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Intermediate Financial Management (with Thomson One)

by: Brigham, Eugene F.; Daves, Phillip R.

Intermediate Financial Management (with Thomson One)

by: Brigham, Eugene F.; Daves, Phillip R.

ISBN 13:
9780324319866
ISBN 10:
032431986X
Edition: 9th
Format: Hardcover
Copyright: 03/29/2006
Publisher: Thomson South-Western
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Summary

"Why aren't you using the ONLY book expressly written for your Intermediate/Advanced Corporate Finance course?" This comprehensive text contains enough background material to refresh and reinforce earlier courses in corporate finance while still providing enough advanced material to stimulate the most advanced learner. The predominant strengths of clarity, current coverage, and friendliness to learner and instructors continue in this new edition. The instructor's resources enable outstanding easy prep and presentations.

Preface

iii

Part 1 Fundamental Concepts

xxxii

An Overview of Financial Management

(29)

About Using the Text

(1)

Beginning-of-Chapter Questions

(1)

The Basic Goal: Creating Stockholder Value

(6)

Societal Considerations

(2)

Managerial Actions to Maximize Shareholder Wealth

(1)

Market Value versus Intrinsic Value

(1)

Short-Term Price versus Long-Term Price

(1)

Agency Relationships

(7)

Agency Conflict I: Stockholders versus Managers

(5)

Agency Conflict II: Stockholders versus Creditors

(1)

Transparency in Financial Reporting

(1)

The Sarbanes-Oxley Act of 2002

(3)

Market Interest Rates

(1)

The Real Risk-Free Rate of Interest, r*

(4)

Inflation Premium (IP)

(1)

The Nominal, or Quoted, Risk-Free Rate of Interest, rRF

(1)

Default Risk Premium (DRP)

(1)

Liquidity Premium (LP)

(1)

Maturity Risk Premium (MRP)

(1)

A Preview of What's Ahead

(1)

ThomsonNOW Resources

(1)

Summary

(6)

Risk and Return: Part I

(41)

Beginning-of-Chapter Questions

(1)

Investment Returns

(1)

Box: Corporate Valuation and Risk

(1)

Stand-Alone Risk

(8)

Probability Distributions

(1)

Expected Rate of Return

(3)

Measuring Stand-Alone Risk: The Standard Deviation

(2)

Using Historical Data to Measure Risk

(1)

Measuring Stand-Alone Risk: The Coefficient of Variation

(1)

Box: The Trade-Off between Risk and Return

(2)

Risk Aversion and Required Returns

(2)

Risk in a Portfolio Context

(7)

Portfolio Returns

(1)

Portfolio Risk

(4)

Diversifiable Risk versus Market Risk

(2)

Box: The Benefits of Diversifying Overseas

(4)

The Concept of Beta

(3)

Calculating Beta Coefficients

(3)

The Relationship between Risk and Rates of Return

(5)

The Impact of Inflation

(1)

Changes in Risk Aversion

(1)

Changes in a Stock's Beta Coefficient

(1)

Some Concerns about Beta and the CAPM

(1)

Summary

(8)

Risk and Return: Part II

(40)

Beginning-of-Chapter Questions

(1)

Measuring Portfolio Risk

(1)

Box: Corporate Valuation and Risk

(4)

Covariance and the Correlation Coefficient

(3)

The Two-Asset Case

(1)

Measuring Risk in Practice

(1)

Efficient Portfolios

(3)

Choosing the Optimal Portfolio

(3)

The Efficient Frontier

(1)

Risk/Return Indifference Curves

(1)

The Optimal Portfolio for an Investor

(1)

The Basic Assumptions of the Capital Asset Pricing Model

(1)

The Capital Market Line and the Security Market Line

(4)

Calculating Beta Coefficients

(8)

Calculating the Beta Coefficient for a Single Stock: General Electric

(3)

The Market Model versus the CAPM

(1)

Calculating the Beta Coefficient for a Portfolio: The Magellan Fund

(1)

Additional Insights into Risk and Return

(2)

Advanced Issues in Calculating Beta

(1)

Empirical Tests of the CAPM

(3)

Tests of the Stability of Beta Coefficients

(1)

Tests of the CAPM Based on the Slope of the SML

(2)

Current Status of the CAPM

100

(1)

Arbitrage Pricing Theory

100

(3)

The Fama-French Three-Factor Model

103

(3)

An Alternative Theory of Risk and Return: Behavioral Finance

106

(1)

Summary

106

(6)

Bond Valuation

112

(39)

Beginning-of-Chapter Questions

113

(1)

Who Issues Bonds?

113

(1)

Box: Corporate Valuation and Risk

114

(1)

Key Characteristics of Bonds

115

(5)

Par Value

115

(1)

Coupon Interest Rate

115

(1)

Maturity Date

116

(1)

Provisions to Call or Redeem Bonds

117

(1)

Sinking Funds

118

(1)

Other Features

119

(1)

Bond Valuation

120

(6)

Changes in Bond Values over Time

123

(3)

Bond Yields

126

(3)

Yield to Maturity

126

(1)

Yield to Call

127

(1)

Current Yield

128

(1)

Box: Drinking Your Coupons

129

(1)

Bonds with Semiannual Coupons

129

(1)

Assessing the Risk of a Bond

130

(3)

Interest Rate Risk

130

(3)

Reinvestment Rate Risk

133

(1)

Comparing Interest Rate and Reinvestment Rate Risk

133

(1)

Default Risk

133

(9)

Bond Contract Provisions That Influence Default Risk

134

(2)

Bond Ratings

136

(4)

Junk Bonds

140

(1)

Bankruptcy and Reorganization

141

(1)

Bond Markets

142

(2)

Summary

144

(7)

Basic Stock Valuation

151

(37)

Beginning-of-Chapter Questions

152

(1)

Legal Rights and Privileges of Common Stockholders

152

(1)

Control of the Firm

152

(1)

Box: Corporate Valuation and Stock Risk

153

(1)

The Preemptive Right

154

(1)

Types of Common Stock

154

(2)

The Market for Common Stock

156

(1)

Types of Stock Market Transactions

156

(1)

Box: Rational Exuberance?

157

(1)

Common Stock Valuation

157

(3)

Definitions of Terms Used in Stock Valuation Models

157

(2)

Expected Dividends as the Basis for Stock Values

159

(1)

Constant Growth Stocks

160

(4)

Illustration of a Constant Growth Stock

161

(1)

Dividend and Earnings Growth

162

(1)

Do Stock Prices Reflect Long-Term or Short-Term Events?

163

(1)

When Can the Constant Growth Model Be Used?

164

(1)

Expected Rate of Return on a Constant Growth Stock

164

(1)

Valuing Stocks That Have a Nonconstant Growth Rate

165

(4)

Stock Valuation by the Free Cash Flow Approach

169

(1)

Market Multiple Analysis

169

(1)

Stock Market Equilibrium

170

(5)

Changes in Equilibrium Stock Prices

171

(2)

The Efficient Markets Hypothesis

173

(1)

Levels of Market Efficiency

173

(1)

Implications of Market Efficiency

174

(1)

Actual Stock Prices and Returns

175

(3)

Investing in International Stocks

175

(2)

Stock Market Reporting

177

(1)

Preferred Stock

178

(1)

Box: A Nation of Traders

179

(1)

Summary

179

(9)

Financial Options

188

(25)

Beginning-of-Chapter Questions

189

(1)

Financial Options

189

(6)

Option Types and Markets

189

(2)

Factors That Affect the Value of a Call Option

191

(1)

Exercise Value versus Option Price

192

(3)

Box: Reporting Employee Stock Options

195

(1)

Introduction to Option Pricing Models: The Binomial Approach

195

(5)

The Black-Scholes Option Pricing Model (OPM)

200

(5)

OPM Assumptions and Equations

200

(2)

OPM Illustration

202

(3)

Box: Taxes and Stock Options

205

(1)

The Valuation of Put Options

206

(1)

Applications of Option Pricing in Corporate Finance

207

(2)

Real Options

207

(1)

Risk Management

207

(1)

Capital Structure Decisions

208

(1)

Compensation Plans

209

(1)

Summary

209

(4)

Accounting for Financial Management

213

(36)

Beginning-of-Chapter Questions

214

(1)

Financial Statements and Reports

214

(1)

Box: Corporate Valuation and Financial Statements

215

(1)

The Balance Sheet

216

(1)

The Income Statement

217

(1)

Statement of Retained Earnings

218

(1)

Net Cash Flow

219

(1)

Box: Financial Analysis on the Internet

220

(2)

Statement of Cash Flows

222

(2)

Modifying Accounting Data for Managerial Decisions

224

(4)

Operating Assets and Total Net Operating Capital

224

(3)

Net Operating Profit after Taxes (NOPAT)

227

(1)

Box: Financial Bamboozling: How to Spot It

228

(3)

Free Cash Flow

228

(1)

Calculating Free Cash Flow

229

(1)

The Uses of FCF

230

(1)

FCF and Corporate Value

230

(1)

Evaluating FCF, NOPAT, and Operating Capital

230

(1)

MVA and EVA

231

(4)

Market Value Added (MVA)

231

(1)

Economic Value Added (EVA)

232

(3)

The Federal Income Tax System

235

(5)

Corporate Income Taxes

235

(4)

Taxation of Small Businesses: S Corporations

239

(1)

Personal Taxes

239

(1)

Summary

240

(9)

Analysis of Financial Statements

249

(35)

Beginning-of-Chapter Questions

250

(1)

Ratio Analysis

250

(1)

Box: Corporate Valuation and Analysis of Financial Statements

251

(1)

Liquidity Ratios

251

(3)

Ability to Meet Short-Term Obligations: The Current Ratio

253

(1)

Quick, or Acid Test, Ratio

253

(1)

Asset Management Ratios

254

(3)

Evaluating Inventories: The Inventory Turnover Ratio

254

(1)

Evaluating Receivables: The Days Sales Outstanding

255

(1)

Evaluating Fixed Assets: The Fixed Assets Turnover Ratio

256

(1)

Evaluating Total Assets: The Total Assets Turnover Ratio

256

(1)

Debt Management Ratios

257

(2)

How the Firm Is Financed: Total Liabilities to Total Assets

257

(1)

Ability to Pay Interest: Times-Interest-Earned

258

(1)

Ability to Service Debt: EBITDA Coverage Ratio

258

(1)

Profitability Ratios

259

(1)

Profit Margin on Sales

259

(1)

Box: International Accounting Differences Create Headaches for Investors

260

(2)

Basic Earning Power (BEP)

261

(1)

Return on Total Assets

261

(1)

Return on Common Equity

262

(1)

Market Value Ratios

262

(2)

Price/Earnings Ratio

262

(1)

Price/Cash Flow Ratio

263

(1)

Market/Book Ratio

263

(1)

Trend Analysis, Common Size Analysis, and Percent Change Analysis

264

(4)

Tying the Ratios Together: The Du Pont Equation

268

(2)

Comparative Ratios and ``Benchmarking''

270

(1)

Uses and Limitations of Ratio Analysis

271

(1)

Box: Ratio Analysis in the Internet Age

272

(1)

Looking beyond the Numbers

273

(1)

Summary

274

(10)

Part 2 Corporate Valuation

284

(110)

Financial Planning and Forecasting Financial Statements

286

(31)

Beginning-of-Chapter Questions

287

(1)

Overview of Financial Planning

287

(1)

Strategic Plans

287

(1)

Box: Corporate Valuation and Financial Planning

288

(2)

Operating Plans

289

(1)

The Financial Plan

289

(1)

Sales Forecast

290

(2)

Financial Statement Forecasting: The Percent of Sales Method

292

(12)

Step 1. Analyze the Historical Ratios

292

(2)

Step 2. Forecast the Income Statement

294

(3)

Step 3. Forecast the Balance Sheet

297

(3)

Step 4. Raising the Additional Funds Needed

300

(1)

Analysis of the Forecast

301

(3)

The AFN Formula

304

(2)

Forecasting Financial Requirements When the Balance Sheet Ratios Are Subject to Change

306

(3)

Economies of Scale

306

(1)

Lumpy Assets

306

(2)

Excess Capacity Adjustments

308

(1)

Summary

309

(8)

Determining the Cost of Capital

317

(38)

Beginning-of-Chapter Questions

318

(1)

The Weighted Average Cost of Capital

318

(1)

Box: Corporate Valuation and the Cost of Capital

319

(1)

Cost of Debt, rd (1 -- T)

320

(1)

Cost of Preferred Stock, rps

321

(1)

Cost of Common Stock, rs

322

(1)

The CAPM Approach

323

(6)

Estimating the Risk-Free Rate

324

(1)

Estimating the Market Risk Premium

324

(3)

Estimating Beta

327

(1)

An Illustration of the CAPM Approach

328

(1)

Dividend-Yield-Plus-Growth-Rate, or Discounted Cash Flow (DCF), Approach

329

(3)

Estimating Inputs for the DCF Approach

329

(2)

Illustration of the Discounted Cash Flow Approach

331

(1)

Evaluating the Methods for Estimating Growth

331

(1)

Bond-Yield-Plus-Risk-Premium Approach

332

(1)

Comparison of the CAPM, DCF, and Bond-Yield-Plus-Risk-Premium Methods

332

(1)

Composite, or Weighted Average, Cost of Capital, WACC

333

(2)

Box: Global Variations in the Cost of Capital

335

(1)

Factors That Affect the Weighted Average Cost of Capital

335

(2)

Factors the Firm Cannot Control

335

(1)

Factors the Firm Can Control

336

(1)

Adjusting the Cost of Capital for Risk

337

(2)

The Divisional Cost of Capital

337

(2)

Techniques for Measuring Divisional Betas

339

(1)

The Pure Play Method

339

(1)

The Accounting Beta Method

339

(1)

Estimating the Cost of Capital for Individual Projects

340

(1)

Adjusting the Cost of Capital for Flotation Costs

341

(2)

Flotation Costs and the Component Cost of Debt

341

(1)

Cost of Newly Issued Common Stock, or External Equity, re

342

(1)

How Much Does It Cost to Raise External Capital?

343

(1)

Some Problem Areas in Cost of Capital

343

(1)

Four Mistakes to Avoid

344

(1)

Summary

345

(10)

Corporate Value and Value-Based Management

355

(39)

Beginning-of-Chapter Questions

356

(1)

Overview of Corporate Valuation

356

(1)

Box: Corporate Valuation: Putting the Pieces Together

357

(1)

The Corporate Valuation Model

358

(8)

Estimating the Value of Operations

359

(4)

Estimating the Price Per Share

363

(2)

The Dividend Growth Model Applied to MagnaVision

365

(1)

Comparing the Corporate Valuation and Dividend Growth Models

365

(1)

Value-Based Management

366

(8)

Corporate Governance and Shareholder Wealth

374

(1)

Box: Value-Based Management in Practice

375

(5)

Provisions to Prevent Managerial Entrenchment

375

(3)

Using Compensation to Align Managerial and Shareholder Interests

378

(2)

Box: International Corporate Governance

380

(5)

Summary

385

(9)

Part 3 Project Valuation

394

(112)

Capital Budgeting: Decision Criteria

396

(39)

Beginning-of-Chapter Questions

397

(1)

Overview of Capital Budgeting

397

(1)

Box: Corporate Valuation and Capital Budgeting

398

(1)

Project Classifications

399

(1)

Capital Budgeting Decision Rules

400

(7)

Payback Period

400

(1)

Discounted Payback Period

401

(1)

Evaluating Payback and Discounted Payback

402

(1)

Net Present Valu (NPV)

402

(2)

Rationale for the NPV Method

404

(1)

Internal Rate of Return (IRR)

405

(1)

Rationale for the IRR Method

406

(1)

Comparison of the NPV and IRR Methods

407

(5)

NPV Profiles

407

(1)

NPV Rankings Depend on the Cost of Capital

407

(1)

Evaluating Independent Projects

408

(1)

Evaluating Mutually Exclusive Projects

409

(1)

Multiple IRRs

410

(2)

Modified Internal Rate of Return (MIRR)

412

(1)

Profitability Index

413

(1)

Conclusions on Capital Budgeting Methods

414

(2)

Business Practices

416

(1)

The Post-Audit

417

(1)

Box: How Does Industry Evaluate Projects?

418

(1)

Special Applications of Cash Flow Evaluation

418

(4)

Comparing Projects with Unequal Lives

419

(2)

Economic Life versus Physical Life

421

(1)

The Optimal Capital Budget

422

(2)

An Increasing Marginal Cost of Capital

422

(1)

Capital Rationing

422

(2)

Summary

424

(11)

Capital Budgeting: Estimating Cash Flows and Analyzing Risk

435

(44)

Beginning-of-Chapter Questions

436

(1)

Estimating Cash Flows

436

(1)

Box: Corporate Valuation, Cash Flows, and Risk Analysis

437

(1)

Identifying the Relevant Cash Flows

437

(5)

Project Cash Flow versus Accounting Income

438

(1)

Incremental Cash Flows

439

(3)

Timing of Cash Flows

442

(1)

Tax Effects

442

(4)

An Overview of Depreciation

442

(1)

Tax Depreciation Life

443

(3)

Evaluating Capital Budgeting Projects

446

(6)

Analysis of the Cash Flows

448

(4)

Making the Decision

452

(1)

Adjusting for Inflation

452

(2)

Inflation-Induced Bias

452

(2)

Making the Inflation Adjustment

454

(1)

Project Risk Analysis: Techniques for Measuring Stand-Alone Risk

454

(5)

Sensitivity Analysis

455

(1)

Scenario Analysis

456

(2)

Monte Carlo Simulation

458

(1)

Box: Capital Budgeting Practices in the Asia/Pacific Region

459

(1)

Box: High-Tech CFOs

460

(4)

Project Risk Conclusions

464

(1)

Incorporating Project Risk into Capital Budgeting

464

(1)

Managing Risk through Phased Decisions: Decision Trees

465

(2)

The Basic Decision Tree

465

(2)

Introduction to Real Options

467

(3)

Investment Timing Options

468

(1)

Growth Options

468

(1)

Abandonment Options

469

(1)

Flexibility Options

469

(1)

Valuing Real Options

469

(1)

Summary

470

(9)

Real Options

479

(27)

Beginning-of-Chapter Questions

480

(1)

Valuing Real Options

480

(1)

Box: Corporate Valuation and Real Options

481

(1)

The Investment Timing Option: An Illustration

482

(11)

Approach 1. DCF Analysis Ignoring the Timing Option

482

(1)

Approach 2. DCF Analysis with a Qualitative Consideration of the Timing Option

483

(1)

Approach 3. Scenario Analysis and Decision Trees

484

(2)

Approach 4. Valuing the Timing Option with the Black-Scholes Option Pricing Model

486

(5)

Approach 5. Financial Engineering

491

(2)

The Growth Option: An Illustration

493

(5)

Approach 1. DCF Analysis Ignoring the Growth Option

493

(1)

Approach 2. DCF Analysis with a Qualitative Consideration of the Growth Option

493

(1)

Approach 3. Decision Tree Analysis of the Growth Option

494

(1)

Approach 4. Valuing the Growth Option with the Black-Scholes Option Pricing Model

494

(4)

Box: Growth Options at Dot-Com Companies

498

(2)

Concluding Thoughts on Real Options

500

(1)

Summary

501

(5)

Part 4 Strategic Financing Decisions

506

(110)

Capital Structure Decisions: Part I

508

(40)

Beginning-of-Chapter Questions

509

(1)

A Preview of Capital Structure Issues

509

(1)

Box: Corporate Valuation and the Cost of Capital

510

(2)

Debt Increases the Cost of Stock, rs

510

(1)

Debt Reduces the Taxes a Company Pays

511

(1)

The Risk of Bankruptcy Increases the Cost of Debt, rd

511

(1)

The Net Effect on the Weighted Average Cost of Capital

511

(1)

Bankruptcy Risk Reduces Free Cash Flow

511

(1)

Bankruptcy Risk Affects Agency Costs

511

(1)

Issuing Equity Conveys a Signal to the Marketplace

512

(1)

Business and Financial Risk

512

(7)

Business Risk

513

(1)

Operating Leverage

514

(1)

Financial Risk

515

(4)

Capital Structure Theory

519

(2)

Modigliani and Miller: No Taxes

519

(1)

Modigliani and Miller: The Effect of Corporate Taxes

520

(1)

Box: Yogi Berra on the MM Proposition

521

(6)

Miller: The Effect of Corporate and Personal Taxes

521

(1)

Trade-Off Theory

522

(2)

Signaling Theory

524

(1)

Reserve Borrowing Capacity

525

(1)

The Pecking Order Hypothesis

525

(1)

Using Debt Financing to Constrain Managers

526

(1)

The Investment Opportunity Set and Reserve Borrowing Capacity

526

(1)

Windows of Opportunity

527

(1)

Capital Structure Evidence and Implications

527

(3)

Empirical Evidence

528

(1)

Implications for Managers

529

(1)

Estimating the Optimal Capital Structure

530

(1)

Estimating the Cost of Debt

530

(1)

Box: Taking a Look at Global Capital Structures

531

(9)

Estimating the Cost of Equity, rs

531

(2)

Estimating the Weighted Average Cost of Capital, WACC

533

(1)

Estimating the Firm's Value

534

(1)

Estimating Shareholder Wealth and Stock Price

535

(3)

Analyzing the Results

538

(2)

Summary

540

(8)

Capital Structure Decisions: Part II

548

(34)

Beginning-of-Chapter Questions

549

(1)

Capital Structure Theory: Arbitrage Proofs of the Modigliani-Miller Models

549

(1)

Assumptions

549

(1)

Box: Corporate Valuation: Capital Structure Decisions

550

(10)

MM without Taxes

551

(1)

MM's Arbitrage Proof

552

(2)

Arbitrage with Short Sales

554

(1)

MM with Corporate Taxes

555

(1)

Illustration of the MM Models

556

(4)

Introducing Personal Taxes: The Miller Model

560

(3)

Criticisms of the MM and Miller Models

563

(2)

An Extension to the MM Model

565

(3)

Illustration of the MM Extension with Growth

568

(1)

Risky Debt and Equity as an Option

568

(5)

Using the Black-Scholes Option Pricing Model to Value Equity

569

(1)

Managerial Incentives

570

(1)

Capital Budgeting Decisions

570

(2)

Equity with Risky Coupon Debt

572

(1)

Capital Structure Theory: Our View

573

(2)

Summary

575

(7)

Distributions to Shareholders: Dividends and Repurchases

582

(34)

Beginning-of-Chapter Questions

583

(1)

Box: Corporate Valuation and Distributions to Shareholders

584

(1)

The Level of Distributions and Firm Value

584

(4)

Dividend Irrelevance Theory

585

(1)

Bird-in-the-Hand Theory: Dividends Are Preferred

586

(1)

Tax Preference Theory: Capital Gains Are Preferred

586

(1)

Empirical Evidence and the Level of Shareholder Distributions

586

(2)

Box: Dividend Yields around the World

588

(1)

Clientele Effect

589

(1)

Information Content, or Signaling, Hypothesis

590

(1)

Implications for Dividend Stability

591

(1)

Setting the Target Distribution Level: The Residual Distribution Model

591

(3)

Distributions in the Form of Dividends

594

(3)

Dividends and the Residual Model

594

(1)

Dividend Payment Procedures

595

(2)

Distributions through Stock Repurchases

597

(3)

The Effects of Stock Repurchases

597

(2)

A Tale of Two Cash Distributions: Dividends versus Stock Repurchases

599

(1)

Comparison of Dividends and Repurchases

600

(2)

Other Factors Influencing Distributions

602

(1)

Constraints

602

(1)

Alternative Sources of Capital

603

(1)

Overview of the Distribution Policy Decision

603

(2)

Stock Splits and Stock Dividends

605

(2)

Stock Splits

605

(1)

Stock Dividends

605

(1)

Effect on Stock Prices

606

(1)

Dividend Reinvestment Plans

607

(1)

Summary

608

(8)

Part 5 Tactical Financing Decisions

616

(100)

Initial Public Offerings, Investment Banking, and Financial Restructuring

618

(40)

Beginning-of-Chapter Questions

619

(1)

The Financial Life Cycle of a Startup Company

619

(1)

Box: Corporate Valuation, IPOs, and Financial Restructuring

620

(1)

The Decision to Go Public: Initial Public Offerings

621

(2)

Advantages of Going Public

621

(1)

Disadvantages of Going Public

622

(1)

Conclusions on Going Public

623

(1)

The Process of Going Public

623

(8)

Selecting an Investment Bank

623

(1)

The Underwriting Syndicate

624

(1)

Regulation of Securities Sales

625

(1)

The Roadshow and Book-Building

625

(1)

The First Day of Trading

626

(2)

The Costs of Going Public

628

(1)

The Importance of the Secondary Market

628

(1)

Regulating the Secondary Market

629

(1)

Questionable IPO Practices

630

(1)

Equity Carve-Outs: A Special Type of IPO

631

(2)

Non-IPO Investment Banking Activities

633

(3)

Preliminary Decisions

633

(1)

Private Placements

634

(1)

Shelf Registrations

634

(1)

Seasoned Equity Offerings

635

(1)

The Decision to Go Private

636

(2)

Managing the Maturity Structure of Debt

638

(2)

Maturity Matching

638

(1)

Effects of Interest Rate Levels and Forecasts

639

(1)

Information Asymmetries

639

(1)

Amount of Financing Required

640

(1)

Availability of Collateral

640

(1)

Refunding Operations

640

(5)

Step 1: Determine the Investment Outlay Required to Refund the Issue

641

(2)

Step 2: Calculate the Annual Flotation Cost Tax Effects

643

(1)

Step 3: Calculate the Annual Interest Savings

644

(1)

Step 4: Determine the NPV of the Refunding

644

(1)

Box: TVA Ratchets Down Its Interest Expenses

645

(2)

Managing the Risk Structure of Debt

647

(2)

Project Financing

647

(2)

Box: Bowie Bonds Ch-Ch-Change Asset Securitization

649

(2)

Securitization

649

(2)

Summary

651

(7)

Lease Financing

658

(28)

Beginning-of-Chapter Questions

659

(1)

The Two Parties to Leasing

659

(1)

Types of Leases

659

(1)

Box: Corporate Valuation and Lease Financing

660

(3)

Operating Leases

660

(1)

Financial, or Capital, Leases

661

(1)

Sale-and-Leaseback Arrangements

661

(1)

Combination Leases

661

(1)

``Synthetic'' Leases

662

(1)

Tax Effects

663

(1)

Financial Statement Effects

664

(3)

Evaluation by the Lessee

667

(4)

Evaluation by the Lessor

671

(2)

Analysis by the Lessor

672

(1)

Setting the Lease Payment

672

(1)

Other Issues in Lease Analysis

673

(3)

Estimated Residual Value

674

(1)

Increased Credit Availability

674

(1)

Real Estate Leases

674

(1)

Vehicle Leases

675

(1)

Leasing and Tax Laws

675

(1)

Box: Lease Securitization

676

(1)

Other Reasons for Leasing

677

(2)

Summary

679

(7)

Hybrid Financing: Preferred Stock, Warrants, and Convertibles

686

(30)

Beginning-of-Chapter Questions

687

(1)

Preferred Stock

687

(1)

Box: Corporate Valuation and Hybrid Financing

688

(2)

Basic Features

688

(2)

Box: Where's the Dividend?

690

(1)

Box: MIPS, QUIPS, TOPrS, and QUIDS: A Tale of Two Perspectives

691

(2)

Other Types of Preferred Stock

692

(1)

Advantages and Disadvantages of Preferred Stock

693

(1)

Warrants

693

(6)

Initial Market Price of a Bond with Warrants

694

(1)

Use of Warrants in Financing

695

(1)

Wealth Effects and Dilution Due to Warrants

696

(2)

The Component Cost of Bonds with Warrants

698

(1)

Convertibles

699

(8)

Conversion Ratio and Conversion Price

699

(2)

The Component Cost of Convertibles

701

(3)

Use of Convertibles in Financing

704

(1)

Convertibles and Agency Costs

705

(2)

A Final Comparison of Warrants and Convertibles

707

(1)

Reporting Earnings When Warrants or Convertibles Are Outstanding

708

(1)

Summary

709

(7)

Part 6 Working Capital Management

716

(114)

Working Capital Management

718

(44)

Beginning-of-Chapter Questions

719

(1)

The Cash Conversion Cycle

719

(1)

An Illustration

719

(1)

Box: Corporate Valuation and Working Capital Management

720

(5)

Shortening the Cash Conversion Cycle

723

(1)

Benefits

723

(2)

Alternative Net Operating Working Capital Policies

725

(1)

Cash Management

725

(1)

Box: The Best at Managing Working Capital

726

(1)

Reasons for Holding Cash

726

(1)

The Cash Budget

727

(3)

Box: The Great Debate: How Much Cash Is Enough?

730

(3)

Cash Management Techniques

731

(1)

Synchronizing Cash Flow

731

(1)

Speeding Up the Check-Clearing Process

732

(1)

Using Float

732

(1)

Speeding Up Receipts

733

(1)

Inventory

733

(1)

Receivables Management

734

(1)

Credit Policy

734

(1)

Box: Supply Chain Management

735

(4)

The Accumulation of Receivables

736

(1)

Monitoring the Receivables Position

736

(3)

Accruals and Accounts Payable (Trade Credit)

739

(3)

Accruals

739

(1)

Accounts Payable (Trade Credit)

739

(1)

The Cost of Trade Credit

739

(3)

Alternative Short-Term Financing Policies

742

(3)

Maturity Matching, or ``Self-Liquidating,'' Approach

742

(2)

Aggressive Approach

744

(1)

Conservative Approach

744

(1)

Short-Term Investments: Marketable Securities

745

(1)

Short-Term Financing

746

(1)

Advantages of Short-Term Financing

746

(1)

Disadvantages of Short-Term Debt

746

(1)

Short-Term Bank Loans

747

(2)

Maturity

747

(1)

Promissory Note

747

(1)

Compensating Balances

747

(1)

Informal Line of Credit

748

(1)

Revolving Credit Agreement

748

(1)

Commercial Paper

749

(1)

Maturity and Cost

749

(1)

Use of Commercial Paper

749

(1)

Use of Security in Short-Term Financing

749

(1)

Summary

750

(12)

Providing and Obtaining Credit

762

(37)

Beginning-of-Chapter Questions

763

(1)

Credit Policy

763

(1)

Box: Corporate Valuation and Credit Policy

764

(1)

Setting the Credit Period and Standards

764

(2)

Credit Standards

765

(1)

Setting the Collection Policy

766

(1)

Cash Discounts

766

(1)

Other Factors Influencing Credit Policy

766

(1)

Profit Potential

767

(1)

Legal Considerations

767

(1)

The Payments Pattern Approach to Monitoring Receivables

767

(5)

Analyzing Proposed Changes in Credit Policy

772

(2)

Analyzing Proposed Changes in Credit Policy: Incremental Analysis

774

(7)

The Basic Equations

775

(2)

Changing the Credit Period

777

(3)

Changes in Other Credit Policy Variables

780

(1)

Simultaneous Changes in Policy Variables

780

(1)

The Cost of Bank Loans

781

(6)

Regular, or Simple, Interest

783

(1)

Discount Interest

784

(1)

Effects of Compensating Balances

785

(1)

Installment Loans: Add-On Interest

786

(1)

Choosing a Bank

787

(2)

Willingness to Assume Risks

787

(1)

Advice and Counsel

788

(1)

Loyalty to Customers

788

(1)

Specialization

788

(1)

Maximum Loan Size

788

(1)

Merchant Banking

788

(1)

Other Services

789

(1)

Summary

789

(10)

Other Topics in Working Capital Management

799

(31)

Beginning-of-Chapter Questions

800

(1)

The Concept of Zero Working Capital

800

(1)

Box: Corporate Valuation and Working Capital Management

801

(1)

Setting the Target Cash Balance

802

(6)

The Baumol Model

803

(3)

Monte Carlo Simulation

806

(2)

Inventory Control Systems

808

(2)

Computerized Systems

808

(1)

Just-in-Time Systems

808

(1)

Outsourcing

809

(1)

The Relationship between Production Scheduling and Inventory Levels

809

(1)

Accounting for Inventory

810

(2)

Specific Identification

810

(1)

First-In, First-Out (FIFO)

810

(1)

Last-In, First-Out (LIFO)

810

(1)

Weighted Average

810

(1)

Comparison of Inventory Accounting Methods

810

(2)

The Economic Ordering Quantity (EOQ) Model

812

(4)

Carrying Costs

812

(1)

Ordering Costs

813

(1)

Total Inventory Costs

814

(1)

Derivation of the EOQ Model

814

(2)

EOQ Model Illustration

816

(8)

Setting the Order Point

818

(1)

EOQ Model Extensions

818

(1)

The Concept of Safety Stocks

818

(1)

Setting the Safety Stock Level

819

(1)

Quantity Discounts

820

(2)

Inflation

822

(1)

Seasonal Demand

823

(1)

EOQ Range

823

(1)

Summary

824

(6)

Part 7 Special Topics

830

(173)

Derivatives and Risk Management

832

(32)

Beginning-of-Chapter Questions

833

(1)

Reasons to Manage Risk

833

(1)

Box: Corporate Valuation and Risk Management

834

(3)

Background on Derivative

837

(1)

Derivatives in the News

838

(3)

Long Term Capital Management (LTCM)

838

(1)

Enron and Other Energy Traders

839

(2)

Other Types of Derivatives

841

(7)

Forward Contracts versus Futures Contracts

842

(1)

Swaps

843

(3)

Structured Notes

846

(1)

Inverse Floaters

847

(1)

Risk Management

848

(1)

Fundamentals of Risk Management

848

(2)

An Approach to Risk Management

849

(1)

Box: Microsoft's Goal: Manage Every Risk!

850

(1)

Using Derivatives to Reduce Risks

851

(4)

Hedging with Futures

851

(3)

Security Price Exposure

854

(1)

Box: Risk Management in the Cyber Economy

855

(4)

Commodity Price Exposure

857

(1)

The Use and Misuse of Derivatives

858

(1)

Summary

859

(5)

Bankruptcy, Reorganization, and Liquidation

864

(30)

Beginning-of-Chapter Questions

865

(1)

Financial Distress and Its Consequences

865

(1)

Box: Corporate Valuation and Bankruptcy

866

(2)

Causes of Business Failure

866

(1)

The Business Failure Record

867

(1)

Issues Facing a Firm in Financial Distress

868

(1)

Settlements without Going through Formal Bankruptcy

869

(2)

Informal Reorganization

869

(2)

Informal Liquidation

871

(1)

Federal Bankruptcy Law

871

(1)

Reorganization in Bankruptcy

872

(10)

Illustration of a Reorganization

876

(4)

Prepackaged Bankruptcies

880

(1)

Reorganization Time and Expense

881

(1)

Liquidation in Bankruptcy

882

(3)

Other Motivations for Bankruptcy

885

(1)

Some Criticisms of Bankruptcy Laws

886

(1)

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Intermediate Financial Management (with Thomson One)

Intermediate Financial Management (with Thomson One)

9780324319866

032431986X

Summary

Table of Contents

Supplemental Materials

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Amazon no longer offers textbook rentals. We do!

Intermediate Financial Management (with Thomson One)

Intermediate Financial Management (with Thomson One)

9780324319866

032431986X

Summary

Table of Contents

Supplemental Materials

Write a Review

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