Financial Management Principles and Applications 8th Edition Titman Solutions Manual

1. Part 1 Introduction to financial management
2. Chapter 1 Getting started—Principles of finance
3. Finance Spotlight Welcome to the world of finance
4. 1.1 Finance: an overview
5. What is finance?
6. Why study finance?
7. 1.2 Three types of business organisation
8. Sole proprietorship
9. Partnership
10. Corporation
11. How does finance fit into a firm’s organisational structure?
12. 1.3 The goal of the financial manager
13. Maximising shareholder wealth
14. Ethical considerations in corporate finance
15. Finance Spotlight Ethical considerations arising from Bond issues
16. 1.4 The five basic principles of finance
17. Principle 1: Money has a time value
18. Principle 2: There is a risk-return trade-off
19. Principle 3: Cash flows are the source of value
20. Principle 4: Market prices reflect information
21. Principle 5: Individuals respond to incentives
22. Chapter summary
23. Study questions
24. Endnotes
25. Chapter 2 Firms and the financial market
26. Finance Spotlight Superannuation—defined benefit versus defined contribution
27. 2.1 The basic structure of the Australian financial markets
28. 2.2 The financial marketplace: financial institutions
29. Commercial banks: everyone’s financial marketplace
30. Non-bank financial intermediaries
31. Investment companies
32. Finance Spotlight Controlling costs in managed funds
33. 2.3 The financial marketplace: securities markets
34. How securities markets bring corporations and investors together
35. Types of security
36. Stock markets
37. Finance Spotlight Where’s the money around the world?
38. Financial markets and the Global Financial Crisis (GFC)
39. Chapter summary
40. Study questions
41. Endnotes
42. Chapter 3 Understanding financial statements, taxes and cash flows
43. 3.1 An overview of the firm’s financial statements
44. Finance Spotlight Accounting is the language of business
45. Basic financial statements
46. Why study financial statements?
47. What are the accounting principles used to prepare financial statements?
48. 3.2 The income statement
49. Income statement of H. J. Boswell Ltd
50. Connecting the income statement and the balance sheet
51. Interpreting firm profitability using the income statement
52. IFRS and earnings management
53. Checkpoint 3.1 Constructing an income statement
54. 3.3 Corporate tax, personal tax and dividend imputation
55. Calculating taxable income and company tax payable
56. Personal income tax and capital gains tax
57. Checkpoint 3.2 Calculation of personal income tax and capital gains tax
58. Dividend imputation
59. Checkpoint 3.3 Comparison between a classical tax system and a dividend imputation tax system
60. 3.4 The balance sheet
61. The balance sheet of H. J. Boswell Ltd
62. Firm liquidity and net working capital
63. Debt and equity financing
64. Checkpoint 3.4 Constructing a balance sheet
65. Book values, historical costs and market values
66. Finance Spotlight Your personal balance sheet and income statement
67. 3.5 The cash flow statement
68. Sources and uses of cash
69. H. J. Boswell’s cash flow statement
70. Finance Spotlight IFRS versus GAAP
71. Checkpoint 3.5 Interpreting the statement of cash flows
72. Chapter summary
73. Study questions
74. Study problems
75. Mini-case
76. Endnotes
77. Chapter 4 Financial analysis: sizing up firm performance
78. Finance Spotlight Financial ratios and business
79. 4.1 Why do we analyse financial statements?
80. 4.2 Common-size statements: standardising financial information
81. The common-size income statement: H. J. Boswell Ltd
82. The common-size balance sheet: H. J. Boswell Ltd
83. 4.3 Using financial ratios
84. Liquidity ratios
85. Checkpoint 4.1 Evaluating James Hardie Industries PLC’s liquidity
86. Capital structure ratios
87. Asset management efficiency ratios
88. Checkpoint 4.2 Comparing the financing decisions of Wesfarmers Ltd and Woolworths Ltd
89. Profitability ratios
90. Checkpoint 4.3 Evaluating the return on assets for Wesfarmers Ltd and Woolworths Ltd
91. Market value ratios
92. Finance Spotlight Your cash budget and personal savings ratio
93. Checkpoint 4.4 Comparing Treasury Wine Estates with Australian Vintage using market value ratios
94. Summing up the financial analysis of H. J. Boswell Ltd
95. Finance Spotlight Ratios and international accounting standards
96. 4.4 Selecting a performance benchmark
97. Trend analysis
98. Peer-firm comparisons
99. 4.5 Limitations of ratio analysis
100. Chapter summary
101. Study questions
102. Study problems
103. Mini-case
104. Endnotes
105. Part 2 Valuation of financial assets
106. Chapter 5 The time value of money—The basics
107. Finance Spotlight A dollar saved is two dollars earned
108. 5.1 Using timelines to visualise cash flows
109. Checkpoint 5.1 Creating a timeline
110. 5.2 Compounding and future value
111. Compound interest and time
112. Compound interest and the interest rate
113. Techniques for valuing cash flows at different points in time
114. Applying compounding to things other than money
115. Checkpoint 5.2 Calculating the future value of a cash flow
116. Compound interest with shorter compounding periods
117. Checkpoint 5.3 Calculating future values using non-annual compounding periods
118. Finance Spotlight Saving for your first house
119. 5.3 Discounting and present value
120. The mechanics of discounting future cash flows
121. Checkpoint 5.4 Solving for the present value of a future cash flow
122. Discounting with shorter discounting periods
123. Two additional types of discounting problem
124. The Rule of 72
125. Checkpoint 5.5 Solving for the number of periods, n
126. Checkpoint 5.6 Solving for the interest rate, i
127. 5.4 Making interest rates comparable
128. Calculating the interest rate and converting it to an EAR
129. Checkpoint 5.7 Calculating an effective annual rate (EAR)
130. To the extreme: continuous compounding
131. Chapter summary
132. Study questions
133. Study problems
134. Mini-case
135. Chapter 6 The time value of money—Annuities and other topics
136. Finance Spotlight Annuities we all know
137. 6.1 Annuities
138. Ordinary annuities
139. Checkpoint 6.1 Solving for an ordinary annuity payment
140. Checkpoint 6.2 The present value of an ordinary annuity
141. Amortised loans
142. Checkpoint 6.3 Determining the outstanding balance of a loan
143. Annuities due
144. Finance spotlight Saving for retirement
145. 6.2 Perpetuities
146. Calculating the present value of a level perpetuity
147. Checkpoint 6.4 The present value of a level perpetuity
148. Calculating the present value of a growing perpetuity
149. Checkpoint 6.5 The present value of a growing perpetuity
150. 6.3 Complex cash-flow streams
151. Checkpoint 6.6 The present value of a complex cash-flow stream
152. Chapter summary
153. Study questions
154. Study problems
155. Mini-case
156. Chapter 7 Risk and return—An introduction: history of financial market returns
157. Finance Spotlight Using statistics
158. 7.1 Realised and expected rates of return and risk
159. Calculating the realised return from an investment
160. Calculating the expected return from an investment
161. Measuring risk
162. Checkpoint 7.1 Evaluating an investment’s return and risk
163. 7.2 A brief history of financial market returns
164. Australian financial markets: domestic investment returns
165. Lessons learned
166. Australian shares versus other categories of investment
167. Global financial markets: international investing
168. Finance Spotlight Determining your tolerance for risk
169. 7.3 Geometric versus arithmetic average rates of return
170. Calculating the geometric or compound average rate of return
171. Choosing the right ‘average’
172. Checkpoint 7.2 Calculating the arithmetic and geometric average rates of return
173. 7.4 What determines share prices?
174. The efficient markets hypothesis
175. Do we expect financial markets to be perfectly efficient?
176. Market efficiency: what does the evidence show?
177. Chapter summary
178. Study questions
179. Study problems
180. Mini-case
181. Endnotes
182. Chapter 8 Risk and return—Capital market theory
183. Finance Spotlight Risk and your personal investment plan
184. 8.1 Portfolio returns and portfolio risk
185. Calculating the expected return of a portfolio
186. Checkpoint 8.1 Calculating a portfolio’s expected rate of return
187. Evaluating portfolio risk
188. Calculating the standard deviation of a portfolio’s returns
189. Finance Spotlight International diversification
190. Checkpoint 8.2 Evaluating a portfolio’s risk and return
191. 8.2 Systematic risk and the market portfolio
192. Diversification and unsystematic risk
193. Diversification and systematic risk
194. Systematic risk and beta
195. Calculating the portfolio beta
196. 8.3 The security market line and the CAPM
197. Using the CAPM to estimate expected rates of return
198. Checkpoint 8.3 Estimating the expected rate of return using the CAPM
199. Chapter summary
200. Study questions
201. Study problems
202. Mini-case
203. Endnotes
204. Chapter 9 Debt valuation and interest rates
205. Finance Spotlight Borrow now, pay later
206. 9.1 Overview of government and corporate debt
207. Borrowing money in the private financial market
208. Borrowing money in the public financial market
209. Checkpoint 9.1 Calculating the rate of interest on a floating-rate loan
210. Basic bond features
211. Finance Spotlight Fixed- and variable-rate mortgages
212. 9.2 Valuing bonds
213. Valuing bonds by discounting future cash flows
214. Step 1: Determine bondholder cash flows
215. Step 2: Estimate the appropriate discount rate
216. Checkpoint 9.2 Calculating the yield to maturity on a corporate bond
217. Step 3: Calculate the present value using the discounted cash flow
218. Checkpoint 9.3 Valuing a bond issue
219. Checkpoint 9.4 Valuing a bond issue that pays semi-annual interest
220. 9.3 Bond valuation: four key relationships
221. First relationship
222. Second relationship
223. Third relationship
224. Fourth relationship
225. 9.4 Types of bond
226. Secured versus unsecured
227. Priority of claims
228. Initial offering market
229. Abnormal risk
230. Coupon level
231. Amortising or non-amortising
232. Convertibility
233. Finance Spotlight International bonds
234. 9.5 Determinants of interest rates
235. Inflation and real versus nominal interest rates
236. Checkpoint 9.5 Solving for the real rate of interest
237. Interest rate determinants: breaking it down
238. Checkpoint 9.6 Solving for the nominal rate of interest
239. The maturity-risk premium and the term structure of interest rates
240. Chapter summary
241. Study questions
242. Study problems
243. Mini-case
244. Endnotes
245. Chapter 10 Share valuation
246. Finance Spotlight Getting your fair share
247. 10.1 Ordinary shares
248. Characteristics of ordinary shares
249. Finance Spotlight Does a share by any other name smell as sweet?
250. Agency costs and ordinary shares
251. Valuing ordinary shares using the discounted dividend model
252. Checkpoint 10.1 Valuing ordinary shares
253. 10.2 The comparables approach to valuing ordinary shares
254. Defining the price-earnings (P/E) ratio valuation model
255. What determines the P/E ratio for a share?
256. Checkpoint 10.2 Valuing ordinary shares using the P/E ratio
257. An aside on managing for shareholder value
258. A word of caution about P/E ratios
259. 10.3 Preference shares
260. Features of preference shares
261. Valuing preference shares
262. Checkpoint 10.3 Valuing preference shares
263. A quick review: valuing bonds, preference shares and ordinary shares
264. Chapter summary
265. Study questions
266. Study problems
267. Mini-case
268. Endnotes
269. Part 3 Capital budgeting
270. Chapter 11 Investment decision criteria
271. Finance Spotlight Making personal investment decisions
272. 11.1 An overview of capital budgeting
273. The typical capital budgeting process
274. What are the sources of good investment projects?
275. Types of capital investment project
276. 11.2 Net present value
277. Why is NPV the right criterion?
278. Calculating an investment’s NPV
279. Independent versus mutually exclusive investment projects
280. Checkpoint 11.1 Calculating the NPV for Project Long
281. Checkpoint 11.2 Calculating the equivalent annual cost (EAC)
282. 11.3 Other investment criteria
283. Profitability index
284. Checkpoint 11.3 Calculating the profitability index for Project Long
285. Internal rate of return
286. Checkpoint 11.4 Calculating the IRR for Project Long
287. Checkpoint 11.5 The problem of multiple IRRs for projects
288. Modified internal rate of return
289. Checkpoint 11.6 Calculating the modified internal rate of return (MIRR)
290. Finance Spotlight Higher education as an investment in yourself
291. Payback period
292. Discounted payback period
293. Summarising the alternative decision rules
294. 11.4 A glance at actual capital budgeting practices
295. Chapter summary
296. Study questions
297. Study problems
298. Mini-cases
299. Chapter 12 Analysing project cash flows
300. Finance Spotlight The Internet on airline flights—making it happen
301. 12.1 Project cash flows
302. Incremental cash flows are what matters
303. Guidelines for forecasting incremental cash flows
304. 12.2 Forecasting project cash flows
305. Dealing with depreciation expense, tax and cash flow
306. Four-step procedure for calculating project cash flows
307. Checkpoint 12.1 Forecasting a project’s operating cash flow
308. Calculating project NPV
309. 12.3 Inflation and capital budgeting
310. Estimating nominal cash flows
311. 12.4 Replacement project cash flows
312. Category 1: initial outlay, CF0
313. Category 2: annual cash flows
314. Changes in depreciation and tax
315. Changes in working capital
316. Changes in capital spending
317. Replacement example
318. Checkpoint 12.2 Calculating free cash flows for a replacement investment
319. Finance Spotlight Entering new markets
320. Chapter summary
321. Study questions
322. Study problems
323. Mini-cases
324. Appendix: The diminishing value depreciation method
325. Study problems
326. Endnote
327. Chapter 13 Risk analysis and project evaluation
328. Finance Spotlight Project risk for entrepreneurs
329. 13.1 The importance of risk analysis
330. 13.2 Relevant measures of risk in capital budgeting
331. Measuring risk for capital budgeting purposes, and a dose of reality—is systematic risk all there
332. Finance Spotlight Global strategies to reduce risk
333. 13.3 Incorporating risk into the capital-budgeting process
334. Risk-adjusted discount rates
335. Checkpoint 13.1 Risk-adjusted discount rate
336. Certainty-equivalent approach
337. Checkpoint 13.2 Certainty equivalents in capital budgeting
338. Certainty-equivalent versus risk-adjusted discount rate methods
339. Risk-adjusted discount rate and measurement of a project’s systematic risk
340. 13.4 Tools for analysing the risk of project cash flows
341. Key concepts: expected values and value drivers
342. Checkpoint 13.3 Forecasting revenue using expected values
343. Sensitivity analysis
344. Checkpoint 13.4 Project risk analysis: sensitivity analysis
345. Scenario analysis
346. Checkpoint 13.5 Project risk analysis: scenario analysis
347. Simulation analysis
348. Probability trees
349. Finance Spotlight Currency risk
350. 13.5 Real options in capital budgeting
351. The option to delay the launch of a project
352. The option to expand a project
353. The option to reduce the scale and scope of a project
354. Checkpoint 13.6 Analysing real options: option to expand
355. Chapter summary
356. Study questions
357. Study problems
358. Mini-case
359. Endnote
360. Chapter 14 The cost of capital
361. Finance Spotlight Understanding the role of the cost of capital
362. 14.1 The cost of capital: an overview
363. Investor’s required return and the firm’s cost of capital
364. WACC equation
365. Three-step procedure for estimating the firm’s WACC
366. 14.2 Determining the firm’s capital-structure weights
367. Checkpoint 14.1 Calculating the WACC for Templeton Extended Care Facilities Ltd
368. 14.3 Estimating the cost of individual sources of capital
369. The cost of debt
370. The cost of preference shares
371. The cost of ordinary shares
372. Checkpoint 14.2 Estimating the cost of ordinary shares for Qantas Airways Ltd [QAN] using the divide
373. Checkpoint 14.3 Estimating the cost of ordinary shares for Qantas Airways Ltd [QAN] using the CAPM
374. 14.4 Summing up: calculating the firm’s weighted average cost of capital
375. Use market-based weights
376. Use market-based opportunity costs
377. Use forward-looking weights and opportunity costs
378. 14.5 Estimating project costs of capital
379. The rationale for using multiple discount rates
380. Why don’t firms typically use project costs of capital?
381. Estimating divisional WACCs
382. Finance Spotlight Why do interest rates differ between countries?
383. 14.6 Flotation costs and project NPV
384. WACC, flotation costs and NPV
385. Checkpoint 14.4 Incorporating flotation costs into the calculation of NPV
386. Chapter summary
387. Study questions
388. Study problems
389. Mini-case
390. Endnotes
391. Part 4 Capital-structure and dividend policy
392. Chapter 15 Analysis and impact of leverage
393. Finance Spotlight Good debt and bad debt
394. 15.1 Business and financial risk
395. 15.2 Break-even analysis
396. Accounting break-even analysis
397. Checkpoint 15.1 Project risk analysis: accounting break-even analysis
398. NPV break-even analysis
399. Limitations of break-even analysis
400. 15.3 Operating and financial leverage
401. Operating leverage
402. Financial leverage
403. Finance Spotlight Fixed operating costs
404. Combination of operating leverage and financial leverage
405. Checkpoint 15.2 Operating, financial and combined leverage
406. Implications of leverage analysis
407. 15.4 EBIT–EPS analysis
408. Evaluating the effect of financial leverage on firm earnings per share
409. Checkpoint 15.3 Evaluating the effect of financing decisions on EPS
410. Chapter summary
411. Study questions
412. Study problems
413. Mini-case
414. Endnote
415. Chapter 16 Capital-structure policy
416. Finance Spotlight Capital structure matters to you!
417. 16.1 A glance at capital-structure choices in practice
418. Defining a firm’s capital structure
419. Financial leverage
420. How do firms in different industries finance their assets?
421. 16.2 Capital-structure theory
422. A first look at the Modigliani and Miller capital-structure theorem
423. Yogi Berra and the M&M capital-structure theorem
424. Capital structure, the cost of equity and the weighted average cost of capital
425. Why capital structure matters in reality
426. The trade-off theory and the optimal capital structure
427. Capital-structure decisions and agency costs
428. Making financing choices when managers are better informed than shareholders
429. Managerial implications
430. 16.3 Why do capital structures differ across industries?
431. 16.4 Making financing decisions
432. Benchmarking the firm’s capital structure
433. Checkpoint 16.1 Benchmarking a financing decision
434. Can the firm afford more debt?
435. Survey evidence: factors that influence CFO debt policy
436. Finance Spotlight Capital structures around the world
437. Chapter summary
438. Study questions
439. Study problems
440. Mini-case
441. Appendix: Demonstrating the Modigliani and Miller Theorem
442. Endnotes
443. Chapter 17 Dividend and share-buyback policy
444. Finance Spotlight Firms rarely decrease their dividend
445. 17.1 How do firms distribute cash to their shareholders?
446. Cash dividends
447. Share buybacks
448. Personal tax considerations: dividend versus capital gains income
449. Non-cash distributions: bonus shares and share splits
450. 17.2 Does dividend policy matter?
451. The irrelevance of the distribution choice
452. Checkpoint 17.1 Share price and the timing of dividend payments
453. Why dividend policy is important
454. Finance Spotlight The importance of dividends
455. 17.3 Cash-distribution policies in practice
456. Stable payout
457. Residual dividend payout policy
458. Other factors playing a role in how much to distribute
459. Finance Spotlight Dividends at home and abroad
460. Chapter summary
461. Study questions
462. Study problems
463. Mini-case
464. Endnotes
465. Part 5 Liquidity management and special topics in finance
466. Chapter 18 Financial forecasting and planning
467. Finance Spotlight Developing a financial plan for the firm engages everyone
468. 18.1 An overview of financial planning
469. 18.2 Developing a long-term financial plan
470. Financial forecasting example: Ziegen Ltd
471. Finance Spotlight Your personal budget
472. Checkpoint 18.1 Estimating discretionary financing needed
473. 18.3 Developing a short-term financial plan
474. Example cash budget: Melco Furniture Ltd
475. Uses of the cash budget
476. Chapter summary
477. Study questions
478. Study problems
479. Mini-case
480. Chapter 19 Working capital management
481. Finance Spotlight Conflicting objectives lead to problems in managing a firm’s working capital
482. 19.1 Working capital management and the risk–return trade-off
483. Measuring firm liquidity
484. Managing firm liquidity
485. Risk–return trade-off
486. Checkpoint 19.1 Measuring firm liquidity
487. 19.2 Working capital policy
488. The principle of self-liquidating debt
489. A graphic illustration of the principle of self-liquidating debt
490. 19.3 Operating cycle and cash conversion cycle
491. Measuring working capital efficiency
492. Calculating the operating cycle and cash conversion cycle
493. Checkpoint 19.2 Analysing the cash conversion cycle
494. 19.4 Managing current liabilities
495. Calculating the cost of short-term financing
496. Evaluating the cost of trade credit
497. Evaluating the cost of bank loans
498. Checkpoint 19.3 Calculating the APR for a line of credit
499. 19.5 Managing the firm’s investment in current assets
500. Cash and marketable securities
501. Managing accounts receivable
502. Finance Spotlight Credit scoring
503. Managing inventories
504. Chapter summary
505. Study questions
506. Study problems
507. Mini-case
508. Endnotes
509. Chapter 20 International business finance
510. Finance Spotlight Working in a flat world
511. 20.1 Foreign exchange markets and currency exchange rates
512. What does a change in the exchange rate mean for business?
513. Foreign exchange rates
514. Checkpoint 20.1 Exchanging currencies
515. Types of foreign exchange transaction
516. Checkpoint 20.2 Determining the percentage-per-annum premium or discount
517. 20.2 Interest-rate and purchasing-power parity
518. Interest-rate parity
519. Purchasing-power parity and the law of one price
520. Finance Spotlight International investing
521. The international Fisher effect
522. 20.3 Capital budgeting for direct foreigninvestment
523. Checkpoint 20.3 International capital budgeting
524. Foreign investment risks
525. Chapter summary
526. Study questions
527. Study problems
528. Mini-case
529. Endnotes
530. Chapter 21 Corporate risk management
531. Finance Spotlight Welcome to a risky world
532. 21.1 Five-step corporate risk-management process
533. Step 1: Identify and understand the firm’s major risks
534. Step 2: Decide which types of risk to keep and which to transfer
535. Step 3: Decide how much risk to assume
536. Step 4: Incorporate risk into all the firm’s decisions and processes
537. Step 5: Monitor and manage the risks the firm assumes
538. 21.2 Managing risk with insurance contracts
539. Types of insurance contract
540. Why purchase insurance?
541. Finance Spotlight Do you need life insurance?
542. 21.3 Managing risk by hedging with forward contracts
543. Hedging commodity-price risk using forward contracts
544. Hedging currency risk using forward contracts
545. Checkpoint 21.1 Hedging crude-oil price risk using forward contracts
546. 21.4 Managing risk with exchange-traded financial derivatives
547. Futures contracts
548. Options contracts
549. Checkpoint 21.2 Determining the break-even point and profit or loss on a call option
550. 21.5 Valuing options and swaps
551. The Black–Scholes option pricing model
552. Checkpoint 21.3 Valuing a call option using the Black–Scholes model
553. Swap contracts
554. Credit default swaps
555. Chapter summary
556. Study questions
557. Study problems
558. Mini-case
559. Endnotes
560. Glossary
561. Organisation Index
562. Subject Index

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