Corporate Finance A Focused Approach (with Thomson ONE - Business School Edition)

by: Ehrhardt, Michael C.; Brigham, Eugene F.

ISBN 13:
9780324289312
ISBN 10:
0324289316
Edition: 2nd
Format: Hardcover
Copyright: 01/27/2005
Publisher: South-Western College Pub
Newer Edition

Note: Not guaranteed to come with supplemental materials (access cards, study guides, lab manuals, CDs, etc.)

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Summary

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.

Preface

iii

Part 1 Fundamental Concepts of Corporate Finance

(182)

An Overview of Corporate Finance and the Financial Environment

(37)

The Five-Minute MBA

(1)

The Corporate Life Cycle

(2)

The Primary Objective of the Corporation: Value Maximization

(5)

Box: Corporate Scandals and Maximizing Stock Price

(1)

The Financial Markets

(1)

Financial Institutions

(4)

Secondary Markets

(1)

The Stock Market

(2)

Box: Measuring the Market

(1)

The Cost of Money and Interest Rate Levels

(2)

The Determinants of Market Interest Rates

(4)

The Term Structure of Interest Rates

(2)

What Determines the Shape of the Yield Curve?

(3)

International Risk Factors

(1)

Economic Factors That Influence Interest Rate Levels

(2)

A Preview of What Is Ahead

(1)

e-Resources

(1)

Summary

(6)

Web Extension: The Pure Expectations Theory and Estimation of Forward Rates

Time Value of Money

(41)

Time Lines

(1)

Box: Corporate Valuation and the Time Value of Money

(1)

Future Value

(6)

Box: The Power of Compound Interest

(1)

Present Value

(2)

Solving for Interest Rate and Time

(3)

Future Value of an Annuity

(3)

Present Value of an Annuity

(3)

Annuities: Solving for Interest Rate, Number of Periods, or Payment

(1)

Perpetuities

(1)

Uneven Cash Flow Streams

(3)

Growing Annuities

(1)

Semiannual and Other Compounding Periods

(4)

Box: Using the Internet for Personal Financial Planning

(1)

Fractional Time Periods

(1)

Amortized Loans

(2)

Summary

(9)

Web Extension: The Tabular Approach and Continuous Compounding

Financial Statements, Cash Flow, and Taxes

(33)

Financial Statements and Reports

(1)

Box: Corporate Valuation and Financial Statements

(1)

The Balance Sheet

(2)

The Income Statement

(2)

Statement of Retained Earnings

(1)

Net Cash Flow

(2)

Box: Financial Analysis on the Internet

(1)

Statement of Cash Flows

(3)

Modifying Accounting Data for Managerial Decisions

(6)

Box: Financial Bamboozling: How to Spot It

(3)

MVA and EVA

(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)

Glossary

626

(13)

Name Index

639

(2)

Subject Index

641

Corporate Finance A Focused Approach (with Thomson ONE - Business School Edition)

9780324289312

0324289316

Summary

Table of Contents

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