12)
Primary Markets
32(4)
Secondary Markets
36(5)
Derivative Markets
41(1)
Regulation of Financial Markets
42(3)
Finance & The Real World: Congress Cracks Down on Corporate Swindlers
43(1)
Comprehension Check Questions
44(1)
Market Efficiency
45(2)
Weak-form Efficiency
46(1)
Semistrong-form Efficiency
47(1)
Strong-form Efficiency
47(1)
Comprehension Check Questions
47(1)
Reading the Wall Street Journal
47(7)
Understanding Corporate Bond Quotations
49(2)
Understanding Stock and Bond Market Averages
51(3)
Comprehension Check Questions
54(1)
Calculating Holding Period Returns
54(3)
Comprehension Check Questions
56(1)
Historical Record of Capital Market Returns
57(1)
Summary
58(5)
Questions and Topics for Discussion
58(1)
Self-Test Problems
59(1)
Problems
59(4)
PART 2 FINANCIAL PERFORMANCE AND FINANCIAL PLANNING
63(102)
Review Of Financial Statements
64(37)
Chapter Objectives
65(1)
The Accounting Function
65(1)
The Annual Report
65(2)
Comprehension Check Questions
67(1)
The Balance Sheet
67(8)
Assets
67(4)
Liabilities
71(2)
Stockholders' Equity
73(1)
Comprehension Check Questions
74(1)
The Income Statement
75(3)
Sales
75(1)
Cost of Operations
75(1)
Operating Expenses
76(1)
Nonoperating Expenses
77(1)
Income Tax
77(1)
Net Earnings
77(1)
Statement of Retained Earnings and Statement of Shareholders' Equity
78(2)
Comprehension Check Questions
80(1)
The Statement of Cash Flows
80(4)
Comprehension Check Questions
84(1)
Limitations of Financial Statements
84(3)
Finance & The Real World: How to Distort the Books Enron Style
85(2)
Comprehension Check Questions
87(1)
Federal Income Taxes for Corporations
87(3)
Corporate Income Taxes
88(1)
Loss Carrybacks and Carryforwards
89(1)
Comprehension Check Questions
90(1)
Summary
90(11)
Questions and Topics for Discussion
91(1)
Self-Test Problems
92(2)
Problems
94(7)
Evaluation Of Firm Performance
101(41)
Chapter Objectives
102(1)
Purpose of Financial Ratios
102(1)
Interpreting Financial Ratios
103(1)
Comprehension Check Questions
103(1)
Basic Categories of Financial Ratios
103(17)
Comprehension Check Questions
105(1)
Liquidity Ratios
105(5)
Comprehension Check Questions
110(1)
Financial Leverage Management Ratios
110(3)
Profitability Ratios
113(2)
Market-based Ratios
115(1)
Comprehension Check Questions
116(1)
Summary of Financial Ratio Analysis
117(1)
Trend Analysis
117(3)
Finance & The Real World: Assessment of Financial Performance
120(1)
Analysis of Profitability: A Comprehensive Framework
120(3)
Return on Investment
120(1)
Return on Stockholders' Equity
121(2)
Recent Innovation in Performance Measurement: Economic Value Added (EVA®)---An Alternative Measure of Performance
123(1)
Common-Size Financial Statements
124(3)
Comprehension Check Questions
127(1)
Sources of Comparative Financial Data
127(2)
A Word of Caution about Ratio Analysis
129(2)
Comprehension Check Questions
131(1)
Summary
131(11)
Questions and Topics for Discussion
132(1)
Self-Test Problems
132(2)
Problems
134(8)
Long-Term and Short-Term Planning
142(23)
Chapter Objectives
144(1)
Pro Forma Statements
144(8)
Comprehension Check Questions
150(2)
Cash Budgeting
152(3)
Risk Analysis and Financial Planning
155(1)
Computerized Financial Forecasting and Planning Models
156(1)
Comprehension Check Questions
157(1)
Summary
157(8)
Questions and Topics for Discussion
159(1)
Self-Test Problems
159(1)
Problems
160(5)
PART 3 DETERMINANTS OF VALUATION
165(136)
The Time Value of Money
166(46)
Chapter Objectives
167(1)
Summary of Notation
167(1)
The Use of Financial Calculators and Spreadsheets
168(1)
Spreadsheet Solution
168(1)
The Concepts of Interest, Future Value, and Present Value
169(1)
Comprehension Check Questions
170(1)
Future Value of a Single Cash Flow
170(7)
Compound Interest and Future Value
174(2)
Solving for the Number of Periods
176(1)
Comprehension Check Questions
177(1)
Present Value of a Single Cash Flow
177(3)
Solving for the Discount Rate
179(1)
Comprehension Check Questions
180(1)
Future Value of a Stream of Cash Flows
180(8)
Comprehension Check Questions
188(1)
Present Value of a Stream of Cash Flows
188(8)
Present Value of an Uneven Stream
188(1)
Present Value of an Annuity
189(1)
Present Value of an Annuity Due
190(3)
Solving for the Discount Rate, Annuity, or Length of Annuity
193(1)
Present Value of a Deferred Annuity
194(1)
Present Value of a Perpetuity
195(1)
Comprehension Check Questions
196(1)
Effect of Compounding Periods on Present and Future Values
196(2)
Effect of Compounding Periods on Future and Present Values of Annuities
198(1)
Effective Rate of Return
199(2)
Comprehension Check Questions
200(1)
Application of Present Values and Future Values to Special Situations
201(3)
Loan Amortization Problem
201(1)
Finance & The Real World: Reversing Your Mortgage
202(1)
Calculating Growth Rates
202(2)
Comprehension Check Questions
204(1)
Summary
204(8)
Questions and Topics for Discussion
205(1)
Self-Test Problems
206(1)
Problems
206(6)
Analysis of Risk and Return
212(31)
Chapter Objectives
213(1)
Financial Market Historical Returns
213(1)
The Meaning of Risk
214(2)
Risk Measurement for an Individual Asset
216(8)
Probability Distribution
216(7)
Comprehension Check Questions
223(1)
Risk of an Asset in a Portfolio Context
224(8)
Calculating Portfolio Returns
224(1)
Total Risk, Systematic Risk, and Unsystematic Risk
224(2)
Diversification and Portfolio Risk
226(2)
The Relevant Risk
228(4)
Relationship Between Required Rate of Return and Risk
232(11)
The Security Market Line
232(1)
Comprehension Check Questions
232(3)
Criticisms of the CAPM and a Discussion of Some New Models
235(1)
Comprehension Check Questions
236(1)
Summary
236(1)
Questions and Topics for Discussion
237(1)
Self-Test Problems
238(1)
Problems
238(5)
Bonds and Other Sources of Debt
243(35)
Chapter Objectives
244(1)
Definition of Long-term Debt and Bonds
244(1)
Types of Long-term Bonds
244(2)
Features of Long-term Bonds
246(3)
Coupon Rate
246(1)
Maturity
247(1)
Call Feature and Bond Refunding
247(1)
Put Feature
247(1)
Sinking Fund
248(1)
Equity-Linked Debt
248(1)
Comprehension Check Questions
249(1)
Bond Ratings
249(1)
Indenture
250(4)
Covenants
250(3)
Trustees
253(1)
Comprehension Check Questions
254(1)
Bond Valuation
254(3)
Using the Capitalization of Cash Flow Method
254(2)
Semiannual Interest Payments
256(1)
Bond Pricing Principles
257(3)
Yield to Maturity
260(3)
Comprehension Check Questions
262(1)
Key Determinants of Bond Yields
263(5)
Risk-Free Rate of Return
263(1)
Risk Premium
264(4)
Comprehension Check Questions
268(1)
Other Sources of Debt
268(4)
Leasing
268(1)
Finance & The Real World: When Stocks Went South, Bonds Boomed
269(1)
Advantages
270(1)
Disadvantages
271(1)
Term Loans
271(1)
Comprehension Check Questions
272(1)
Summary
272(6)
Questions and Topics for Discussion
273(1)
Self-Test Problems
274(1)
Problems
274(4)
Common Stocks and Preferred Stocks
278(23)
Chapter Objectives
279(1)
Common Stock
279(12)
Stockholders' Rights
279(2)
Comprehension Check Questions
281(1)
Valuation of Common Stock
281(2)
Constant Growth Dividend Valuation Model
283(3)
Comprehension Check Questions
286(1)
Insights from the Constant Growth Dividend Valuation Model
286(1)
Limitations of the Constant Growth Dividend Valuation Model
287(1)
Other Models of Valuation
288(1)
Common Stock Valuation and Accounting
289(1)
Comprehension Check Questions
290(1)
Finance & The Real World: Preferring Dividends
291(1)
Preferred Stock
291(3)
Features of Preferred Stock
292(1)
Valuation of Preferred Stock
293(1)
Comprehension Check Questions
293(1)
Summary
294(7)
Questions and Topics for Discussion
295(1)
Self-Test Problems
296(1)
Problem
296(5)
PART 4 THE CAPITAL INVESTMENT DECISION
301(60)
Capital Budgeting and Cash Flow Analysis
302(26)
Chapter Objectives
304(1)
Principles of Estimating Cash Flows
305(2)
Comprehension Check Questions
307(1)
Estimating Project Cash Flows
307(13)
Estimating Cash Flows for a New Business
308(6)
Comprehension Check Questions
314(1)
Calculating Cash Flows for an Asset Replacement Project
314(6)
Comprehension Check Questions
320(1)
Interest Charges and Net Cash Flows
320(1)
Problems in Cash Flow Estimation
320(1)
Comprehension Check Questions
321(1)
Summary
321(7)
Questions and Topics for Discussion
321(1)
Self-Test Problems
322(1)
Problems
322(6)
Capital Budgeting Decision Criteria and Risk Analysis
328(33)
Chapter Objectives
329(1)
Some Terms and Concepts in Capital Budgeting
329(1)
Cost of Capital
329(1)
How Projects Are Classified
329(1)
Availability of Funds
330(1)
Decision Models for Evaluating Capital Expenditures
330(13)
Net Present Value
330(3)
Internal Rate of Return
333(4)
Net Present Value versus Internal Rate of Return: The Reinvestment Rate Assumption
337(2)
Comprehension Check Questions
339(1)
Profitability Index
339(1)
Payback Period
340(2)
Comprehension Check Questions
342(1)
Adjusting for Risk
343(1)
More on Project Risk Analysis
343(7)
What-if Analysis or Sensitivity Analysis
343(2)
Simulation Analysis
345(1)
Real Options in Capital Budgeting
346(3)
Finance & The Real World: Boeing Makes a Gutsy Decision
349(1)
Inflation and Capital Budgeting Analysis
350(1)
Comprehension Check Questions
351(1)
Summary
351(10)
Questions and Topics for Discussion
352(1)
Self-Test Problems
352(1)
Problems
353(8)
PART 5 CAPITAL STRUCTURE AND DIVIDEND POLICY
361(114)
The Cost of Capital
362(28)
Chapter Objectives
365(1)
Summary of Notation
365(1)
The Weighted Average Cost of Capital Concept
365(1)
Comprehension Check Questions
366(1)
Computing the Component Costs of Capital
366(7)
Marginal Costs
366(1)
Cost of Debt
367(1)
Cost of Preferred Stock
368(1)
Comprehension Check Questions
369(1)
Cost of Common Equity Capital
369(2)
Finance & The Real World: Verizon's Big Gamble
371(2)
Comprehension Check Questions
373(1)
Computing the Weighted Average Cost of Capital
373(4)
Book Value Proportions
374(1)
Market Value Proportions
375(1)
Comprehension Check Questions
376(1)
Estimating the Cost of Capital for Eli Lilly and Company---An Illustration
377(4)
Component Costs of Capital
377(1)
Cost of Debt
377(2)
Cost of Common Equity
379(1)
Proportions of Debt and Common Equity
380(1)
Weighted Average Cost of Capital
380(1)
Summary
381(9)
Questions and Topics for Discussion
382(1)
Self-Test Problems
382(1)
Problems
383(7)
Capital Structure Policy: Foundation Concepts
390(26)
Chapter Objectives
391(1)
Business and Financial Risk
391(3)
Business Risk
392(1)
Financial Risk
393(1)
Comprehension Check Questions
394(1)
Operating and Financial Leverage
394(12)
Operating Leverage
394(1)
Finance & The Real World: Optimal Capital Structure in the Airline Industry: US Airways versus Southwest Airlines
395(4)
Financial Leverage
399(4)
Combined Leverage
403(3)
Comprehension Check Questions
406(1)
Operating Breakeven Analysis
406(3)
Graphic Breakeven Analysis
406(1)
Algebraic Breakeven Analysis
407(1)
Applying Breakeven Analysis
408(1)
Relation to Operating Leverage
409(1)
Comprehension Check Questions
409(1)
Summary
409(7)
Questions and Topics for Discussion
410(1)
Self-Test Problems
411(1)
Problems
411(5)
Capital Structure Policy: Theory and Practice
416(28)
Chapter Objectives
417(1)
Capital Structure Theory
418(14)
Modigliani-Miller Model with Corporate Income Taxes
422(3)
Tax Shield and Bankruptcy Cost Trade-off Theory
425(3)
Comprehension Check Questions
428(1)
Agency Costs and Capital Structure
428(2)
Personal Taxes and Optimal Capital Structure
430(1)
Signaling Theory of Capital Structure
430(1)
The Pecking Order Theory
431(1)
Comprehension Check Questions
432(1)
EBIT-EPS Analysis
432(4)
EBIT-EPS Analysis and Stock Price
435(1)
Determinants of Capital Structure in Practice
436(2)
Comprehension Check Questions
438(1)
Summary
438(6)
Questions and Topics for Discussion
439(1)
Self-Test Problems
440(1)
Problems
440(4)
Dividend Policy
444(31)
Chapter Objectives
447(1)
Theoretical Implications of Dividend Policy
448(4)
Miller and Modigliani and the Irrelevance of Dividends
448(2)
Arguments for the Relevance of Dividends
450(2)
Comprehension Check Questions
452(1)
Determinants of Dividend Policy in Practice
452(4)
Legal Constraints
452(1)
Restrictive Covenants
453(1)
Tax Considerations
453(1)
Liquidity and Cash Flow Considerations
454(1)
Borrowing Capacity and Access to the Capital Markets
454(1)
Earnings Stability
454(1)
Information Signaling
454(1)
Growth Prospects
455(1)
Shareholder Preferences
456(1)
Dividend Policies
456(4)
Passive Residual Policy
456(1)
Finance & The Real World: FedEx Finally Pays a Dividend
457(1)
Stable Dollar Dividend Policy
458(2)
Other Dividend Payment Policies
460(1)
How Dividends Are Paid
460(2)
Dividend Reinvestment Plans
462(1)
Comprehension Check Questions
462(1)
Stock Dividends and Stock Splits
462(2)
Share Repurchases
464(3)
Share Repurchases versus Cash Dividends
465(1)
Procedures for Repurchasing Shares
466(1)
Comprehension Check Questions
467(1)
Summary
467(8)
Questions and Topics for Discussion
468(1)
Self-Test Problems
469(1)
Problems
470(5)
PART 6 WORKING CAPITAL MANAGEMENT AND INTERNATIONAL FINANCE
475(98)
Working Capital Policy and Management of Current Assets
476(49)
Chapter Objectives
477(1)
Operating Cycle Analysis
477(3)
Importance of Working Capital
480(10)
Levels of Working Capital Investment
481(1)
Finance & The Real World: Microsoft's Cash Dilemma
482(1)
Working Capital Financing: Proportion of Short-term versus Long-term Financing
483(5)
Overall Working Capital Policy
488(1)
Comprehension Check Questions
489(1)
Management of Current Assets
490(1)
Cash and Marketable Securities
490(14)
Optimal Liquid Asset Balance
491(1)
The Practice of Liquidity Management
492(2)
Controlling the Collection and Disbursement of Cash
494(6)
Electronic Funds Transfer
500(1)
Check Clearing for the 21st Century
500(1)
Comprehension Check Questions
501(1)
Investing in Marketable Securities
501(3)
Comprehension Check Questions
504(1)
Accounts Receivable Management
504(6)
Shareholder Wealth and Accounts Receivable Management
505(1)
Credit Policy
505(3)
Monitoring Accounts Receivable
508(1)
Evaluating Individual Credit Applicants
508(1)
Comprehension Check Questions
509(1)
Inventory Management
510(2)
Types of Inventory
510(1)
Optimal Inventory Management Policy
510(2)
Comprehension Check Questions
512(1)
Summary
512(13)
Questions and Topics for Discussion
514(1)
Self-Test Problems
515(1)
Problems
516(9)
Management of Current Liabilities
525(26)
Chapter Objectives
526(1)
Cost of Short-term Funds
526(1)
Trade Credit
527(2)
Credit Terms
527(1)
Cost of Trade Credit
527(2)
Stretching Accounts Payable
529(1)
Accrued Expenses and Deferred Income
529(1)
Accrued Expenses
530(1)
Deferred Income
530(1)
Short-term Bank Credit
530(5)
Comprehension Check Questions
530(2)
Single Loans (Notes)
532(1)
Lines of Credit
533(1)
Revolving Credit Agreements
534(1)
Commercial Paper
535(2)
Finance & The Real World: The Commercial Paper Market: Tissue Paper?
536(1)
Comprehension Check Questions
537(1)
Accounts Receivable Loans
537(4)
Pledging Accounts Receivable
538(1)
Factoring Accounts Receivable
539(2)
Inventory Loans
541(3)
Floating Liens
542(1)
Trust Receipts
542(1)
Terminal Warehouse and Field Warehouse Financing Arrangements
542(2)
Comprehension Check Questions
544(1)
Summary
544(7)
Questions and Topics for Discussion
545(1)
Self-Test Problems
546(1)
Problems
547(4)
International Financial Management
551(22)
Chapter Objectives
553(1)
Foreign Currency Markets and Exchange Rates
553(3)
The Eurocurrency Market
553(1)
The Euro: A Common European Currency
554(1)
Direct and Indirect Quotes
554(1)
Spot Rates
554(1)
Forward Rates
555(1)
Comprehension Check Questions
556(1)
Factors that Affect Exchange Rates
556(7)
Covered Interest Arbitrage and Interest Rate Parity
557(1)
Purchasing Power Parity
558(2)
Expectations Theory and Forward Exchange Rates
560(1)
The International Fisher Effect
560(1)
An Integrative Look at International Parity Relationships
561(1)
Comprehension Check Questions
562(1)
Foreign Exchange Risk
563(6)
Transaction Exposure
563(2)
Economic Exposure
565(1)
Finance & The Real World: Vying for U.S. Investment
566(1)
Translation Exposure
567(1)
Comprehension Check Questions
568(1)
Summary
569(4)
Questions and Topics for Discussion
569(1)
Self-Test Problems
570(1)
Problems
570(3)
Appendix A573(4)
Appendix B577(18)
Glossary595(12)
Index607


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