Principles of Managerial Finance Brief 7th Edition Gitman Test Bank

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Guide students through complex material with a proven learning goal system. This system – a hallmark feature of Principles of Managerial Finance, Brief—weaves pedagogy into concepts and practice, giving students a roadmap to follow through the text and supplementary tools.

 

Table of Content:

  1. Part 1 Introduction to Managerial Finance
  2. Chapters in This Part
  3. 1 The Role of Managerial Finance
  4. Learning Goals
  5. Why This Chapter Matters to You
  6. 1.1 Finance and Business
  7. WHAT IS FINANCE?
  8. CAREER OPPORTUNITIES IN FINANCE
  9. Financial Services
  10. Managerial Finance
  11. LEGAL FORMS OF BUSINESS ORGANIZATION
  12. Sole Proprietorships
  13. Partnerships
  14. Matter of fact
  15. BizStats.com Total Receipts by Type of U.S. Firm
  16. TABLE 1.1 Strengths and Weaknesses of the Common Legal Forms of Business Organization
  17. Corporations
  18. FIGURE 1.1 Corporate Organization
  19. Other Limited Liability Organizations
  20. WHY STUDY MANAGERIAL FINANCE?
  21. TABLE 1.2 Career Opportunities in Managerial Finance
  22. REVIEW QUESTIONS
  23. 1.2 Goal of the Firm
  24. MAXIMIZE SHAREHOLDER WEALTH
  25. MAXIMIZE PROFIT?
  26. FIGURE 1.2 Share Price Maximization
  27. Example 1.1
  28. Timing
  29. Cash Flows
  30. Risk
  31. WHAT ABOUT STAKEHOLDERS?
  32. THE ROLE OF BUSINESS ETHICS
  33. Matter of fact
  34. Considering Ethics
  35. ETHICS AND SHARE PRICE
  36. in practice focus on ETHICS: Critics See Ethical Dilemmas in Google Glass?
  37. REVIEW QUESTIONS
  38. 1.3 Managerial Finance Function
  39. ORGANIZATION OF THE FINANCE FUNCTION
  40. RELATIONSHIP TO ECONOMICS
  41. Example 1.2
  42. RELATIONSHIP TO ACCOUNTING
  43. Emphasis on Cash Flows
  44. Example 1.3
  45. Personal Finance Example 1.4
  46. Decision Making
  47. PRIMARY ACTIVITIES OF THE FINANCIAL MANAGER
  48. FIGURE 1.3 Financial Activities
  49. REVIEW QUESTIONS
  50. 1.4 Governance and Agency
  51. CORPORATE GOVERNANCE
  52. Individual versus Institutional Investors
  53. Government Regulation
  54. THE AGENCY ISSUE
  55. The Agency Problem
  56. Management Compensation Plans
  57. Matter of fact
  58. The Threat of Takeover
  59. REVIEW QUESTIONS
  60. Summary
  61. FOCUS ON VALUE
  62. REVIEW OF LEARNING GOALS
  63. Self-Test Problem
  64. Warm-up Exercises
  65. Problems
  66. Spreadsheet Exercise
  67. TO DO
  68. MyFinanceLab
  69. 2 The Financial Market Environment
  70. Learning Goals
  71. Why This Chapter Matters to You
  72. 2.1 Financial Institutions and Markets
  73. FINANCIAL INSTITUTIONS
  74. Key Customers of Financial Institutions
  75. Major Financial Institutions
  76. COMMERCIAL BANKS, INVESTMENT BANKS, AND THE SHADOW BANKING SYSTEM
  77. Matter of fact
  78. FINANCIAL MARKETS
  79. THE RELATIONSHIP BETWEEN INSTITUTIONS AND MARKETS
  80. FIGURE 2.1 Flow of Funds
  81. THE MONEY MARKET
  82. THE CAPITAL MARKET
  83. Key Securities Traded: Bonds and Stocks
  84. Example 2.1
  85. Broker Markets and Dealer Markets
  86. in practice focus on PRACTICE: Berkshire Hathaway: Can Buffett Be Replaced?
  87. International Capital Markets
  88. Matter of fact
  89. The Role of Capital Markets
  90. REVIEW QUESTIONS
  91. 2.2 The Financial Crisis
  92. FINANCIAL INSTITUTIONS AND REAL ESTATE FINANCE
  93. FALLING HOME PRICES AND DELINQUENT MORTGAGES
  94. FIGURE 2.2 House Prices Soar and then Crash
  95. CRISIS OF CONFIDENCE IN BANKS
  96. FIGURE 2.3 Bank Stocks Plummet During Financial Crisis
  97. SPILLOVER EFFECTS AND THE GREAT RECESSION
  98. REVIEW QUESTIONS
  99. 2.3 Regulation of Financial Institutions and Markets
  100. REGULATIONS GOVERNING FINANCIAL INSTITUTIONS
  101. REGULATIONS GOVERNING FINANCIAL MARKETS
  102. REVIEW QUESTIONS
  103. 2.4 Business Taxes
  104. ORDINARY INCOME
  105. Example 2.2
  106. Marginal versus Average Tax Rates
  107. TABLE 2.1 Corporate Tax Rate Schedule
  108. Interest and Dividend Income
  109. Tax-Deductible Expenses
  110. Example 2.3
  111. CAPITAL GAINS
  112. Example 2.4
  113. REVIEW QUESTIONS
  114. Summary
  115. THE ROLE OF FINANCIAL INSTITUTIONS AND MARKETS
  116. REVIEW OF LEARNING GOALS
  117. Self-Test Problem
  118. Warm-Up Exercises
  119. Problems
  120. Spreadsheet Exercise
  121. TO DO
  122. MyFinanceLab
  123. Part 2 Financial Tools
  124. Chapters in This Part
  125. 3 Financial Statements and Ratio Analysis
  126. Learning Goals
  127. Why This Chapter Matters to You
  128. 3.1 The Stockholders’ Report
  129. THE LETTER TO STOCKHOLDERS
  130. THE FOUR KEY FINANCIAL STATEMENTS
  131. Income Statement
  132. in practice focus on ETHICS: Taking Earnings Reports at Face Value
  133. TABLE 3.1 Bartlett Company Income Statements ($000)
  134. Personal Finance Example 3.1
  135. Balance Sheet
  136. TABLE 3.2 Bartlett Company Balance Sheets ($000)
  137. Personal Finance Example 3.2
  138. Statement of Retained Earnings
  139. TABLE 3.3 Bartlett Company Statement of Retained Earnings ($000) for the Year Ended December 31, 2015
  140. Statement of Cash Flows
  141. TABLE 3.4 Bartlett Company Statement of Cash Flows ($000) for the Year Ended December 31, 2015
  142. NOTES TO THE FINANCIAL STATEMENTS
  143. CONSOLIDATING INTERNATIONAL FINANCIAL STATEMENTS
  144. REVIEW QUESTIONS
  145. 3.2 Using Financial Ratios
  146. INTERESTED PARTIES
  147. TYPES OF RATIO COMPARISONS
  148. Cross-Sectional Analysis
  149. TABLE 3.5 Financial Ratios for Select Firms and Their Industry Median Values
  150. Example 3.3
  151. Time-Series Analysis
  152. Combined Analysis
  153. CAUTIONS ABOUT USING RATIO ANALYSIS
  154. FIGURE 3.1 Combined Analysis
  155. CATEGORIES OF FINANCIAL RATIOS
  156. REVIEW QUESTIONS
  157. 3.3 Liquidity Ratios
  158. CURRENT RATIO
  159. Matter of fact
  160. Personal Finance Example 3.4
  161. QUICK (ACID-TEST) RATIO
  162. Matter of fact
  163. REVIEW QUESTIONS
  164. 3.4 Activity Ratios
  165. INVENTORY TURNOVER
  166. AVERAGE COLLECTION PERIOD
  167. Matter of fact
  168. AVERAGE PAYMENT PERIOD
  169. TOTAL ASSET TURNOVER
  170. Matter of fact
  171. REVIEW QUESTION
  172. 3.5 Debt Ratios
  173. Example 3.5
  174. TABLE 3.6 Financial Statements Associated with Patty’s Alternatives
  175. DEBT RATIO
  176. DEBT-TO-EQUITY RATIO
  177. TIMES INTEREST EARNED RATIO
  178. FIXED-PAYMENT COVERAGE RATIO
  179. REVIEW QUESTIONS
  180. 3.6 Profitability Ratios
  181. COMMON-SIZE INCOME STATEMENTS
  182. GROSS PROFIT MARGIN
  183. OPERATING PROFIT MARGIN
  184. TABLE 3.7 Bartlett Company Common-Size Income Statements
  185. NET PROFIT MARGIN
  186. EARNINGS PER SHARE (EPS)
  187. RETURN ON TOTAL ASSETS (ROA)
  188. RETURN ON EQUITY (ROE)
  189. REVIEW QUESTIONS
  190. 3.7 Market Ratios
  191. PRICE/EARNINGS (P/E) RATIO
  192. MARKET/BOOK (M/B) RATIO
  193. REVIEW QUESTION
  194. 3.8 A Complete Ratio Analysis
  195. SUMMARIZING ALL RATIOS
  196. Liquidity
  197. Activity
  198. Debt
  199. Profitability
  200. Market
  201. DUPONT SYSTEM OF ANALYSIS
  202. DuPont Formula
  203. TABLE 3.8 Summary of Bartlett Company Ratios (2010–2015, Including 2015 Industry Averages)
  204. FIGURE 3.2 DuPont System of Analysis
  205. Modified DuPont Formula
  206. Matter of fact
  207. Applying the DuPont System
  208. Example 3.6
  209. REVIEW QUESTIONS
  210. Summary
  211. FOCUS ON VALUE
  212. REVIEW OF LEARNING GOALS
  213. Self-Test Problems
  214. Warm-Up Exercises
  215. Problems
  216. Spreadsheet Exercise
  217. TO DO
  218. MyFinanceLab
  219. 4 Cash Flow and Financial Planning
  220. Learning Goals
  221. Why This Chapter Matters to You
  222. 4.1 Analyzing the Firm’s Cash Flow
  223. DEPRECIATION
  224. Depreciable Value of an Asset
  225. Example 4.1
  226. Depreciable Life of an Asset
  227. TABLE 4.1 First Four Property Classes under MACRS
  228. DEPRECIATION METHODS
  229. TABLE 4.2 Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes
  230. Example 4.2
  231. DEVELOPING THE STATEMENT OF CASH FLOWS
  232. Classifying Inflows and Outflows of Cash
  233. Matter of fact
  234. TABLE 4.3 Inflows and Outflows of Cash
  235. Preparing the Statement of Cash Flows
  236. TABLE 4.4 Baker Corporation 2015 Income Statement ($000)
  237. TABLE 4.5 Baker Corporation Balance Sheets ($000)
  238. Interpreting the Statement
  239. TABLE 4.6 Baker Corporation Statement of Cash Flows ($000) for the Year Ended December 31, 2015
  240. Example 4.3
  241. FREE CASH FLOW
  242. Example 4.4
  243. Example 4.5
  244. REVIEW QUESTIONS
  245. in practice focus on PRACTICE: Free Cash Flow at Cisco Systems
  246. 4.2 The Financial Planning Process
  247. LONG-TERM (STRATEGIC) FINANCIAL PLANS
  248. SHORT-TERM (OPERATING) FINANCIAL PLANS
  249. FIGURE 4.1 Short-Term Financial Planning
  250. Personal Finance Example 4.6
  251. REVIEW QUESTIONS
  252. 4.3 Cash Planning: Cash Budgets
  253. THE SALES FORECAST
  254. PREPARING THE CASH BUDGET
  255. TABLE 4.7 The General Format of the Cash Budget
  256. Total Cash Receipts
  257. Example 4.7
  258. TABLE 4.8 A Schedule of Projected Cash Receipts for Coulson Industries ($000)
  259. Total cash disbursements
  260. Example 4.8
  261. TABLE 4.9 A Schedule of Projected Cash Disbursements for Coulson Industries ($000)
  262. Net Cash Flow, Ending Cash, Financing, and Excess Cash
  263. Example 4.9
  264. TABLE 4.10 A Cash Budget for Coulson Industries ($000)
  265. EVALUATING THE CASH BUDGET
  266. Personal Finance Example 4.10
  267. COPING WITH UNCERTAINTY IN THE CASH BUDGET
  268. Example 4.11
  269. TABLE 4.11 A Scenario Analysis of Coulson Industries’ Cash Budget ($000)
  270. CASH FLOW WITHIN THE MONTH
  271. REVIEW QUESTIONS
  272. 4.4 Profit Planning: Pro Forma Statements
  273. PRECEDING YEAR’S FINANCIAL STATEMENTS
  274. SALES FORECAST
  275. REVIEW QUESTIONS
  276. TABLE 4.12 Vectra Manufacturing’s Income Statement for the Year Ended December 31, 2015
  277. TABLE 4.13 Vectra Manufacturing’s Balance Sheet, December 31, 2015
  278. TABLE 4.14 2016 Sales Forecast for Vectra Manufacturing
  279. 4.5 Preparing the Pro Forma Income Statement
  280. CONSIDERING TYPES OF COSTS AND EXPENSES
  281. TABLE 4.15 A Pro Forma Income Statement, Using the Percent-of-Sales Method, for Vectra Manufacturing for the Year Ended December 31, 2016
  282. Example 4.12
  283. REVIEW QUESTIONS
  284. 4.6 Preparing the Pro Forma Balance Sheet
  285. TABLE 4.16 A Pro Forma Balance Sheet, Using the Judgmental Approach, for Vectra Manufacturing (December 31, 2016)
  286. REVIEW QUESTIONS
  287. 4.7 Evaluation of Pro Forma Statements
  288. REVIEW QUESTIONS
  289. Summary
  290. FOCUS ON VALUE
  291. REVIEW OF LEARNING GOALS
  292. Self-Test Problems
  293. Warm-Up Exercises
  294. Problems
  295. Spreadsheet Exercise
  296. TO DO
  297. MyFinanceLab
  298. 5 Time Value of Money
  299. Learning Goals
  300. Why This Chapter Matters to You
  301. 5.1 The Role of Time Value in Finance
  302. FUTURE VALUE VERSUS PRESENT VALUE
  303. FIGURE 5.1 Time Line
  304. FIGURE 5.2 Compounding and Discounting
  305. COMPUTATIONAL TOOLS
  306. Financial Calculators
  307. FIGURE 5.3 Calculator Keys
  308. Electronic Spreadsheets
  309. Cash Flow Signs
  310. BASIC PATTERNS OF CASH FLOW
  311. REVIEW QUESTIONS
  312. 5.2 Single Amounts
  313. FUTURE VALUE OF A SINGLE AMOUNT
  314. The Concept of Future Value
  315. Personal Finance Example 5.1
  316. The Equation for Future Value
  317. Personal Finance Example 5.2
  318. Personal Finance Example 5.3
  319. A Graphical View of Future Value
  320. FIGURE 5.4 Future Value Relationship
  321. PRESENT VALUE OF A SINGLE AMOUNT
  322. The Concept of Present Value
  323. Personal Finance Example 5.4
  324. The Equation for Present Value
  325. Personal Finance Example 5.5
  326. A Graphical View of Present Value
  327. REVIEW QUESTIONS
  328. FIGURE 5.5 Present Value Relationship
  329. EXCEL REVIEW QUESTIONS
  330. 5.3 Annuities
  331. TYPES OF ANNUITIES
  332. Personal Finance Example 5.6
  333. TABLE 5.1 Comparison of Ordinary Annuity and Annuity Due Cash Flows ($1,000, 5 Years)
  334. FINDING THE FUTURE VALUE OF AN ORDINARY ANNUITY
  335. Personal Finance Example 5.7
  336. FINDING THE PRESENT VALUE OF AN ORDINARY ANNUITY
  337. Example 5.8
  338. TABLE 5.2 Long Method for Finding the Present Value of an Ordinary Annuity
  339. FINDING THE FUTURE VALUE OF AN ANNUITY DUE
  340. Personal Finance Example 5.9
  341. Comparison of an Annuity Due with an Ordinary Annuity Future Value
  342. FINDING THE PRESENT VALUE OF AN ANNUITY DUE
  343. Example 5.10
  344. Comparison of an Annuity Due with an Ordinary Annuity Present Value
  345. Matter of fact
  346. FINDING THE PRESENT VALUE OF A PERPETUITY
  347. Personal Finance Example 5.11
  348. REVIEW QUESTIONS
  349. EXCEL REVIEW QUESTIONS
  350. 5.4 Mixed Streams
  351. FUTURE VALUE OF A MIXED STREAM
  352. Example 5.12
  353. PRESENT VALUE OF A MIXED STREAM
  354. Example 5.13
  355. REVIEW QUESTION
  356. EXCEL REVIEW QUESTIONS
  357. 5.5 Compounding Interest More Frequently Than Annually
  358. SEMIANNUAL COMPOUNDING
  359. Personal Finance Example 5.14
  360. TABLE 5.3 Future Value from Investing $100 at 8% Interest Compounded Semiannually over 24 Months (2 Years)
  361. QUARTERLY COMPOUNDING
  362. Personal Finance Example 5.15
  363. TABLE 5.4 Future Value from Investing $100 at 8% Interest Compounded Quarterly over 24 Months (2 Years)
  364. TABLE 5.5 Future Value at the End of Years 1 and 2 from Investing $100 at 8% Interest, Given Various Compounding Periods
  365. A GENERAL EQUATION FOR COMPOUNDING MORE FREQUENTLY THAN ANNUALLY
  366. Personal Finance Example 5.16
  367. USING COMPUTATIONAL TOOLS FOR COMPOUNDING MORE FREQUENTLY THAN ANNUALLY
  368. Personal Finance Example 5.17
  369. CONTINUOUS COMPOUNDING
  370. Personal Finance Example 5.18
  371. NOMINAL AND EFFECTIVE ANNUAL RATES OF INTEREST
  372. Personal Finance Example 5.19
  373. REVIEW QUESTIONS
  374. EXCEL REVIEW QUESTIONS
  375. 5.6 Special Applications of Time Value
  376. DETERMINING DEPOSITS NEEDED TO ACCUMULATE A FUTURE SUM
  377. Personal Finance Example 5.20
  378. LOAN AMORTIZATION
  379. Personal Finance Example 5.21
  380. TABLE 5.6 Loan Amortization Schedule ($6,000 Principal, 10% Interest, 4-Year Repayment Period)
  381. in practice focus on PRACTICE: New Century Brings Trouble for Subprime Mortgages
  382. FINDING INTEREST OR GROWTH RATES
  383. Personal Finance Example 5.22
  384. Personal Finance Example 5.23
  385. FINDING AN UNKNOWN NUMBER OF PERIODS
  386. Personal Finance Example 5.24
  387. Personal Finance Example 5.25
  388. REVIEW QUESTIONS
  389. EXCEL REVIEW QUESTIONS
  390. Summary
  391. FOCUS ON VALUE
  392. REVIEW OF LEARNING GOALS
  393. Self-Test Problems
  394. Warm-Up Exercises
  395. Problems
  396. Spreadsheet Exercise
  397. TO DO
  398. MyFinanceLab
  399. Part 3 Valuation of Securities
  400. Chapters in This Part
  401. 6 Interest Rates and Bond Valuation
  402. Learning Goals
  403. Why This Chapter Matters to You
  404. 6.1 Interest Rates and Required Returns
  405. INTEREST RATE FUNDAMENTALS
  406. Matter of fact
  407. The Real Rate of Interest
  408. FIGURE 6.1 Supply–Demand Relationship
  409. Nominal or Actual Rate of Interest (Return)
  410. Personal Finance Example 6.1
  411. FIGURE 6.2 Impact of Inflation
  412. TERM STRUCTURE OF INTEREST RATES
  413. Yield Curves
  414. FIGURE 6.3 Treasury Yield Curves
  415. Matter of fact
  416. Theories of Term Structure
  417. Expectations Theory
  418. Example 6.2
  419. Liquidity Preference Theory
  420. Market Segmentation Theory
  421. RISK PREMIUMS: ISSUER AND ISSUE CHARACTERISTICS
  422. Example 6.3
  423. TABLE 6.1 Debt-Specific Risk Premium Components
  424. REVIEW QUESTIONS
  425. 6.2 Corporate Bonds
  426. LEGAL ASPECTS OF CORPORATE BONDS
  427. Bond Indenture
  428. Standard Provisions
  429. Restrictive Provisions
  430. Sinking-Fund Requirements
  431. Security Interest
  432. Trustee
  433. COST OF BONDS TO THE ISSUER
  434. Impact of Bond Maturity
  435. Impact of Offering Size
  436. Impact of Issuer’s Risk
  437. Impact of the Cost of Money
  438. GENERAL FEATURES OF A BOND ISSUE
  439. BOND YIELDS
  440. BOND PRICES
  441. TABLE 6.2 Data on Selected Bonds
  442. BOND RATINGS
  443. in practice focus on ETHICS: Can We Trust the Bond Raters?
  444. TABLE 6.3 Moody’s and Standard & Poor’s Bond Ratings
  445. COMMON TYPES OF BONDS
  446. INTERNATIONAL BOND ISSUES
  447. TABLE 6.4 Characteristics and Priority of Lender’s Claim of Traditional Types of Bonds
  448. REVIEW QUESTIONS
  449. TABLE 6.5 Characteristics of Contemporary Types of Bonds
  450. 6.3 Valuation Fundamentals
  451. KEY INPUTS
  452. Cash Flows (Returns)
  453. Personal Finance Example 6.4
  454. Timing
  455. Risk and Required Return
  456. Personal Finance Example 6.5
  457. BASIC VALUATION MODEL
  458. Personal Finance Example 6.6
  459. REVIEW QUESTIONS
  460. 6.4 Bond Valuation
  461. BOND FUNDAMENTALS
  462. Example 6.7
  463. BASIC BOND VALUATION
  464. Personal Finance Example 6.8
  465. BOND VALUE BEHAVIOR
  466. Required Returns and Bond Values
  467. Example 6.9
  468. FIGURE 6.4 Bond Values and Required Returns
  469. TABLE 6.6 Bond Values for Various Required Returns (Mills Company’s 10% Coupon Interest Rate, 10-Year Maturity, $1,000 Par, January 1, 2014, Issue Date, Paying Annual Interest)
  470. Time to Maturity and Bond Values
  471. Constant Required Returns
  472. Example 6.10
  473. FIGURE 6.5 Time to Maturity and Bond Values
  474. Changing Required Returns
  475. Example 6.11
  476. YIELD TO MATURITY (YTM)
  477. Personal Finance Example 6.12
  478. SEMIANNUAL INTEREST AND BOND VALUES
  479. Example 6.13
  480. REVIEW QUESTIONS
  481. EXCEL REVIEW QUESTIONS
  482. Summary
  483. FOCUS ON VALUE
  484. REVIEW OF LEARNING GOALS
  485. Self-Test Problems
  486. Warm-Up Exercises
  487. Problems
  488. Spreadsheet Exercise
  489. TO DO
  490. MyFinanceLab
  491. 7 Stock Valuation
  492. Learning Goals
  493. Why This Chapter Matters to You
  494. 7.1 Differences between Debt and Equity
  495. VOICE IN MANAGEMENT
  496. CLAIMS ON INCOME AND ASSETS
  497. Matter of fact
  498. TABLE 7.1 Key Differences between Debt and Equity
  499. MATURITY
  500. TAX TREATMENT
  501. REVIEW QUESTION
  502. 7.2 Common and Preferred Stock
  503. COMMON STOCK
  504. Ownership
  505. Par Value
  506. Preemptive Rights
  507. Authorized, Outstanding, and Issued Shares
  508. Example 7.1
  509. Voting Rights
  510. Dividends
  511. International Stock Issues
  512. Matter of fact
  513. PREFERRED STOCK
  514. Basic Rights of Preferred Stockholders
  515. Features of Preferred Stock
  516. Restrictive Covenants
  517. Cumulation
  518. Other Features
  519. ISSUING COMMON STOCK
  520. Venture Capital
  521. Organization and Investment Stages
  522. TABLE 7.2 Organization of Venture Capital Investors
  523. Deal Structure and Pricing
  524. Going Public
  525. FIGURE 7.1 Cover of a Preliminary Prospectus for a Stock Issue
  526. The Investment Banker’s Role
  527. REVIEW QUESTIONS
  528. FIGURE 7.2 The Selling Process for a Large Security Issue
  529. 7.3 Common Stock Valuation
  530. MARKET EFFICIENCY
  531. Matter of fact
  532. THE EFFICIENT-MARKET HYPOTHESIS
  533. The Behavioral Finance Challenge
  534. BASIC COMMON STOCK VALUATION EQUATION
  535. in practice focus on PRACTICE: Understanding Human Behavior Helps Us Understand Investor Behavior
  536. Zero-Growth Model
  537. Personal Finance Example 7.2
  538. Preferred Stock Valuation
  539. Constant-Growth Model
  540. Example 7.3
  541. Variable-Growth Model
  542. Personal Finance Example 7.4
  543. TABLE 7.3 Calculation of Present Value of Warren Industries Dividends (2016–2018)
  544. FREE CASH FLOW VALUATION MODEL
  545. Example 7.5
  546. TABLE 7.4 Dewhurst, Inc.’s, Data for the Free Cash Flow Valuation Model
  547. TABLE 7.5 Calculation of the Value of the Entire Company for Dewhurst, Inc.
  548. OTHER APPROACHES TO COMMON STOCK VALUATION
  549. Book Value
  550. Example 7.6
  551. Liquidation Value
  552. Example 7.7
  553. Price/Earnings (P/E) Multiples
  554. Personal Finance Example 7.8
  555. Matter of fact
  556. REVIEW QUESTIONS
  557. 7.4 Decision Making and Common Stock Value
  558. FIGURE 7.3 Decision Making and Stock Value
  559. CHANGES IN EXPECTED DIVIDENDS
  560. Example 7.9
  561. CHANGES IN RISK
  562. Example 7.10
  563. COMBINED EFFECT
  564. Example 7.11
  565. REVIEW QUESTIONS
  566. Summary
  567. FOCUS ON VALUE
  568. REVIEW OF LEARNING GOALS
  569. Self-Test Problems
  570. Warm-Up Exercises
  571. Problems
  572. Spreadsheet Exercise
  573. TO DO
  574. MyFinanceLab
  575. Part 4 Risk and the Required Rate of Return
  576. Chapters in This Part
  577. 8 Risk and Return
  578. Learning Goals
  579. Why This Chapter Matters to You
  580. 8.1 Risk and Return Fundamentals
  581. RISK DEFINED
  582. in practice focus on ETHICS: If It Seems Too Good to Be True, It Probably Is
  583. RETURN DEFINED
  584. Example 8.1
  585. TABLE 8.1 Historical Returns on Selected Investments (1900–2011)
  586. RISK PREFERENCES
  587. REVIEW QUESTIONS
  588. 8.2 Risk of a Single Asset
  589. RISK ASSESSMENT
  590. Scenario Analysis
  591. Example 8.2
  592. TABLE 8.2 Assets A and B
  593. Probability Distributions
  594. Matter of fact
  595. Example 8.3
  596. FIGURE 8.1 Bar Charts
  597. RISK MEASUREMENT
  598. FIGURE 8.2 Continuous Probability Distributions
  599. Standard Deviation
  600. Example 8.4
  601. TABLE 8.3 Expected Values of Returns for Assets A and B
  602. Example 8.5
  603. TABLE 8.4 The Calculation of the Standard Deviation of the Returns for Assets A and B
  604. TABLE 8.5 Historical Returns and Standard Deviations on Selected Investments (1900–2011)
  605. Historical Returns and Risk
  606. Matter of fact
  607. Normal Distribution
  608. FIGURE 8.3 Bell-Shaped Curve
  609. Example 8.6
  610. Coefficient of Variation: Trading off Risk and Return
  611. Example 8.7
  612. Personal Finance Example 8.8
  613. REVIEW QUESTIONS
  614. 8.3 Risk of a Portfolio
  615. PORTFOLIO RETURN AND STANDARD DEVIATION
  616. Example 8.9
  617. Example 8.10
  618. TABLE 8.6 Expected Return, Expected Value, and Standard Deviation of Returns for Portfolio XY
  619. CORRELATION
  620. DIVERSIFICATION
  621. FIGURE 8.4 Correlations
  622. FIGURE 8.5 Diversification
  623. Example 8.11
  624. TABLE 8.7 Forecasted Returns, Expected Values, and Standard Deviations for Assets X, Y, and Z and Portfolios XY and XZ
  625. CORRELATION, DIVERSIFICATION, RISK, AND RETURN
  626. Example 8.12
  627. FIGURE 8.6 Possible Correlations
  628. INTERNATIONAL DIVERSIFICATION
  629. Returns from International Diversification
  630. Risks of International Diversification
  631. REVIEW QUESTIONS
  632. 8.4 Risk and Return: The Capital Asset Pricing Model (CAPM)
  633. TYPES OF RISK
  634. THE MODEL: CAPM
  635. FIGURE 8.7 Risk Reduction
  636. Beta Coefficient
  637. Deriving Beta from Return Data
  638. FIGURE 8.8 Beta Derivationa
  639. TABLE 8.8 Selected Beta Coefficients and Their Interpretations
  640. Interpreting Betas
  641. TABLE 8.9 Beta Coefficients for Selected Stocks (May 20, 2013)
  642. Portfolio Betas
  643. Personal Finance Example 8.13
  644. TABLE 8.10 Mario Austino’s Portfolios V and W
  645. The Equation
  646. Historical Risk Premiums
  647. Example 8.14
  648. The Graph: The Security Market Line (SML)
  649. Example 8.15
  650. FIGURE 8.9 Security Market Line
  651. Shifts in the Security Market Line
  652. Changes in Inflationary Expectations
  653. Example 8.16
  654. Changes in Risk Aversion
  655. FIGURE 8.10 Inflation Shifts SML
  656. Example 8.17
  657. Some Comments on the CAPM
  658. FIGURE 8.11 Risk Aversion Shifts SML
  659. REVIEW QUESTIONS
  660. Summary
  661. FOCUS ON VALUE
  662. REVIEW OF LEARNING GOALS
  663. Self-Test Problems
  664. Warm-up Exercises
  665. Problems
  666. Spreadsheet Exercise
  667. To Do
  668. MyFinanceLab
  669. 9 The Cost of Capital
  670. Learning Goals
  671. Why This Chapter Matters to You
  672. 9.1 Overview of the Cost of Capital
  673. THE BASIC CONCEPT
  674. Example 9.1
  675. SOURCES OF LONG-TERM CAPITAL
  676. REVIEW QUESTIONS
  677. 9.2 Cost of Long-Term Debt
  678. NET PROCEEDS
  679. Example 9.2
  680. BEFORE-TAX COST OF DEBT
  681. Using Market Quotations
  682. Calculating the Cost
  683. Example 9.3
  684. Approximating the Cost
  685. Example 9.4
  686. AFTER-TAX COST OF DEBT
  687. Example 9.5
  688. Personal Finance Example 9.6
  689. REVIEW QUESTIONS
  690. EXCEL REVIEW QUESTION
  691. 9.3 Cost of Preferred Stock
  692. PREFERRED STOCK DIVIDENDS
  693. CALCULATING THE COST OF PREFERRED STOCK
  694. Example 9.7
  695. REVIEW QUESTION
  696. 9.4 Cost of Common Stock
  697. FINDING THE COST OF COMMON STOCK EQUITY
  698. Using the Constant-Growth Valuation (Gordon Growth) Model
  699. Example 9.8
  700. Using the Capital Asset Pricing Model (CAPM)
  701. Example 9.9
  702. Comparing Constant-Growth and CAPM Techniques
  703. COST OF RETAINED EARNINGS
  704. Example 9.10
  705. Matter of fact
  706. COST OF NEW ISSUES OF COMMON STOCK
  707. Example 9.11
  708. REVIEW QUESTIONS
  709. 9.5 Weighted Average Cost of Capital
  710. CALCULATING WEIGHTED AVERAGE COST OF CAPITAL (WACC)
  711. Example 9.12
  712. WEIGHTING SCHEMES
  713. Book Value versus Market Value
  714. TABLE 9.1 Calculation of the Weighted Average Cost of Capital for Duchess Corporation
  715. in practice focus on PRACTICE: Uncertain Times Make for an Uncertain Weighted Average Cost of Capital
  716. Historical versus Target Weights
  717. Personal Finance Example 9.13
  718. REVIEW QUESTIONS
  719. Summary
  720. FOCUS ON VALUE
  721. REVIEW OF LEARNING GOALS
  722. Self-Test Problem
  723. Warm-Up Exercises
  724. Problems
  725. Spreadsheet Exercise
  726. TO DO
  727. MyFinanceLab
  728. Part 5 Long-Term Investment Decisions
  729. Chapters in This Part
  730. 10 Capital Budgeting Techniques
  731. Learning Goals
  732. Why This Chapter Matters to You
  733. 10.1 Overview of Capital Budgeting
  734. MOTIVES FOR CAPITAL EXPENDITURE
  735. STEPS IN THE PROCESS
  736. BASIC TERMINOLOGY
  737. Independent versus Mutually Exclusive Projects
  738. Unlimited Funds versus Capital Rationing
  739. Accept–Reject versus Ranking Approaches
  740. CAPITAL BUDGETING TECHNIQUES
  741. Bennett Company’s Relevant Cash Flows
  742. REVIEW QUESTION
  743. 10.2 Payback Period
  744. TABLE 10.1 Capital Expenditure Data for Bennett Company
  745. FIGURE 10.1 Bennett Company’s Projects A and B
  746. DECISION CRITERIA
  747. Example 10.1
  748. PROS AND CONS OF PAYBACK ANALYSIS
  749. Matter of fact
  750. Personal Finance Example 10.2
  751. TABLE 10.2 Relevant Cash Flows and Payback Periods for DeYarman man Enterprises’ Projects
  752. Example 10.3
  753. Example 10.4
  754. TABLE 10.3 Calculation of the Payback Period for Rashid Company’s Two Alternative Investment Projects
  755. REVIEW QUESTIONS
  756. 10.3 Net Present Value (NPV)
  757. DECISION CRITERIA
  758. Example 10.5
  759. FIGURE 10.2 Calculation of NPVs for Bennett Company’s Capital Expenditure Alternatives
  760. Project A
  761. Project B
  762. NPV AND THE PROFITABILITY INDEX
  763. Example 10.6
  764. NPV AND ECONOMIC VALUE ADDED
  765. Example 10.7
  766. REVIEW QUESTIONS
  767. EXCEL REVIEW QUESTION
  768. 10.4 Internal Rate of Return (IRR)
  769. DECISION CRITERIA
  770. CALCULATING THE IRR
  771. Example 10.8
  772. FIGURE 10.3 Calculation of IRRs for Bennett Company’s Capital Expenditure Alternatives
  773. Personal Finance Example 10.9
  774. REVIEW QUESTIONS
  775. EXCEL REVIEW QUESTION
  776. 10.5 Comparing NPV and IRR Techniques
  777. NET PRESENT VALUE PROFILES
  778. Example 10.10
  779. TABLE 10.4 Discount Rate–NPV Coordinates for Projects A and B
  780. FIGURE 10.4 NPV Profiles
  781. CONFLICTING RANKINGS
  782. Reinvestment Assumption
  783. Example 10.11
  784. TABLE 10.5 Reinvestment Rate Comparisons for a Project
  785. TABLE 10.6 Project Cash Flows after Reinvestment
  786. Timing of the Cash Flow
  787. TABLE 10.7 Ranking Projects A and B Using IRR and NPV Methods
  788. Magnitude of the Initial Investment
  789. WHICH APPROACH IS BETTER?
  790. Theoretical View
  791. Practical View
  792. Matter of fact
  793. in practice focus on ETHICS: Nonfinancial Considerations in Project Selection
  794. REVIEW QUESTIONS
  795. Summary
  796. FOCUS ON VALUE
  797. REVIEW OF LEARNING GOALS
  798. Self-Test Problem
  799. Warm-up Exercises
  800. Problems
  801. Spreadsheet Exercise
  802. TO DO
  803. MyFinanceLab
  804. 11 Capital Budgeting Cash Flows and Risk Refinements
  805. Learning Goals
  806. Why This Chapter Matters to You
  807. 11.1 Relevant Cash Flows
  808. in practice focus on ETHICS: A Question of Accuracy
  809. MAJOR CASH FLOW COMPONENTS
  810. EXPANSION VERSUS REPLACEMENT DECISIONS
  811. FIGURE 11.1 Cash Flow Components
  812. FIGURE 11.2 Relevant Cash Flows for Replacement Decisions
  813. SUNK COSTS AND OPPORTUNITY COSTS
  814. Example 11.1
  815. Matter of fact
  816. REVIEW QUESTIONS
  817. 11.2 Finding the Initial Investment
  818. INSTALLED COST OF NEW ASSET
  819. TABLE 11.1 The Basic Format for Determining Initial Investment
  820. AFTER-TAX PROCEEDS FROM SALE OF OLD ASSET
  821. Book Value
  822. Example 11.2
  823. Basic Tax Rules
  824. Example 11.3
  825. TABLE 11.2 Tax Treatment on Sales of Assets
  826. The sale of the asset for more than its book value
  827. FIGURE 11.3 Taxable Income from Sale of Asset
  828. The sale of the asset for its book value
  829. The sale of the asset for less than its book value
  830. CHANGE IN NET WORKING CAPITAL
  831. Matter of fact
  832. Example 11.4
  833. TABLE 11.3 Calculation of Change in Net Working Capital for Danson Company
  834. CALCULATING THE INITIAL INVESTMENT
  835. Example 11.5
  836. REVIEW QUESTIONS
  837. 11.3 Finding the Operating Cash Flows
  838. INTERPRETING THE TERM AFTER-TAX
  839. INTERPRETING THE TERM CASH FLOWS
  840. Example 11.6
  841. TABLE 11.4 Powell Corporation’s Revenue and Expenses (Excluding Depreciation and Interest) for Proposed and Present Machines
  842. TABLE 11.5 Depreciation Expense for Proposed and Present Machines for Powell Corporation
  843. TABLE 11.6 Calculation of Operating Cash Flows Using the Income Statement Format
  844. TABLE 11.7 Calculation of Operating Cash Flows for Powell Corporation’s Proposed and Present Machines
  845. INTERPRETING THE TERM INCREMENTAL
  846. TABLE 11.8 Incremental (Relevant) Operating Cash Flows for Powell Corporation
  847. Example 11.7
  848. REVIEW QUESTIONS
  849. 11.4 Finding the Terminal Cash Flow
  850. PROCEEDS FROM SALE OF ASSETS
  851. TAXES ON SALE OF ASSETS
  852. TABLE 11.9 The Basic Format for Determining Terminal Cash Flow
  853. CHANGE IN NET WORKING CAPITAL
  854. Example 11.8
  855. REVIEW QUESTION
  856. 11.5 Risk in Capital Budgeting (Behavioral Approaches)
  857. TABLE 11.10 Relevant Cash Flows and NPVs for Bennett Company’s Projects
  858. BREAKEVEN ANALYSIS
  859. Example 11.9
  860. SCENARIO ANALYSIS
  861. Example 11.10
  862. TABLE 11.11 Scenario Analysis of Treadwell’s Projects A and B
  863. SIMULATION
  864. FIGURE 11.4 NPV Simulation
  865. REVIEW QUESTIONS
  866. EXCEL REVIEW QUESTION MyFinanceLab
  867. 11.6 Risk-Adjusted Discount Rates
  868. DETERMINING RISK-ADJUSTED DISCOUNT RATES (RADRS)
  869. Personal Finance Example 11.11
  870. Review of CAPM
  871. Using CAPM to Find RADRs
  872. FIGURE 11.5 CAPM and SML
  873. Example 11.12
  874. APPLYING RADRS
  875. Example 11.13
  876. FIGURE 11.6 Calculation of NPVS for Bennett Company’s Capital Expenditure Alternatives Using RADRs
  877. PORTFOLIO EFFECTS
  878. RADRS IN PRACTICE
  879. TABLE 11.12 Bennett Company’s Risk Classes and RADRs
  880. Example 11.14
  881. REVIEW QUESTIONS
  882. 11.7 Capital Budgeting Refinements
  883. COMPARING PROJECTS WITH UNEQUAL LIVES
  884. The Problem
  885. Example 11.15
  886. Annualized Net Present Value (ANPV) Approach
  887. Example 11.16
  888. RECOGNIZING REAL OPTIONS
  889. TABLE 11.13 Major Types of Real Options
  890. Example 11.17
  891. CAPITAL RATIONING
  892. Internal Rate of Return Approach
  893. Example 11.18
  894. FIGURE 11.7 Investment Opportunities Schedule
  895. Net Present Value Approach
  896. Example 11.19
  897. TABLE 11.14 Rankings for Tate Company Projects
  898. REVIEW QUESTIONS
  899. EXCEL REVIEW QUESTION MyFinanceLab
  900. Summary
  901. REVIEW OF LEARNING GOALS
  902. Self-Test Problems
  903. Warm-Up Exercises
  904. Problems
  905. Risk Classes and RADRs
  906. Spreadsheet Exercise
  907. TO DO
  908. MyFinanceLab
  909. Part 6 Long-Term Financial Decisions
  910. Chapters in This Part
  911. 12 Leverage and Capital Structure
  912. Learning Goals
  913. Why This Chapter Matters to You
  914. 12.1 Leverage
  915. TABLE 12.1 General Income Statement Format and Types of Leverage
  916. BREAKEVEN ANALYSIS
  917. Algebraic Approach
  918. TABLE 12.2 Operating Leverage, Costs, and Breakeven Analysis
  919. Example 12.1
  920. FIGURE 12.1 Breakeven Analysis
  921. Graphical Approach
  922. Changing Costs and the Operating Breakeven Point
  923. TABLE 12.3 Sensitivity of Operating Breakeven Point to Increases in Key Breakeven Variables
  924. Example 12.2
  925. Personal Finance Example 12.3
  926. FIGURE 12.2 Operating Leverage
  927. OPERATING LEVERAGE
  928. Example 12.4
  929. TABLE 12.4 The EBIT for Various Sales Levels
  930. Measuring the Degree of Operating Leverage (DOL)
  931. Example 12.5
  932. Example 12.6
  933. in practice focus on PRACTICE: Adobe’s Leverage
  934. Fixed Costs and Operating Leverage
  935. Example 12.7
  936. FINANCIAL LEVERAGE
  937. TABLE 12.5 Operating Leverage and Increased Fixed Costs
  938. Example 12.8
  939. TABLE 12.6 The EPS for Various EBIT Levelsa
  940. Measuring the Degree of Financial Leverage (DFL)
  941. Example 12.9
  942. Personal Finance Example 12.10
  943. Example 12.11
  944. TOTAL LEVERAGE
  945. Example 12.12
  946. TABLE 12.7 The Total Leverage Effect
  947. Measuring the Degree of Total Leverage (DTL)
  948. Example 12.13
  949. Example 12.14
  950. Relationship of Operating, Financial, and Total Leverage
  951. Example 12.15
  952. REVIEW QUESTIONS
  953. 12.2 The Firm’s Capital Structure
  954. TYPES OF CAPITAL
  955. EXTERNAL ASSESSMENT OF CAPITAL STRUCTURE
  956. TABLE 12.8 Median Debt Ratios for Selected Industries (Fiscal Year 2011)
  957. Personal Finance Example 12.16
  958. CAPITAL STRUCTURE OF NON–U.S. FIRMS
  959. Matter of fact
  960. CAPITAL STRUCTURE THEORY
  961. Tax Benefits
  962. Probability of Bankruptcy
  963. Business Risk
  964. Example 12.17
  965. TABLE 12.9 Sales and Associated EBIT Calculations for Cooke Company ($000)
  966. Total Risk
  967. Example 12.18
  968. TABLE 12.10 Capital Structures Associated with Alternative Debt Ratios for Cooke Company
  969. TABLE 12.11 Level of Debt, Interest Rate, and Dollar Amount of Annual Interest Associated with Cooke Company’s Alternative Capital Structures
  970. TABLE 12.12 Calculation of EPS for Selected Debt Ratios ($000) for Cooke Company
  971. TABLE 12.13 Expected EPS, Standard Deviation, and Coefficient of Variation for Alternative Capital Structures for Cooke Company
  972. FIGURE 12.3 Probability Distributions
  973. FIGURE 12.4 Expected EPS and Coefficient of Variation of EPS
  974. Agency Costs Imposed by Lenders
  975. Asymmetric Information
  976. Pecking Order Theory
  977. Signaling Theory
  978. OPTIMAL CAPITAL STRUCTURE
  979. FIGURE 12.5 Cost Functions and Value
  980. Cost Functions
  981. Graphical View of Optimal Structure
  982. REVIEW QUESTIONS
  983. 12.3 EbIT–EPS Approach to Capital Structure
  984. PRESENTING A FINANCING PLAN GRAPHICALLY
  985. Data Required
  986. Example 12.19
  987. Plotting the Data
  988. FIGURE 12.6 EBIT–EPS Approach
  989. COMPARING ALTERNATIVE CAPITAL STRUCTURES
  990. Example 12.20
  991. CONSIDERING RISK IN EBIT–EPS ANALYSIS
  992. Example 12.21
  993. BASIC SHORTCOMING OF EBIT–EPS ANALYSIS
  994. REVIEW QUESTION
  995. 12.4 Choosing the Optimal Capital Structure
  996. LINKAGE
  997. TABLE 12.14 Required Returns for Cooke Company’s Alternative Capital Structures
  998. Example 12.22
  999. ESTIMATING VALUE
  1000. Example 12.23
  1001. TABLE 12.15 Calculation of Share Value Estimates Associated with Alternative Capital Structures for Cooke Company
  1002. MAXIMIZING VALUE VERSUS MAXIMIZING EPS
  1003. FIGURE 12.7 Estimating Value
  1004. Example 12.24
  1005. SOME OTHER IMPORTANT CONSIDERATIONS
  1006. TABLE 12.16 Important Factors to Consider in Making Capital Structure Decisions
  1007. REVIEW QUESTIONS
  1008. Summary
  1009. FOCUS ON VALUE
  1010. REVIEW OF LEARNING GOALS
  1011. Self-Test Problems
  1012. Warm-Up Exercises
  1013. Problems
  1014. Spreadsheet Exercise
  1015. TO DO
  1016. MyFinanceLab
  1017. 13 Payout Policy
  1018. Learning Goals
  1019. Why This Chapter Matters to You
  1020. 13.1 The Basics of Payout Policy
  1021. ELEMENTS OF PAYOUT POLICY
  1022. TRENDS IN EARNINGS AND DIVIDENDS
  1023. FIGURE 13.1 Per Share Earnings and Dividends of the S&P 500 Index
  1024. Matter of fact
  1025. TRENDS IN DIVIDENDS AND SHARE REPURCHASES
  1026. FIGURE 13.2 Aggregate Dividends and Repurchases for All U.S.–Listed Companies
  1027. in practice focus on ETHICS: Are Buybacks Really a Bargain?
  1028. Matter of fact
  1029. REVIEW QUESTIONS
  1030. 13.2 The Mechanics of Payout Policy
  1031. FIGURE 13.3 U.S. Public Industrial Firms Increasing, Decreasing, or Maintaining Dividends
  1032. CASH DIVIDEND PAYMENT PROCEDURES
  1033. Example 13.1
  1034. FIGURE 13.4 Dividend Payment Time Line
  1035. SHARE REPURCHASE PROCEDURES
  1036. Example 13.2
  1037. TAX TREATMENT OF DIVIDENDS AND REPURCHASES
  1038. Personal Finance Example 13.3
  1039. DIVIDEND REINVESTMENT PLANS
  1040. STOCK PRICE REACTIONS TO CORPORATE PAYOUTS
  1041. REVIEW QUESTIONS
  1042. 13.3 Relevance of Payout Policy
  1043. RESIDUAL THEORY OF DIVIDENDS
  1044. THE DIVIDEND IRRELEVANCE THEORY
  1045. ARGUMENTS FOR DIVIDEND RELEVANCE
  1046. REVIEW QUESTIONS
  1047. 13.4 Factors Affecting Dividend Policy
  1048. LEGAL CONSTRAINTS
  1049. Example 13.4
  1050. Example 13.5
  1051. CONTRACTUAL CONSTRAINTS
  1052. GROWTH PROSPECTS
  1053. OWNER CONSIDERATIONS
  1054. MARKET CONSIDERATIONS
  1055. REVIEW QUESTION
  1056. 13.5 Types of Dividend Policies
  1057. CONSTANT-PAYOUT-RATIO DIVIDEND POLICY
  1058. Example 13.6
  1059. REGULAR DIVIDEND POLICY
  1060. Example 13.7
  1061. LOW-REGULAR-AND-EXTRA DIVIDEND POLICY
  1062. REVIEW QUESTION
  1063. 13.6 Other Forms of Dividends
  1064. STOCK DIVIDENDS
  1065. Accounting Aspects
  1066. Example 13.8
  1067. Shareholder’s Viewpoint
  1068. Example 13.9
  1069. The Company’s Viewpoint
  1070. STOCK SPLITS
  1071. Example 13.10
  1072. Personal Finance Example 13.11
  1073. REVIEW QUESTIONS
  1074. Summary
  1075. FOCUS ON VALUE
  1076. REVIEW OF LEARNING GOALS
  1077. Self-Test Problem
  1078. Warm-Up Exercises
  1079. Problems
  1080. Spreadsheet Exercise
  1081. TO DO
  1082. MyFinanceLab
  1083. Part 7 Short-Term Financial Decisions
  1084. Chapters in This Part
  1085. 14 Working Capital and Current Assets Management
  1086. Learning Goals
  1087. Why This Chapter Matters to You
  1088. 14.1 Net Working Capital Fundamentals
  1089. WORKING CAPITAL MANAGEMENT
  1090. Matter of fact
  1091. NET WORKING CAPITAL
  1092. TRADE-OFF BETWEEN PROFITABILITY AND RISK
  1093. Changes in Current Assets
  1094. TABLE 14.1 Effects of Changing Ratios on Profits and Risk
  1095. FIGURE 14.1 Yearly Medians for All U.S.–Listed Manufacturing Companies
  1096. Changes in Current Liabilities
  1097. REVIEW QUESTIONS
  1098. 14.2 Cash Conversion Cycle
  1099. CALCULATING THE CASH CONVERSION CYCLE
  1100. Matter of fact
  1101. Example 14.1
  1102. FUNDING REQUIREMENTS OF THE CASH CONVERSION CYCLE
  1103. FIGURE 14.2 Time Line for Whirlpool’s Cash Conversion Cycle
  1104. Permanent versus Seasonal Funding Needs
  1105. Example 14.2
  1106. FIGURE 14.3 Semper Pump Company’s Total Funding Requirements
  1107. Aggressive versus Conservative Seasonal Funding Strategies
  1108. Example 14.3
  1109. STRATEGIES FOR MANAGING THE CASH CONVERSION CYCLE
  1110. REVIEW QUESTIONS
  1111. 14.3 Inventory Management
  1112. DIFFERING VIEWPOINTS ABOUT INVENTORY LEVEL
  1113. COMMON TECHNIQUES FOR MANAGING INVENTORY
  1114. ABC System
  1115. Economic Order Quantity (EOQ) Model
  1116. Mathematical Development of EOQ
  1117. Personal Finance Example 14.4
  1118. Reorder Point
  1119. Example 14.5
  1120. Just-in-Time (JIT) System
  1121. in practice focus on PRACTICE: RFID: The Wave of the Future?
  1122. Computerized Systems for Resource Control
  1123. INTERNATIONAL INVENTORY MANAGEMENT
  1124. REVIEW QUESTIONS
  1125. 14.4 Accounts Receivable Management
  1126. CREDIT SELECTION AND STANDARDS
  1127. Five C’s of Credit
  1128. Credit Scoring
  1129. Changing Credit Standards
  1130. Example 14.6
  1131. Making the Credit Standard Decision
  1132. Example 14.7
  1133. Managing International Credit
  1134. TABLE 14.2 Effects on Dodd Tool of a Relaxation of Credit Standards
  1135. CREDIT TERMS
  1136. Cash Discount
  1137. Example 14.8
  1138. TABLE 14.3 Analysis of Initiating a Cash Discount for MAX Company
  1139. Cash Discount Period
  1140. Credit Period
  1141. CREDIT MONITORING
  1142. Average Collection Period
  1143. Aging of Accounts Receivable
  1144. Example 14.9
  1145. Popular Collection Techniques
  1146. TABLE 14.4 Popular Collection Techniques
  1147. REVIEW QUESTIONS
  1148. 14.5 Management of Receipts and Disbursements
  1149. FLOAT
  1150. SPEEDING UP COLLECTIONS
  1151. Matter of fact
  1152. SLOWING DOWN PAYMENTS
  1153. CASH CONCENTRATION
  1154. ZERO-BALANCE ACCOUNTS
  1155. Personal Finance Example 14.10
  1156. INVESTING IN MARKETABLE SECURITIES
  1157. REVIEW QUESTIONS
  1158. TABLE 14.5 Features of Popular Marketable Securities
  1159. Summary
  1160. FOCUS ON VALUE
  1161. REVIEW OF LEARNING GOALS
  1162. Self-Test Problems
  1163. Warm-Up Exercises
  1164. Problems
  1165. Spreadsheet Exercise
  1166. TO DO
  1167. MyFinanceLab
  1168. 15 Current Liabilities Management
  1169. Learning Goals
  1170. Why This Chapter Matters to You
  1171. 15.1 Spontaneous Liabilities
  1172. ACCOUNTS PAYABLE MANAGEMENT
  1173. Role in the Cash Conversion Cycle
  1174. Example 15.1
  1175. Analyzing Credit Terms
  1176. Taking the Cash Discount
  1177. Example 15.2
  1178. Giving Up the Cash Discount
  1179. FIGURE 15.1 Payment Options
  1180. Example 15.3
  1181. Using the Cost of Giving Up a Cash Discount in Decision Making
  1182. Example 15.4
  1183. TABLE 15.1 Cash Discounts and Associated Costs for Mason Products
  1184. Effects of Stretching Accounts Payable
  1185. Example 15.5
  1186. Personal Finance Example 16.6
  1187. ACCRUALS
  1188. in practice focus on ETHICS: Accruals Management
  1189. Example 15.7
  1190. REVIEW QUESTIONS
  1191. 15.2 Unsecured Sources of Short-Term Loans
  1192. BANK LOANS
  1193. Loan Interest Rates
  1194. Fixed- and Floating-Rate Loans
  1195. Method of Computing Interest
  1196. Example 15.8
  1197. Single-Payment Notes
  1198. Example 15.9
  1199. Personal Finance Example 15.10
  1200. Lines of Credit
  1201. Interest Rates
  1202. Operating-Change Restrictions
  1203. Compensating Balances
  1204. Example 15.11
  1205. Annual Cleanups
  1206. Revolving Credit Agreements
  1207. Example 15.12
  1208. COMMERCIAL PAPER
  1209. Interest on Commercial Paper
  1210. Example 15.13
  1211. Matter of fact
  1212. INTERNATIONAL LOANS
  1213. International Transactions
  1214. Financing International Trade
  1215. Transactions between Subsidiaries
  1216. REVIEW QUESTIONS
  1217. 15.3 Secured Sources of Short-Term Loans
  1218. CHARACTERISTICS OF SECURED SHORT-TERM LOANS
  1219. Collateral and Terms
  1220. Institutions Extending Secured Short-Term Loans
  1221. USE OF ACCOUNTS RECEIVABLE AS COLLATERAL
  1222. Pledging Accounts Receivable
  1223. The Pledging Process
  1224. Notification
  1225. Matter of fact
  1226. Pledging Cost
  1227. Factoring Accounts Receivable
  1228. Factoring Agreement
  1229. Matter of fact
  1230. Factoring Cost
  1231. USE OF INVENTORY AS COLLATERAL
  1232. Floating Inventory Liens
  1233. Trust Receipt Inventory Loans
  1234. Warehouse Receipt Loans
  1235. REVIEW QUESTIONS
  1236. Summary
  1237. FOCUS ON VALUE
  1238. REVIEW OF LEARNING GOALS
  1239. Self-Test Problem
  1240. Warm-Up Exercises
  1241. Problems
  1242. Spreadsheet Exercise
  1243. TO DO
  1244. MyFinanceLab
  1245. Back Matter
  1246. Appendix Solutions to Self-Test Problems
  1247. Chapter 1
  1248. Chapter 2
  1249. Chapter 3
  1250. Chapter 4
  1251. Chapter 5
  1252. Chapter 6
  1253. Chapter 7
  1254. Chapter 8
  1255. Chapter 9
  1256. Chapter 10
  1257. Chapter 11
  1258. Chapter 12
  1259. Chapter 13
  1260. Chapter 14
  1261. Chapter 15
  1262. Glossary
  1263. Index
  1264. FREQUENTLY USED SYMBOLS AND ABBREVIATIONS
  1265. MyFinanceLab™
  1266. The Key to Your Success in Three Easy Steps!
  1267. If your instructor assigns homework and tests using MyFinanceLab

 

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