Instant Download Ebook PDF Financial Management Principles and Applications 13th Edition PDF Scribd

(eBook PDF) Financial Management:
Principles and Applications 13th

Edition
Visit to download the full and correct content document:
https://ebooksecure.com/download/ebook-pdf-financial-management-principles-and-a
pplications-13th-edition/
THIRTEENTH
EDITION
Financial
Management
P R I N C I P L E S & A P P L I C AT I O N S
Titman | Keown | Martin
Vice President, Business Publishing: Donna Battista Creative Director: Blair Brown
Director of Portfolio Management: Adrienne D’Ambrosio Manager, Learning Tools: Brian Surette
Portfolio Manager: Kate Fernandes Content Developer, Learning Tools: Lindsey Sloan
Editorial Assistant: Kathryn Brightney Managing Producer, Digital Studio, Arts and Business:
Vice President, Product Marketing: Roxanne McCarley Diane Lombardo
Director of Strategic Marketing: Brad Parkins Digital Studio Producer: Melissa Honig
Strategic Marketing Manager: Deborah Strickland Digital Studio Producer: Alana Coles
Product Marketer: Kaylee Carlson Digital Content Team Lead: Noel Lotz
Field Marketing Manager: Ramona Elmer Digital Content Project Lead: Miguel Leonarte
Product Marketing Assistant: Jessica Quazza Full-Service Project Management and Composition:
Vice President, Production and Digital Studio, Cenveo® Publisher Services
Arts and Business: Etain O’Dea Interior Design: Cenveo® Publisher Services
Director of Production, Business: Jeff Holcomb Cover Design: Jon Boylan
Managing Producer, Business: Alison Kalil Printer/Binder: LSC Communications
Content Producer: Carolyn Philips Cover Printer: Phoenix Color
Operations Specialist: Carol Melville
PHOTO CREDITS: Cover: Mbolina/Shutterstock; Tarik Kizilkaya/iStock/Getty Images; Caro Sheridan/Splityarn/Moment/Getty Images;
Elnur /Shutterstock; Mantinov /Shutterstock; pp. ix top, 3: Dbimages/Alamy Stock Photo; pp. ix bottom, 19: Crocodile Images/Alamy Stock Photo;
pp. x top, 39: Alamy; pp. x bottom, 79: 3dfoto/Shutterstock; pp. xi top, 129: Stillfx/Fotolia; pp. xi bottom, 159: Jokerpro/Fotolia; pp. xii top, 193:
Pixelbliss/Fotolia;pp. xii bottom, 223: Deftrender/Shutterstock; pp. xiii top, 255: Hudyma Natallia/Shutterstock; pp. xiii bottom, 301: Flag illustra-
tions/Alamy; pp. xiv top, 329: Andy Dean Photography/Shutterstock; pp. xiv bottom, 373: AstroBoi/Fotolia; pp. xv top, 409: Alx/Fotolia; pp. xv
bottom, 445: Alamy; pp. xvi, 483: Subbotina Anna/Shutterstock; pp. xvii top, 527: Islandstock/Alamy Stock Photo; pp. xvii middle, 553: Bertold
Werkmann/Shutterstock; pp. xvii bottom, 577: VladFree/Shutterstock; pp. xviii top, 607: Adam james/Alamy; pp. xviii bottom, 633: Gl0ck/Fotolia;
pp. 24, 56, 102, 139, 172, 206, 263, 303, 352, 513, 541, 561, 595, 620, 638: Sashkin/Shutterstock; p. 39: Djma/Fotolia; pp. 40, 194, 330, 484, 608:
Runzelkorn/Shutterstock; pp. 80, 160, 224, 302, 374, 446, 528, 578, 634: Yuri Arcurs/Fotolia; pp. 130, 256, 410: Monart Design/Fotolia.
Microsoft and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related
graphics published as part of the services for any purpose. All such documents and related graphics are provided “as is” without warranty of any
kind. Microsoft and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all war-
ranties and conditions of merchantability, whether express, implied or statutory, fitness for a particular purpose, title and non-infringement. In
no event shall Microsoft and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever
resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection
with the use or performance of information available from the services.
The documents and related graphics contained herein could include technical inaccuracies or typographical errors. Changes are periodically
added to the information herein. Microsoft and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the
program(s) described herein at any time. Partial screen shots may be viewed in full within the software version specified.
Microsoft® and Windows® are registered trademarks of the Microsoft Corporation in the U.S.A. and other countries. This book is not sponsored
or endorsed by or affiliated with the Microsoft Corporation.
Copyright © 2018, 2014, 2011 by Pearson Education, Inc. or its affiliates. All Rights Reserved. Manufactured in the United States of
America. This publication is protected by copyright, and permission should be obtained from the publisher prior to any prohibited reproduction,
storage in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise. For
information regarding permissions, request forms, and the appropriate contacts within the Pearson Education Global Rights and Permissions
department, please visit www.pearsoned.com/permissions/.
Acknowledgments of third-party content appear on the appropriate page within the text.
PEARSON, ALWAYS LEARNING, and MYFINANCELABTM are exclusive trademarks owned by Pearson Education, Inc. or its affiliates in
the U.S. and/or other countries.
Unless otherwise indicated herein, any third-party trademarks, logos, or icons that may appear in this work are the property of their respective owners,
and any references to third-party trademarks, logos, icons, or other trade dress are for demonstrative or descriptive purposes only. Such references are
not intended to imply any sponsorship, endorsement, authorization, or promotion of Pearson’s products by the owners of such marks, or any relation-
ship between the owner and Pearson Education, Inc., or its affiliates, authors, licensees, or distributors.
Library of Congress Cataloging-in-Publication Data
Names: Titman, Sheridan, author. | Keown, Arthur J., author. | Martin, John
D., author.
Title: Financial management: principles and applications / Sheridan Titman,
University of Texas at Austin Walter W. McAllister Centennial Chair in
Financial Services, Arthur J. Keown, Virginia Polytechnic Institute and
State University, R.B. Pamplin Professor of Finance, John D. Martin,
Baylor University Carr P. Collins Chair in Finance.
Description: Thirteenth Edition. | Boston: Pearson, [2016] | Revised edition
of | Includes bibliographical references and index.
Identifiers: LCCN 2016035806 | ISBN 9780134417219 | ISBN 0134417216
Subjects: LCSH: Business enterprises—Finance. | Corporations—Finance.
Classification: LCC HG4026 .T58 2016 | DDC 658.15—dc23
LC record available at hjps://lccn.loc.gov/2016035806
1 16
ISBN 10: 0-13-441721-6

ISBN 13: 978-0-13-441721-9
A01_TITM7219_13_SE_FM.indd 4 02/12/16 5:58 PM

The thirteenth edition of Financial Management: Principles and Applications is dedicated to
our families—the ones who love us the most.
To my parents, wife (Meg), and sons (Trevor, Elliot, and Gordon)

Sheridan Titman
Barb, Emily, and Artie

Arthur J. Keown
To the Martin women (my wife, Sally, and daughter-in-law Mel), men (sons David and Jess), and
boys (grandsons Luke and Burke)
John D. Martin

Brief
Contents
Preface xxii
Part 1: Introduction to Financial Management
CHAPTER 1
Getting Started—Principles of Finance 2
CHAPTER 2
Firms and the Financial Markets 18
CHAPTER 3
Understanding Financial Statements 38
CHAPTER 4
Financial Analysis—Sizing Up Firm Performance 78
Part 2: Valuation of Financial Assets
CHAPTER 5
The Time Value of Money—The Basics 128
CHAPTER 6
The Time Value of Money—Annuities
and Other Topics 158
CHAPTER 7
An Introduction to Risk and Return—History of Financial
Market Returns 192
CHAPTER 8
Risk and Return—Capital Market Theory 222
CHAPTER 9
Debt Valuation and Interest Rates 254
CHAPTER 10
Stock Valuation 300
vi

Brief Contents | vii
Part 3: Capital Budgeting
CHAPTER 11
Investment Decision Criteria 328
CHAPTER 12
Analyzing Project Cash Flows 372
CHAPTER 13
Risk Analysis and Project Evaluation 408
CHAPTER 14
The Cost of Capital 444
Part 4: Capital Structure and Dividend Policy
CHAPTER 15
Capital Structure Policy 482
CHAPTER 16
Dividend and Share Repurchase Policy 526
Part 5: Liquidity Management and Special Topics

in Finance
CHAPTER 17
Financial Forecasting and Planning 552
CHAPTER 18
Working-Capital Management 576
CHAPTER 19
International Business Finance 606
CHAPTER 20
Corporate Risk Management 632
Appendices Available in MyFinanceLab

Glossary G-1
Indexes I-1

This page intentionally left blank
A01_LO5943_03_SE_FM.indd iv 04/12/15 4:22 PM

Contents
Preface xxii
Part 1: Introduction to Financial Management
CHAPTER 1
Getting Started—Principles of Finance 2
P Principle 1: Money Has a Time Value 3
P Principle 2: There Is a Risk-Return Tradeoff 3
P Principle 3: Cash Flows Are the Source of Value 3
P Principle 4: Market Prices Reflect Information 3
P Principle 5: Individuals Respond to Incentives 3
1.1 Finance: An Overview 4
What Is Finance? 4
Why Study Finance? 4
1.2 Three Types of Business Organizations 5
Sole Proprietorship 5
Partnership 6
Corporation 7
How Does Finance Fit into the Firm’s Organizational Structure? 8
1.3 The Goal of the Financial Manager 9
Maximizing Shareholder Wealth 9
Ethical Considerations in Corporate Finance 10
Regulation Aimed at Making the Goal of the Firm Work: The Sarbanes-Oxley Act 11
1.4 The Five Basic Principles of Finance 11
Principle 1: Money Has a Time Value 11
Principle 2: There Is a Risk-Return Tradeoff 12
Principle 3: Cash Flows Are the Source of Value 12
Principle 4: Market Prices Reflect Information 13
Principle 5: Individuals Respond to Incentives 13
Chapter Summaries 15
Study Questions 17
CHAPTER 2
Firms and the Financial Markets 18
2.1 The Basic Structure of the U.S. Financial Markets 20
2.2 The Financial Marketplace: Financial Institutions 20
Commercial Banks: Everyone’s Financial Marketplace 21
Nonbank Financial Intermediaries 22
FINANCE FOR LIFE : Controlling Costs in Mutual Funds 24
2.3 The Financial Marketplace: Securities Markets 25
How Securities Markets Bring Corporations and Investors Together 26
Types of Securities 27
FINANCE IN A FLAT WORLD: Where’s the Money Around the World 32
Study Questions 36
ix

x Contents |
CHAPTER 3
Understanding Financial Statements 38
3.1 An Overview of the Firm’s Financial Statements 40
Basic Financial Statements 40
Why Study Financial Statements? 41
What Are the Accounting Principles Used to Prepare Financial Statements? 41
3.2 The Income Statement 42
Income Statement of H. J. Boswell, Inc. 42
Connecting the Income Statement and Balance Sheet 44
Interpreting Firm Profitability Using the Income Statement 44
GAAP and Earnings Management 45
3.3 Corporate Taxes 47
Computing Taxable Income 47
Federal Income Tax Rates for Corporate Income 47
Marginal and Average Tax Rates 48
Dividend Exclusion for Corporate Stockholders 48
3.4 The Balance Sheet 49
The Balance Sheet of H. J. Boswell, Inc. 49
Firm Liquidity and Net Working Capital 52
Debt and Equity Financing 53
Book Values, Historical Costs, and Market Values 55
FINANCE FOR LIFE : Your Personal Balance Sheet and Income Statement 56
3.5 The Cash Flow Statement 58
Sources and Uses of Cash 58
H. J. Boswell’s Cash Flow Statement 60
FINANCE IN A FLAT WORLD : GAAP vs. IFRS 61
Study Questions 70
Study Problems 71
Mini-Case 75
CHAPTER 4
Financial Analysis—Sizing Up Firm Performance 78
4.1 Why Do We Analyze Financial Statements? 80
4.2 Common-Size Statements: Standardizing Financial Information 81
The Common-Size Income Statement: H. J. Boswell, Inc. 81
The Common-Size Balance Sheet: H. J. Boswell, Inc. 82
4.3 Using Financial Ratios 83
Liquidity Ratios 83
Capital Structure Ratios 89
Asset Management Efficiency Ratios 90
Profitability Ratios 94
Market Value Ratios 101
FINANCE FOR LIFE : Your Cash Budget and Personal Savings Ratio 102
Summing Up the Financial Analysis of H. J. Boswell, Inc. 105
FINANCE IN A FLAT WORLD: Ratios and International
Accounting Standards 105

Contents | xi
4.4 Selecting a Performance Benchmark 107
Trend Analysis 107
Peer-Firm Comparisons 108
4.5 Limitations of Ratio Analysis 109
Study Questions 114
Study Problems 114
Mini-Case 127
Part 2: Valuation of Financial Assets
CHAPTER 5
The Time Value of Money—The Basics 128
5.1 Using Timelines to Visualize Cash Flows 130
5.2 Compounding and Future Value 132
Compound Interest and Time 133
Compound Interest and the Interest Rate 133
Techniques for Moving Money Through Time 133
Applying Compounding to Things Other Than Money 135
Compound Interest with Shorter Compounding Periods 135
FINANCE FOR LIFE: Saving for Your First House 139
5.3 Discounting and Present Value 139
The Mechanics of Discounting Future Cash Flows 140
Two Additional Types of Discounting Problems 142
The Rule of 72 143
5.4 Making Interest Rates Comparable 145
Calculating the Interest Rate and Converting It to an EAR 147
To the Extreme: Continuous Compounding 148
FINANCE IN A FLAT WORLD: Financial Access at Birth 149
Study Questions 152
Study Problems 153
Mini-Case 157
CHAPTER 6
The Time Value of Money—Annuities and Other Topics 158
6.1 Annuities 160
Ordinary Annuities 160
Amortized Loans 168
Annuities Due 169
FINANCE FOR LIFE: Saving for Retirement 172
6.2 Perpetuities 173
Calculating the Present Value of a Level Perpetuity 173
Calculating the Present Value of a Growing Perpetuity 173
6.3 Complex Cash Flow Streams 176
Study Questions 181
Study Problems 182
Mini-Case 191

xii Contents |
CHAPTER 7
An Introduction to Risk and Return—History of Financial
Market Returns 192
7.1 Realized and Expected Rates of Return and Risk 194
Calculating the Realized Return from an Investment 194
Calculating the Expected Return from an Investment 195
Measuring Risk 196
7.2 A Brief History of Financial Market Returns 202
U.S. Financial Markets: Domestic Investment Returns 202
Lessons Learned 204
U.S. Stocks Versus Other Categories of Investments 204
Global Financial Markets: International Investing 204
FINANCE FOR LIFE: Determining Your Tolerance for Risk 206
7.3 Geometric Versus Arithmetic Average Rates of Return 207
Computing the Geometric or Compound Average Rate of Return 207
Choosing the Right “Average” 208
7.4 What Determines Stock Prices? 211
The Efficient Markets Hypothesis 211
Do We Expect Financial Markets to Be Perfectly Efficient? 212
Market Efficiency: What Does the Evidence Show? 213
Study Questions 218
Study Problems 218
Mini-Case 221
CHAPTER 8
Risk and Return—Capital Market Theory 222
8.1 Portfolio Returns and Portfolio Risk 224
Calculating the Expected Return of a Portfolio 224
Evaluating Portfolio Risk 226
Calculating the Standard Deviation of a Portfolio’s Returns 228
FINANCE IN A FLAT WORLD: International Diversification 231
8.2 Systematic Risk and the Market Portfolio 233
Diversification and Unsystematic Risk 234
Diversification and Systematic Risk 235
Systematic Risk and Beta 235
Calculating the Portfolio Beta 237
8.3 The Security Market Line and the CAPM 238
Using the CAPM to Estimate Expected Rates of Return 240
Study Questions 245
Study Problems 246
Mini-Case 253
CHAPTER 9
Debt Valuation and Interest Rates 254

Contents | xiii
9.1 Overview of Corporate Debt 256
Borrowing Money in the Private Financial Market 256
Borrowing Money in the Public Financial Market 258
Basic Bond Features 261
FINANCE FOR LIFE: Adjustable-Rate Mortgages 263
9.2 Valuing Corporate Debt 265
Valuing Bonds by Discounting Future Cash Flows 265
Step 1: Determine Bondholder Cash Flows 266
Step 2: Estimate the Appropriate Discount Rate 266
Step 3: Calculate the Present Value Using the Discounted Cash Flow 269
9.3 Bond Valuation: Four Key Relationships 273
Relationship 1 273
Relationship 2 275
Relationship 3 275
Relationship 4 276
9.4 Types of Bonds 278
Secured Versus Unsecured 278
Priority of Claims 278
Initial Offering Market 278
Abnormal Risk 278
Coupon Level 278
Amortizing or Non-amortizing 278
Convertibility 279
FINANCE IN A FLAT WORLD: International Bonds 280
9.5 Determinants of Interest Rates 280
Inflation and Real Versus Nominal Interest Rates 280
Interest Rate Determinants—Breaking It Down 282
The Maturity-Risk Premium and the Term Structure of Interest Rates 285
Study Questions 294
Study Problems 295
Mini-Case 299
CHAPTER 10
Stock Valuation 300
P Principle 2: There Is a Risk-Reward Tradeoff 301
10.1 Common Stock 302
Characteristics of Common Stock 302
FINANCE FOR LIFE: Herd Mentality 303
Agency Costs and Common Stock 304
Valuing Common Stock Using the Discounted Dividend Model 304
10.2 The Comparables Approach to Valuing Common Stock 311
Defining the P/E Ratio Valuation Model 311
What Determines the P/E Ratio for a Stock? 311
An Aside on Managing for Shareholder Value 315
A Word of Caution About P/E Ratios 315
10.3 Preferred Stock 315
Features of Preferred Stock 315
Valuing Preferred Stock 316
A Quick Review: Valuing Bonds, Preferred Stock, and Common Stock 318

xiv Contents |
Study Questions 323
Study Problems 324
Mini-Case 327
Part 3: Capital Budgeting
CHAPTER 11
Investment Decision Criteria 328
11.1 An Overview of Capital Budgeting 330
The Typical Capital-Budgeting Process 331
What Are the Sources of Good Investment Projects? 331
Types of Capital Investment Projects 331
11.2 Net Present Value 332
Why Is the NPV the Right Criterion? 333
Calculating an Investment’s NPV 333
Independent Versus Mutually Exclusive Investment Projects 334
11.3 Other Investment Criteria 340
Profitability Index 340
Internal Rate of Return 342
Modified Internal Rate of Return 348
FINANCE FOR LIFE: Higher Education as an Investment in Yourself 352
Payback Period 352
Discounted Payback Period 353
Summing Up the Alternative Decision Rules 355
11.4 A Glance at Actual Capital-Budgeting Practices 355
Study Questions 361
Study Problems 362
Mini-Cases 369
CHAPTER 12
Analyzing Project Cash Flows 372
12.1 Project Cash Flows 374
Incremental Cash Flows Are What Matters 375
Guidelines for Forecasting Incremental Cash Flows 375
12.2 Forecasting Project Cash Flows 377
Dealing with Depreciation Expense, Taxes, and Cash Flow 377
Four-Step Procedure for Calculating Project Cash Flows 378
Computing Project NPV 382
12.3 Inflation and Capital Budgeting 384
Estimating Nominal Cash Flows 384
12.4 Replacement Project Cash Flows 385
Category 1: Initial Outlay, CF0 385
Category 2: Annual Cash Flows 385

Contents | xv
Replacement Example 386
FINANCE IN A FLAT WORLD: Entering New Markets 390
Study Questions 393
Study Problems 394
Mini-Cases 403
Appendix: The Modified Accelerated Cost Recovery System 406
CHAPTER 13
Risk Analysis and Project Evaluation 408
RISKS P Principle 1: Money Has a Time Value 409
13.1 The Importance of Risk Analysis 410
13.2 Tools for Analyzing the Risk of Project Cash Flows 411
Key Concepts: Expected Values and Value Drivers 411
Sensitivity Analysis 413
Scenario Analysis 417
Simulation Analysis 420
FINANCE IN A FLAT WORLD: Currency Risk 422
13.3 Break-Even Analysis 422
Accounting Break-Even Analysis 423
Cash Break-Even Analysis 427
NPV Break-Even Analysis 427
Operating Leverage and the Volatility of Project Cash Flows 430
13.4 Real Options in Capital Budgeting 432
The Option to Delay the Launch of a Project 432
The Option to Expand a Project 433
The Option to Reduce the Scale and Scope of a Project 433
Study Questions 437
Study Problems 438
Mini-Case 443
CHAPTER 14
The Cost of Capital 444
14.1 The Cost of Capital: An Overview 446
Investor’s Required Return and the Firm’s Cost of Capital 447
WACC Equation 447
Three-Step Procedure for Estimating the Firm’s WACC 448
14.2 Determining the Firm’s Capital Structure Weights 449
14.3 Estimating the Cost of Individual Sources of Capital 453
The Cost of Debt 453
The Cost of Preferred Equity 454
The Cost of Common Equity 456

xvi Contents |
14.4 Summing Up: Calculating the Firm’s WACC 463
Use Market-Based Weights 463
Use Market-Based Costs of Capital 463
Use Forward-Looking Weights and Opportunity Costs 463
Weighted Average Cost of Capital in Practice 463
14.5 Estimating Project Costs of Capital 465
The Rationale for Using Multiple Discount Rates 465
Why Don’t Firms Typically Use Project Costs of Capital? 465
Estimating Divisional WACCs 466
Divisional WACC: Estimation Issues and Limitations 467
FINANCE IN A FLAT WORLD: Why Do Interest Rates
Differ Among Countries? 468
14.6 Flotation Costs and Project NPV 469
WACC, Flotation Costs, and the NPV 469
Study Questions 475
Study Problems 476
Mini-Case 481
Part 4: Capital Structure and Dividend Policy

Equity
financing
Debt and equity
financing
Debt
CHAPTER 15
Capital Structure Policy 482
financing
Risk
Risk
Risk
15.1 A Glance at Capital Structure Choices in Practice 484
Defining a Firm’s Capital Structure 484
Financial Leverage 487
How Do Firms in Different Industries Finance Their Assets? 487
15.2 Capital Structure Theory 488
A First Look at the Modigliani and Miller Capital Structure Theorem 488
Yogi Berra and the M&M Capital Structure Theory 490
Capital Structure, the Cost of Equity, and the Weighted Average Cost of Capital 490
Why Capital Structure Matters in Reality 492
Making Financing Choices When Managers Are Better Informed than Shareholders 497
Managerial Implications 498
15.3 Why Do Capital Structures Differ Across Industries? 499
15.4 Making Financing Decisions 500
Benchmarking the Firm’s Capital Structure 500
Evaluating the Effect of Financial Leverage on Firm Earnings per Share 501
Using the EBIT-EPS Chart to Analyze the Effect of Capital Structure on EPS 506
Can the Firm Afford More Debt? 508
Survey Evidence: Factors That Influence CFO Debt Policy 509
FINANCE IN A FLAT WORLD : Capital Structures Around the World 510
Lease Versus Buy 511
Finance for Life: Leasing or Buying Your Next Car 513
Study Questions 516
Study Problems 518
Mini-Case 522
Appendix: Demonstrating the Modigliani and Miller Theorem 523

Contents | xvii
CHAPTER 16
Dividend and Share Repurchase Policy 526
16.1 How Do Firms Distribute Cash to Their Shareholders? 528
Cash Dividends 529
Stock Repurchases 530
How Do Firms Repurchase Their Shares? 530
Personal Tax Considerations: Dividend Versus Capital Gains Income 531
Noncash Distributions: Stock Dividends and Stock Splits 531
16.2 Does Dividend Policy Matter? 532
The Irrelevance of the Distribution Choice 532
Why Dividend Policy Is Important 538
FINANCE FOR LIFE: The Importance of Dividends 541
16.3 Cash Distribution Policies in Practice 541
Stable Dividend Payout Policy 541
Residual Dividend Payout Policy 545
Other Factors Playing a Role in How Much to Distribute 545
Study Questions 547
Study Problems 549
Mini-Case 551
Part 5: Liquidity Management and Special

Topics in Finance
CHAPTER 17
Financial Forecasting and Planning 552
17.1 An Overview of Financial Planning 554
17.2 Developing a Long-Term Financial Plan 555
Financial Forecasting Example: Ziegen, Inc. 556
FINANCE FOR LIFE: Your Personal Budget 561
17.3 Developing a Short-Term Financial Plan 564
Cash Budget Example: Melco Furniture, Inc. 564
Uses of the Cash Budget 565
Study Questions 568
Study Problems 569
Mini-Case 575
CHAPTER 18
Working-Capital Management 576
18.1 Working-Capital Management and the Risk-Return Tradeoff 578
Measuring Firm Liquidity 578
Managing Firm Liquidity 579
Risk-Return Tradeoff 579
18.2 Working-Capital Policy 579
The Principle of Self-Liquidating Debt 579
A Graphic Illustration of the Principle of Self-Liquidating Debt 582

16/11/16 12:12 PM
Step 4: Incorporate Risk into All the Firm’s Decisions and Processes 635
Step 2: Decide Which Types of Risks to Keep and Which to Transfer 635
19.1 Foreign Exchange Markets and Currency Exchange Rates 608
What a Change in the Exchange Rate Means for Business 608
FINANCE FOR LIFE: Do You Need Life Insurance? 638
Hedging Commodity Price Risk Using Forward Contracts 639

20.3 Managing Risk by Hedging with Forward Contracts 638
Step 1: Identify and Understand the Firm’s Major Risks 634
Calculating the Operating and Cash Conversion Cycles 584
18.5 Managing the Firm’s Investment in Current Assets 591
Step 5: Monitor and Manage the Firm’s Risk Exposure 636

19.3 Capital Budgeting for Direct Foreign Investment 619
20.1 Five-Step Corporate Risk Management Process 634

Purchasing-Power Parity and the Law of One Price 616
FINANCE FOR LIFE: International Investing 620
Hedging Currency Risk Using Forward Contracts 639

19.2 Interest Rate and Purchasing-Power Parity 616
Principle 3: Cash Flows Are the Source of Value 607
Calculating the Cost of Short-Term Financing 587
20.2 Managing Risk with Insurance Contracts 637

Managing Cash and Marketable Securities 591
Step 3: Decide How Much Risk to Assume 635

18.3 Operating and Cash Conversion Cycles 582
Principle 2: There Is a Risk-Return Tradeoff 607
633
FINANCE FOR LIFE: Credit Scoring 595
Types of Foreign Exchange Transactions 613

International Business Finance 606
Measuring Working-Capital Efficiency 582
Corporate Risk Management 632

Evaluating the Cost of Trade Credit 588
Evaluating the Cost of Bank Loans 589
Principle 2: There Is a Risk-Return Tradeoff

Principle 1: Money Has a Time Value 633
Managing Accounts Receivable 593
18.4 Managing Current Liabilities 587
The International Fisher Effect 617
Types of Insurance Contracts 637

Why Purchase Insurance? 637
Foreign Investment Risks 623
Foreign Exchange Rates 610
Managing Inventories 597
Interest Rate Parity 616

20
19
Study Questions 600
Study Questions 627

Study Problems 601
Study Problems 628

Mini-Case 605
Mini-Case 631
CHAPTER
CHAPTER
P
P
Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk
isk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk
Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk
k Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk R
isk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk R
sk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk R
Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk R
sk Risk Risk Risk Risk Risk Risk Risk Risk Ris
isk Risk Risk Risk Risk Risk Risk Risk Risk Risk
Risk Management
Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk R
k Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk
isk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk
sk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Ri
k Risk Risk Risk Risk Risk Risk Risk Risk Risk Ris
Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk
sk Risk Risk Risk Risk Risk Risk Risk Risk Risk Ris
isk Risk Risk Risk Risk Risk Risk Risk Risk Risk R
Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk R
k Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk
isk Risk Risk Risk Risk Risk Risk Risk Risk Risk Ri
sk Risk Risk Risk Risk Risk Risk Risk Risk Risk Ri
k Risk Risk Risk Risk Risk Risk Risk Risk Risk Ris
Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk R
sk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk
isk Risk Risk Risk Risk Risk Risk Risk Risk Risk
Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Ris
isk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk
sk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Ri
k Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Ris
Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Ri
sk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk
isk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk
Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk
|
k Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk
A01_TITM7219_13_SE_FM.indd 18
sk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk
Contents
xviii
Contents | xix
20.4 Managing Risk with Exchange-Traded Financial Derivatives 643
Futures Contracts 644
Option Contracts 645
20.5 Valuing Options and Swaps 651
The Black-Scholes Option Pricing Model 652
Swap Contracts 656
Credit Default Swaps 657
Study Questions 661
Study Problems 662
Mini-Case 665
Appendices Available in MyFinanceLab

Glossary G-1
Indexes I-1

Teaching Students the
The Five Principles of Finance

of Finance
Many finance books show students only the mechanics of finance problem solving, but students learn
better when given the intuition behind complex concepts. Financial Management shows students the
reasoning behind financial decisions and connects all topics in the book to five key principles—the
Five Principles of Finance. P Principle 1, P Principle 2, P Principle 3, P Principle 4, P Principle 5
of finance
principles
at the five ney Has
P 3, P 4,
and P 5 Ap
plied
ns that
Finally, we
take an in-
ie all financ
depth look
ial dec isio
re Is a Ris
iple 1: Mo
ns: P Princ eturn Tradeoff,
k-R P Prin-
Each chapter opens with a helpful preview of those
P 1, P 2, ial decisio that underl , P Principle 2: The Value,
Principles Source of P Principle 5:
examines
ge of financ
This book in their business liv
es
personal
a wide ran as well as in their
the entire
book by
a Tim e Va lue
P Principle
3: Cash Flo
ws Are
ces Reflect s.
the
Informati
on, and Principles of Finance that are illustrated in the com-
ke ndation for different rke t Pri
ciple 4: Ma spond to Incentive
people ma
lives. In thi
describing
s cha pte
the bou
r,
nda
we lay a fou dy of finance, the
rie s of the stu
zed, and the rol e that the fin
ress some
an-
of Individua
ls Re ing chapter so students see the underlying and connect-
s are organi We also add st face daily.
businesse
ways that
cial ma nag
l
er
dil emmas tha
the firm.
plays within financial manager
t the
mu
ing themes and learn to recognize patterns. Principles
the eth ica
are color-coded for quick recognition.
The chapter-opening vignette provides a

real-world example of the Principles
Finance applied in the chapter, many
times reinforcing them by showing how
“forgetting” a principle might lead to fi-
nancial troubles.
ds
ll thousan
PL), will se In
ple, Inc. (AA rsonal computers.
en day, Ap pe d pricing
On any giv iPods, iPads, and uc tio n an
of iPhones
,
my ria d of prod w pr od uc ts,
’s operatio
ns as
making a potential ne ations for ing of Apple
addition to ple must evaluate new loc risk and tim
decisions,
Ap
es , an d consider de cis ion s affects the l decisions. of cre dit card of-
nnel ch oic of these as finan cia ms
make perso cause each can view all of them ng the ter o, you
stores. Be
er evaluati a year or tw nal
l life. Wheth to work full-time for
Apple retail sh they generate, we ions in your persona or king perso
ca cis graduation l to you in ma
well as the , you face financial de ate school right after ess decisions are usefu
Like Apple du busin
to go to gra that guide
ing whether l principles
fers or weigh same fundamenta
ll fin d tha t the
wi
cisions.
financial de Applying the
Principles of
Finance to
P Principle 2: The
re Is a Risk-R
Chapter 17
financial planning eturn Tra
process because
3 alternate possible planning enables deoff arises in the requirements. By 567
levels of firm sales the being prepared,
and correspondingl firm to prepare for and increases the the
y different financing value of its com firm reduces the risk to its share
mon stock. holders
C H A P
11:54 AM
28/07/16
Chapter S
T E R
ummaries
d 3
19_13_SE_C01.ind
M01 _TITM72
17
17.1 Unders
tand the goals
The Summaries that conclude each chapter SUMMARY:
use
The goal of
as a guide to
of financial pla
fina
nning. (pgs. 554
ncial planning –555)
review the Principles of Finance in context, requirements the future. is the develop
. However, fina Such a plan provides the ment of a plan
that a firm can
that the firm ncial planning firm with esti
’s managemen has a second mates of its
is useful in itse t team goes and more sub financing
promoting deeper understanding and

lf. That is, the through tle goal. The
firm’s manage very act of thin a careful and thoughtf very fact
ment develop king syst ema ul planning
valuable exe an understand tically about exercise
rcise. ing of what the future help
may happen
greater retention of chapter concepts. , and this is s the
Concept Che KEY TERMS in itself a
ck | 17.1
Cash budget,
1. What are period that deta
page 555 A plan for a futu
the fund
benefits of finan amental ticipates rece
ils the sources
of cash a firm
re Short-term fina
cial planning?
2. Distinguish iving and the
cash it plans to amounts and an- forecast of a firm ncial plan, page 555
among a firm’ timing of A
short-term finan s spend. uses of cash span ’s sources of cash and plan
long-term finan
cial plan, Long-term fina ning the next ned
cial plan, and ncial plan, pag Strategic pla 12 months or
strategic plan detailed estim e 555 A n, less.
.
financing for
ate of a firm’s
sources and uses scription of the page 554 A general de-
a period that of firm, its prod
years into the extends three and how it plan ucts and serv
Within the chapter, the authors draw on the Five Principles of

to five s to ices,
future. order to sell thos compete with other firm
e products and s in
services.
Finance to illustrate concepts and explain the rationale behind 17.2 Use the
percent-of-s
a firm, includ
ing its
ales method
to forecast the
discretionary financing req
financial decision making. Look for P , P , P , P , P SUMMARY:
including both
presses expense
The most com
mon
financing nee
income stateme technique for forecasting
nts and balance a firm’s pro form
)
uir
ds. (pgs. 555–564 ements of
s, assets, and sheets, is the a financial stat
used to make liabilities for perc ements,
Principle 1: Money Has a Time Value
ent-of-sales met
P computed ove
the forecast can a future period
r several years, come from the most recent
as percentages
of sale
hod, which ex-
methods. from the judg financial stateme s. The percentages
ment of the ana nts, from
Principle 2: There Is a Risk-Return Tradeoff
lyst, or from som an average
P The primary obje
financing that
the
ctive of forecast
ing a firm
e combination
of these
mean those sou firm will need to seek from ’s financing needs is to iden
rces discretionary tify
P Principle 3: Cash Flows Are the Source of Value to use them. The of financing that require
able), which
se sources con the firm’s man
arise naturally trast with spontaneous sou
sources. By disc the amount of new
agement to mak
rces
retionary sou
e a conscious
rces, we
more products in the course decision
of doing busines of financing (such as acco
P Principle 4: Market Prices Reflect Information
to
firm in the form replenish its inventories, s. For exampl unts
of accounts pay the firm’s sup e, when the firm pay-
able. pliers automat orders
KEY TERMS ically extend
credit to the
P Principle 5: Individuals Respond to Incentives Discretionary
page 558 financing nee
The total amo ds (DFN),
firm estimates unt of financin the decision to
it will need for ga borrow money
will not be fund a future period an example of from a bank is
ed by the rete that discretionary
by increases in ntio the automatic financing, whe
the firm’s acco n of earnings or fina
from an existing ncing of inventory purchase
reas
accrued expe unts payable supplier that s
nses. and accounts paya increases the
Discretionary ble is not a disc firm’s
sources of financing. retionary sour
558 Sources of financing, pag ce of
action by the
financing that e Percent-of-sal
firm’s managem require explicit es method,
casting techniqu page 556 A
ent. For exam financial fore
ple, portion of the e that uses the
item being fore pro-
cast (e.g., acco
unts
M17_TITM7219
_13_SE_C17.ind
d 567
14/10/16 3:42
PM

Tools for Developing Study Skills
To be successful, finance students need hands-on opportunities to apply what they have learned in ways that go beyond
rote memorization of formulas. By focusing on basic principles of finance, students develop the skills needed to extend
their understanding of finance tools beyond formulas and canned answers. The authors’ objective is to equip students,
no matter what their major or business responsibility might be, to contribute to an analysis of the financial implications of
practical business decisions.
Checkpoints provide a consistent problem-

Checkpoin
t 11.1
CHAPTER 11
| Inve stm ent Dec ision
solving technique that walks through each problem
in five steps, including an analysis of the solution
Crite ria 335
Calculat
ing the Ne
t Presen
t
reached. Each Checkpoint concludes with an
Project Long
requires an initia Value fo
$30,000 per l investment r Projec
year in Years
2 and 3, $25
of $100,000
and is expecte t Long
The discount ,000 in Year d to generate
ment opportu
nity?
rate (k) appropr
iate for calculati
4, and $10,000
ng the NPV of
in Year 5.
Project Long
cash flows of
is 17 percent.
$70,000 in Yea
r 1, additional practice problem and its solution on the
STEP 1: Is Project Lon
Project Long
the next five
Picture the
requires an initia
problem
l investment of
g a good inve
st-
same topic so students can test their mastery of
$100,000 and
the problem-solving approach. Then students can
years:
is expected to
produce the
following cas
k = 17% h flows over
put their knowledge to the test by completing the

Time Period
0
1
2
3
4
5
linked end-of-chapter Study Problem(s).

Cash Flow Years
–$100,000
$70,000
$30,000
$30,000
$25,000
$10,000
STEP 2:
Decide on
Our strategy a solution
for analyzing strategy
of the cash inflo whether this is
ws and then com a good investm
difference or paring them to ent opportunity
the NPV is pos the amount of involves first calc
itive. The NPV money invested ulating the pres
cash flows for for Project Lon , the initial cas ent value
Years 1 through g is equal to h outflow, to see
lem. Thus, the 5 minus the initia the present valu if the
first step in the l cash outlay e of the project’
cash flows usin solution is to (CF 0). We can use s expected
g k = 17%. calculate the Equation (11–
Then, from this pres ent value of the 1) to solve this
We can calc quantity we sub future cash flow prob-
ulate this pres tract the initia s by discoun
or a spreads ent value usin l cas h ting the
heet. We dem g the mathem outla y of $100,00
onstrate all thre atics of discoun 0.
STEP 3: e methods here ted cash flow
Solve . , a financial calc
ulator,
Using the
Mathema
tical Form
ulas. Usin
NPV = -$100,0 g Equation (11–
00 + $70,000 $30,000
1),
(1 + .17) 1 + $30,000
Solving the equ (1 + .17) 2 + $25,000
ation, we get (1 + .17) 3 + $10,000
(1 + .17) 4 +
NPV = –$1 (1 + .17) 5
00,000 + $59
= –$100,000 ,829 + $21,915
+ $118,378 + $18,731 +
= $18,378 $13,341 + $4,5
61
Using a
Financia
by inputting CF; l Calculat
2nd; CE/C. or. Before
using the CF
button, make
sure you clea
Data and Key r your calculato
Inpu t r
CF; −100,000; Display
ENTER
T ; 70,000; ENT CF0 5 −100,00
ER 0.00
T ; 1; ENTER C01 5 70,000.0
0
T ; 30,000; ENT F01 5 1.00
ER
T ; 2; ENTER C02 5 30,000.0
0 486
T ; 25,000; ENT F02 5 2.00 PART 4 | Capita l Struct ure and
Divide nd Policy
ER
T ; 1; ENTER C03 5 25,000.0
0 Table 15.1 Finan
F03 5 1.00 cial and Capit al Structures for Selec
T ; 10,000; ENT ted Firms (Year-End
ER The debt ratio equals 2015)
T ; 1; ENTER C04 5 10,000.0 the ratio of the firm’s
0 including both interes total liabilities to its total
F04 5 1.00 t-bearing debt and non-in assets. Total liabilities
NPV; 17; ENT enterprise-value ratio terest-bearing liabiliti equal the sum of curren
ER equals the ratio of the es such as accounts t and long-term liabiliti
T ; CPT I 5 17 firm’s short- and long-t payable and accrued es,
its enterprise value. erm interest-bearing debt expenses. The debt-t
The times interest earne o-
NPV 5 18,378 (EBIT) to its interest expen d ratio equals the ratio less excess cash and
se. The first two ratios of the firm’s net opera marketable securities
meas ting incom e or earnings before interes to
ratio measures the ability ure the proportion of
of the firm to make the the firm’s investments t and taxes
interest payments requir financed by borrowing,
ed to support its debt. whereas the third
Debt Ratio
Debt-to-Enterprise-Valu
Total Liabilities e Ratio Times Interest Earned
Net Debt
M11_TITM7219
_13_SE_C11.ind
Total Assets Net Operating Income
d 335 Enterprise Value or EBIT
American Airlines (AAL Interest Expense
) 95.4%
American Electric Powe 28.2%
r (AEP)
Emerson Electric (EMR 71.8% 4.79
) 40.6%
17/08/16 6:38
PM Ford (F) 35.3% 3.65
11.6%
General Electric (GE) 87.9% 19.26
65.2%
Wal-Mart (WMT) 80.2% 4.32
19.1%
60.0% 2.82
16.8%
Average 11.03
Maximum 67.1%
30.7%
Minimum 87.9% 8.21
65.2%
35.3% 19.26
11.6%
2.82
For the set of firms in
Table 15.1, the avera
8.21, which indicates ge ratio of operating
that the firms’ opera income to interest expen
pense by more than eight ting earnings, on avera se is
times. This would surely ge, cover their intere
be paid their interest make lenders feel more st ex-
in a timely manner than confident they will
We now have the follow if this ratio were close
ing financial decision r to 1 or less.3
Tools of Financial Analy tools to evaluate the firm’
sis—Capital Structure s capital structure.
Ratios
Name of Tool
Formula
Debt ratio What It Tells You
Total Liabilities
Total Assets • Measures the exten
t to which
borrowed money to financ the firm has used
• A higher ratio indica e its assets.
tes a greater reliance
non-owner financing on
Debt-to-enterprise- or financial leverage
more financial risk taken and
value ratio BookValue of Intere on by the firm.
st@ Excess • A version of the debt
Bearing Debt - ratio that uses curren
Cash market values of equity t
BookValue of Intere as opposed to book
a st@ Excess Market Value of values.
Bearing Debt - b + • The higher the debt-t
Cash Equity o-enterprise-value ratio
Net Debt the more financial risk is,
= the firm is assuming.
Enterprise Value
Times interest
earned Net Operating Incom
e or EBIT
“Tools of Financial Analysis” feature Interest Expense • Measures the firm’s
expense from operating
ability to pay its intere
• A higher ratio indica income.
st
boxes provide the students with a

tes a greater capability
the firm to pay its intere of
st expense in a timely
manner.
quick reference source for the deci- 3

Some firms actually
than they have interes
have negative net debt.
That is, they have larger
sion tools used in financial analysis.

t-bearing debt outstan excess cash and market
maintain very large cash ding. This is fairly commo able securities balanc
balances as a reserve n for high-tech firms es
to finance in the public source of funding for like Apple (AAPL) that
markets. investments in new techno
logies that are difficu
This feature appears throughout the

lt
book and names each calculation or M15_TITM7219_13_SE_

C15.indd 486
formula, displays it in equation form, 12/10/16 12:02 PM
and summarizes what it tells you.

Another random document with
no related content on Scribd:
The Alabama Claims.
During this year the long disputed Alabama Claims of the United
States against Great Britain, arising from the depredations of the
Anglo-rebel privateers, built and fitted out in British waters, were
referred by the Treaty of Washington, dated May 8th, 1871, to
arbitrators, and this was the first and most signal triumph of the plan
of arbitration, so far as the Government of the United States was
concerned. The arbitrators were appointed, at the invitation of the
governments of Great Britain and the United States, from these
powers, and from Brazil, Italy, and Switzerland. On September 14th,
1872, they gave to the United States gross damages to the amount of
$15,500,000, an amount which has subsequently proved to be really
in excess of the demands of merchants and others claiming the loss
of property through the depredations of the rebel ram Alabama and
other rebel privateers. We append a list of the representatives of the
several governments:
Arbitrator on the part of the United States—Charles Francis
Adams.
Arbitrator on the part of Great Britain—The Right Honorable Sir
Alexander Cockburn, Baronet, Lord Chief Justice of England.
Arbitrator on the part of Italy—His Excellency Senator Count
Sclopis.
Arbitrator on the part of Switzerland—Mr. Jacob Stampfli.
Arbitrator on the part of Brazil—Baron D’Itajuba.
Agent on the part of the United States—J. C. Bancroft Davis.
Agent on the part of Great Britain—Right Honorable Lord
Tenterden.
Counsel for the United States—Caleb Cushing, William M.
Evarts, Morrison R. Waite.
Counsel for Great Britain—Sir Roundell Palmer.
Solicitor for the United States—Charles C. Beaman, Jr.
The Force Bill.
The 42d Congress met March 4, 1871, the Republicans having

suffered somewhat in their representation. In the Senate there were
57 Republicans, 17 Democrats; in the House 138 Republicans, 103
Democrats. James G. Blaine was again chosen Speaker. The most
exciting political question of the session was the passage of the
“Force Bill,” as the Democrats called it. The object was more rigidly
to enforce observance of the provisions of the 14th Amendment, as
the Republicans claim; to revive a waning political power in the
South, and save the “carpet-bag” governments there, as the
Democrats claimed. The Act allowed suit in the Federal courts
against any person who should deprive another of the rights of a
citizen, and it made it a penal offense to conspire to take away any
one’s rights as a citizen. It also provided that inability, neglect, or
refusal by any State governments to suppress such conspiracies, or
their refusal to call upon the President for aid, should be deemed a
denial by such State of the equal protection of the laws under the
14th Amendment. It further declared such conspiracies “a rebellion
against the government of the United States,” and authorized the
President, when in his judgment the public safety required it, to
suspend the privilege of habeas corpus in any district, and suppress
any such insurrection by the army and navy.
President Hayes’s Civil Service Order.
Executive Mansion, Washington, June 22, 1877.

Sir:—I desire to call your attention to the following paragraph in a
letter addressed by me to the Secretary of the Treasury, on the
conduct to be observed by the officers of the General Government in
relation to the elections:
“No officer should be required or permitted to take part in the
management of political organizations, caucuses, conventions or
election campaigns. Their right to vote and to express their views on
public questions, either orally or through the press, is not denied,
provided it does not interfere with the discharge of their official
duties. No assessment for political purposes on officers or
subordinates should be allowed.”
This rule is applicable to every department of the Civil Service. It
should be understood by every officer of the General Government
that he is expected to conform his conduct to its requirements.
Very respectfully, R. B. Hayes.
Some of the protests were strong, and it is difficult to say whether

Curtis, Julian, or Eaton—its three leading advocates—or the
politicians, had the best of the argument. It was not denied, however,
that a strong and very respectable sentiment had been created in
favor of the reform, and to this sentiment all parties, and the
President as well, made a show of bowing. It was fashionable to
insert civil service planks in National and State platforms, but it was
not such an issue as could live in the presence of more exciting ones;
and while to this day it has earnest and able advocates, it has from
year to year fallen into greater disuse. Actual trial showed the
impracticability of some of the rules, and President Grant lost
interest in the subject, as did Congress, for in several instances it
neglected to appropriate the funds necessary to carry out the
provisions of the law. President Arthur, in his message, to Congress
in December, 1881, argued against its full application, and showed
that it blocked the way to preferment, certainly of the middle-aged
and older persons, who could not recall their early lessons acquired
by rote; that its effect was to elevate the inexperienced to positions
which required executive ability, sound judgment, business aptitude,
and experience. The feature of the message met the endorsement of
nearly the entire Republican press, and at this writing the sentiment,
at least of the Republican party, appears to favor a partial
modification of the rules.
The system was begun January 1st, 1872, but in December, 1874,
Congress refused to make any appropriations, and it was for a time
abandoned, with slight and spasmodic revivals under the
administration of President Hayes, who issued the foregoing order.
By letter from the Attorney-General, Charles Devens, August 1,
1877, this order was held to apply to the Pennsylvania Republican
Association at Washington. Still later there was a further exposition,
in which Attorney-General Devens, writing from Washington in
October 1, 1877, excuses himself from active participation in the
Massachusetts State campaign, and says: “I learn with surprise and
regret that any of the Republican officials hesitate either to speak or
vote, alleging as a reason the President’s recent Civil Service order.
In distinct terms that order states that the right of officials to vote
and express their views on public questions, either orally or through
the press, is not denied, provided it does not interfere with the
discharge of their official duties. If such gentlemen choose not to
vote, or not to express or enforce their views in support of the
principles of the Republican party, either orally or otherwise, they, at
least, should give a reason for such a course which is not justified by
the order referred to, and which is simply a perversion of it.”
Yet later, when the interest in the Pennsylvania election became
general, because of the sharp struggle between Governor Hoyt and
Senator Dill for Governor, a committee of gentlemen (Republicans)
visited President Hayes and induced him to “suspend the operation
of the order” as to Pennsylvania, where political contributions were
collected.
And opposition was manifested after even the earlier trials.
Benjamin F. Butler denounced the plan as English and anti-
Republican, and before long some of the more radical Republican
papers, which had indeed given little attention to the subject, began
to denounce it as a plan to exclude faithful Republicans from and
permit Democrats to enter the offices. These now argued that none of
the vagaries of political dreamers could ever convince them that a
free Government can be run without political parties; that while
rotation in office may not be a fundamental element of republican
government, yet the right of the people to recommend is its corner-
stone; that civil service would lead to the creation of rings, and
eventually to the purchase of places; that it would establish an
aristocracy of office-holders, who could not be removed at times
when it might be important, as in the rebellion for the
Administration to have only friends in public office; that it would
establish grades and life-tenures in civic positions, etc.
For later particulars touching civil service, see the Act of Congress
of 1883, and the regulations made pursuant to the same in Book V.
Amnesty.
The first regular session of the 42d Congress met Dec. 4th, 1871.
The Democrats consumed much of the time in efforts to pass bills to
remove the political disabilities of former Southern rebels, and they
were materially aided by the editorials of Horace Greeley, in the New
York Tribune, which had long contended for universal amnesty. At
this session all such efforts were defeated by the Republicans, who
invariably amended such propositions by adding Sumner’s
Supplementary Civil Rights Bill, which was intended to prevent any
discrimination against colored persons by common carriers, hotels,
or other chartered or licensed servants. The Amnesty Bill, however
was passed May 22d, 1872, after an agreement to exclude from its
provisions all who held the higher military and civic positions under
the Confederacy—in all about 350 persons. The following is a copy:
Be it enacted, etc., (two-thirds of each House concurring therein,)
That all legal and political disabilities imposed by the third section of
the fourteenth article of the amendments of the Constitution of the
United States are hereby removed from all persons whomsoever,
except Senators and Representatives of the Thirty-sixth and Thirty-
seventh Congress, officers in the judicial, military, and naval service
of the United States, heads of Departments, and foreign ministers of
the United States.
Subsequently many acts removing the disabilities of all excepted
(save Jefferson Davis) from the provisions of the above, were passed.
The Liberal Republicans.
An issue raised in Missouri gave immediate rise to the Liberal

Republican party, though the course of Horace Greeley had long
pointed toward the organization of something of the kind, and with
equal plainness it pointed to his desire to be its champion and
candidate for the Presidency. In 1870 the Republican party, then in
control of the Legislature of Missouri, split into two parts on the
question of the removal of the disqualifications imposed upon rebels
by the State Constitution during the war. Those favoring the removal
of disabilities were headed by B. Gratz Brown and Carl Schurz, and
they called themselves Liberal Republicans; those opposed were
called and accepted the name of Radical Republicans. The former
quickly allied themselves with the Democrats, and thus carried the
State, though Grant’s administration “stood in” with the Radicals. As
a result the disabilities were quickly removed, and those who
believed with Greeley now sought to promote a reaction in
Republican sentiment all over the country. Greeley was the
recognized head of this movement, and he was ably aided by ex-
Governor Curtin and Col. A. K. McClure in Pennsylvania; Charles
Francis Adams, Massachusetts; Judge Trumbull, in Illinois; Reuben
E. Fenton, in New York; Brown and Schurz in Missouri, and in fact
by leading Republicans in nearly all of the States, who at once began
to lay plans to carry the next Presidential election.
They charged that the Enforcement Acts of Congress were
designed more for the political advancement of Grant’s adherents
than for the benefit of the country; that instead of suppressing they
were calculated to promote a war of races in the South; that Grant
was seeking the establishment of a military despotism, etc. These
leaders were, as a rule, brilliant men. They had tired of
unappreciated and unrewarded service in the Republican party, or
had a natural fondness for “pastures new,” and, in the language of
the day, they quickly succeeded in making political movements
“lively.”
In the spring of 1871 the Liberal Republicans and Democrats of
Ohio—and Ohio seems to be the most fertile soil for new ideas—
prepared for a fusion, and after frequent consultations of the various
leaders with Mr. Greeley in New York, a call was issued from
Missouri on the 24th of January, 1872, for a National Convention of
the Liberal Republican party to be held at Cincinnati, May 1st. The
well-matured plans of the leaders were carried out in the nomination
of Hon. Horace Greeley for President and B. Gratz Brown for Vice-
President, though not without a serious struggle over the chief
nomination, which was warmly contested by the friends of Charles
Francis Adams. Indeed he led in most of the six ballots, but finally all
the friends of other candidates voted for Greeley, and he received
482 to 187 for Adams. Dissatisfaction followed, and a later effort was
made to substitute Adams for Greeley, but it failed. The original
leaders now prepared to capture the Democratic Convention, which
met at Baltimore, June 9th. By nearly an unanimous vote it was
induced to endorse the Cincinnati platform, and it likewise finally
endorsed Greeley and Brown—though not without many bitter
protests. A few straight-out Democrats met later at Louisville, Ky.,
Sept. 3d, and nominated Charles O’Conor, of New York, for
President, and John Quincy Adams, of Massachusetts, for Vice-
President, and these were kept in the race to the end, receiving a
popular vote of about 30,000.
The regular Republican National Convention was held at
Philadelphia, June 5th. It renominated President Grant
unanimously, and Henry Wilson, of Massachusetts, for Vice-
President by 364½ votes to 321½ for Schuyler Colfax, who thus
shared the fate of Hannibal Hamlin in his second candidacy for Vice-
President on the ticket with Abraham Lincoln. This change to Wilson
was to favor the solid Republican States of New England, and to
prevent both candidates coming from the West.
Civil Service Reform.
After considerable and very able agitation by Geo. W. Curtis, the

editor of Harper’s Weekly, an Act was passed March 3d, 1871,
authorizing the President to begin a reform in the civil service. He
appointed a Commission headed by Mr. Curtis, and after more than
a year’s preparation this body defeated a measure which secured
Congressional approval and that of President Grant.
The civil service law (and it is still a law though more honored now
in the breach than the observance) embraced in a single section of
the act making appropriations for sundry civil expenses for the year
ending June 30, 1872, and authorize the President to prescribe such
rules and regulations for admission into the civil service as will best
promote the efficiency thereof, and ascertain the fitness of each
candidate for the branch of service into which he seeks to enter.
Under this law a commission was appointed to draft rules and
regulations which were approved and are now being enforced by the
President. All applicants for position in any of the government
departments come under these rules:—all classes of clerks, copyists,
counters; in the customs service all from deputy collector down to
inspectors and clerks with the salaries of $1200 or more; in
appraisers’ offices all assistants and clerks; in the naval service all
clerks; all lighthouse keepers; in the revenue, supervisors, collectors,
assessors, assistants; in the postal really all postmasters whose pay is
over $200, and all mail messengers. The rules apply to all new
appointments in the departments or grades named, except that
“nothing shall prevent the reappointment at discretion of the
incumbents of any office the term of which is fixed by law.” So that a
postmaster or other officer escapes their application. Those specially
exempt are the Heads of Departments; their immediate assistants
and deputies, the diplomatic service, the judiciary, and the district
attorneys. Each branch of the service is to be grouped, and admission
shall always be to the lowest grade of any group. Such appointments
are made for a probationary term of six months, when if the Board of
Examiners approve the incumbent is continued. This Board of
Examiners, three in number in each case, shall be chosen by the
President from the several Departments, and they shall examine at
Washington for any position there, or, when directed by an Advisory
Board, shall assign places for examination in the several States.
Examinations are in all cases first made of applicants within the
office or department, and from the list three reported in the order of
excellence; if those within fail, then outside applicants may be
examined. In the Federal Blue Book, which is a part of this volume,
we give the Civil Service Rules.
When first proposed, partisan politics had no part or place in civil
service reform, and the author of the plan was himself a
distinguished Republican. In fact both parties thought something
good had been reached, and there was practically no resistance at
first to a trial.
The Democrats resisted the passage of this bill with even more
earnestness than any which preceded it, but the Republican
discipline was almost perfect, and when passed it received the
prompt approval of President Grant, who by this time was classed as
“the most radical of the radicals.” Opponents denounced it as little if
any less obnoxious than the old Sedition law of 1798, while the
Republicans claimed that it was to meet a state of growing war in the
South—a war of races—and that the form of domestic violence
manifested was in the highest degree dangerous to the peace of the
Union and the safety of the newly enfranchised citizens.
The Credit Mobilier.
At the second session of the 42d Congress, beginning Dec. 2, 1872,

the speaker (Blaine) on the first day called attention to the charges
made by Democratic orators and newspapers during the Presidential
campaign just closed, that the Vice-President (Colfax), the Vice-
President elect (Wilson), the Secretary of the Treasury, several
Senators, the Speaker of the House, and a large number of
Representatives had been bribed, during the years 1867 and 1868, by
Oakes Ames, a member of the House from Massachusetts; that he
and his agents had given them presents of stock in a corporation
known as the Credit Mobilier, to influence their legislative action for
the benefit of the Union Pacific Railroad Company.
Upon Speaker Blaine’s motion, a committee of investigation was
appointed by Hon. S. S. Cox, of New York, a noted Democrat
temporarily called to the Chair.
After the close of the campaign, (as was remarked by the Republic
Magazine at the time) the dominant party might well have claimed,
and would have insisted had they been opposed to a thorough
investigation and a full exposure of corruption, that the verdict of the
people in the late canvass was sufficient answer to these charges; but
the Republican party not merely granted all the investigations
sought, but summoned on the leading committee a majority of its
political foes to conduct the inquest.
The committee consisted of Messrs. Poland, of Vermont;
McCreary, of Iowa; Banks, of Massachusetts; Niblack, of Indiana,
and Merrick, of Maryland.
Messrs. Poland and McCreary—the two Republicans—were
gentlemen of ability and standing, well known for their integrity,
moderation, and impartiality. General Banks was an earnest
supporter of Horace Greeley, upon the alleged ground that the
Republican organization had become effete and corrupt: while
Messrs. Niblack and Merrick are among the ablest representatives of
the Democratic party; in fact, Mr. Merrick belonged to the extreme
Southern school of political thought.
Having patiently and carefully examined and sifted the entire
testimony—often “painfully conflicting,” as the committee remarked
—their report ought to be considered a judicial document
commanding universal approval, yet scraps of the testimony and not
the report itself were used with painful frequency against James A.
Garfield in his Presidential canvass of 1880. There has not been a
state paper submitted for many years upon a similar subject that
carried with it greater weight, or which bore upon its face a fuller
realization of the grave responsibilities assumed, and it is the first
time in the political history of the United States that an all important
investigation has been entrusted by the dominant party to a majority
of its political foes.
The report of the committee gives the best and by far the most
reliable history of the whole affair, and its presentation here may aid
in preventing partisan misrepresentations in the future—
misrepresentations made in the heat of contest, and doubtless
regretted afterwards by all who had the facilities for getting at the
facts. We therefore give the
OFFICIAL REPORT OF THE CREDIT MOBILIER

INVESTIGATING COMMITTEE.
Mr. Poland, from the select committee to investigate the alleged

Credit Mobilier bribery, made the following report February 18,
1873:
The special committee appointed under the following resolutions
of the House to wit:
Whereas, Accusations have been made in the public press,
founded on alleged letters of Oakes Ames, a Representative of
Massachusetts, and upon the alleged affidavits of Henry S. McComb,
a citizen of Wilmington, in the State of Delaware, to the effect that
members of this House were bribed by Oakes Ames to perform
certain legislative acts for the benefit of the Union Pacific Railroad
Company, by presents of stock in the Credit Mobilier of America, or
by presents of a valuable character derived therefrom: therefore,
Resolved, That a special committee of five members be appointed
by the Speaker pro tempore, whose duty it shall be to investigate
whether any member of this House was bribed by Oakes Ames, or
any other person or corporation, in any matter touching his
legislative duty.
Resolved, further, That the committee have the right to employ a
stenographer, and that they be empowered to send for persons and
papers;
beg leave to make the following report:
In order to a clear understanding of the facts hereinafter stated as
to contracts and dealings in reference to stock of the Credit Mobilier
of America, between Mr. Oakes Ames and others, and members of
Congress, it is necessary to make a preliminary statement of the
connection of that company with the Union Pacific Railroad
Company, and their relations to each other.
The company called the “Credit Mobilier of America” was

incorporated by the Legislature of Pennsylvania, and in 1864 control
of its charter and franchises had been obtained by certain persons
interested in the Union Pacific Railroad Company, for the purpose of
using it as a construction company to build the Union Pacific road.
In September, 1864, a contract was entered into between the Union
Pacific Company and H. M. Hoxie, for the building by said Hoxie of
one hundred miles of said road from Omaha west.
This contract was at once assigned by Hoxie to the Credit Mobilier
Company, as it was expected to be when made. Under this contract
and extensions of it some two or three hundred miles of road were
built by the Credit Mobilier Company, but no considerable profits
appear to have been realized therefrom. The enterprise of building a
railroad to the Pacific was of such vast magnitude, and was beset by
so many hazards and risks that the capitalists of the country were
generally averse to investing in it, and, notwithstanding the liberal
aid granted by the Government it seemed likely to fail of completion.
In 1865 or 1866, Mr. Oakes Ames, then and now a member of the
House from the State of Massachusetts, and his brother Oliver Ames
became interested in the Union Pacific Company and also in the
Credit Mobilier Company as the agents for the construction of the
road. The Messrs. Ames were men of very large capital, and of known
character and integrity in business. By their example and credit, and
the personal efforts of Mr. Oakes Ames, many men of capital were
induced to embark in the enterprise, and to take stock in the Union
Pacific Company and also in the Credit Mobilier Company. Among
them were the firm of S. Hooper & Co., of Boston, the leading
member of which, Mr. Samuel Hooper, was then and is now a
member of the House; Mr. John B. Alley, then a member of the
House from Massachusetts, and Mr. Grimes, then a Senator from the
State of Iowa. Notwithstanding the vigorous efforts of Mr. Ames and
others interested with him, great difficulty was experienced in
securing the required capital.
In the spring of 1867 the Credit Mobilier Company voted to add 50
per cent. to their capital stock, which was then two and a half
millions of dollars; and to cause it to be readily taken each subscriber
to it was entitled to receive as a bonus an equal amount of first
mortgage bonds of the Union Pacific Company. The old stockholders
were entitled to take this increase, but even the favorable terms
offered did not induce all the old stockholders to take it, and the
stock of the Credit Mobilier Company was never considered worth its
par value until after the execution of the Oakes Ames contract
hereinafter mentioned.
On the 16th day of August, 1867, a contract was executed between
the Union Pacific Railroad Company and Oakes Ames, by which Mr.
Ames contracted to build six hundred and sixty-seven miles of the
Union Pacific road at prices ranging from $42,000 to $96,000 per
mile, amounting in the aggregate to $47,000,000. Before the
contract was entered into it was understood that Mr. Ames was to
transfer it to seven trustees, who were to execute it, and the profits of
the contract were to be divided among the stockholders in the Credit
Mobilier Company, who should comply with certain conditions set
out in the instrument transferring the contract to the trustees. The
Ames contract and the transfer to trustees are incorporated in the
evidence submitted, and therefore further recital of their terms is not
deemed necessary.
Substantially, all the stockholders of the Credit Mobilier complied
with the conditions named in the transfer, and thus became entitled
to share in any profits said trustees might make in executing the
contract.
All the large stockholders in the Union Pacific were also
stockholders in the Credit Mobilier, and the Ames contract and its
transfer to trustees were ratified by the Union Pacific, and received
the assent of the great body of stockholders, but not of all.
After the Ames contract had been executed, it was expected by
those interested that by reason of the enormous prices agreed to be
paid for the work very large profits would be derived from building
the road, and very soon the stock of the Credit Mobilier was
understood by those holding it to be worth much more than its par
value. The stock was not in the market and had no fixed market
value, but the holders of it, in December, 1867, considered it worth at
least double the par value, and in January and February, 1868, three
or four times the par value, but it does not appear that these facts
were generally or publicly known, or that the holders of the stock
desired they should be.
The foregoing statement the committee think gives enough of the
historic details, and condition and value of the stock, to make the
following detailed facts intelligible.
Mr. Oakes Ames was then a member of the House of
Representatives, and came to Washington at the commencement of
the session, about the beginning of December, 1867. During that
month Mr. Ames entered into contracts with a considerable number
of members of Congress, both Senators and Representatives, to let
them have shares of stock in the Credit Mobilier Company at par,
with interest thereon from the first day of the previous July. It does
not appear that in any instance he asked any of these persons to pay
a higher price than the par value and interest, nor that Mr. Ames
used any special effort or urgency to get these persons to take it. In
all these negotiations Mr. Ames did not enter into any details as to
the value of the stock or the amount of dividend that might be
expected upon it, but stated generally that it would be good stock,
and in several instances said he would guarantee that they should get
at least 10 per cent. on their money.
Some of these gentlemen, in their conversations with Mr. Ames,
raised the question whether becoming holders of this stock would
bring them into any embarrassment as members of Congress in their
legislative action. Mr. Ames quieted such suggestions by saying it
could not, for the Union Pacific had received from Congress all the
grants and legislation it wanted, and they should ask for nothing
more. In some instances those members who contracted for stock
paid to Mr. Ames the money for the price of the stock, par and
interest; in others, where they had not the money, Mr. Ames agreed
to carry the stock for them until they could get the money or it
should be met by the dividends.
Mr. Ames was at this time a large stockholder in the Credit
Mobilier, but he did not intend any of these transactions to be sales
of his own stock, but intended to fulfill all these contracts from stock
belonging to the company.
At this time there were about six hundred and fifty shares of the
stock of the company, which had for some reason been placed in the
name of Mr. T. C. Durant, one of the leading and active men of the
concern.
Mr. Ames claimed that a portion of this stock should be assigned
to him to enable him to fulfill engagements he had made for stock.
Mr. Durant claimed that he had made similar engagements that he
should be allowed stock to fulfill. Mr. McComb, who was present at
the time, claimed that he had also made engagements for stock
which he should have stock given him to carry out. This claim of
McComb was refused, but after the stock was assigned to Mr. Ames,
McComb insisted that Ames should distribute some of the stock to
his (McComb’s) friends, and named Senators Bayard and Fowler,
and Representatives Allison and Wilson, of Iowa.
It was finally arranged that three hundred and forty-three shares
of the stock of the company should be transferred to Mr. Ames to
enable him to perform his engagements, and that number of shares
were set over on the books of the company to Oakes Ames, trustee, to
distinguish it from the stock held by him before. Mr. Ames at the
time paid to the company the par of the stock and interest from the
July previous, and this stock still stands on the books in the name of
Oakes Ames, trustee, except thirteen shares which have been
transferred to parties in no way connected with Congress. The
committee do not find that Mr. Ames had any negotiation whatever
with any of these members of Congress on the subject of this stock
prior to the commencement of the session of December, 1867, except
Mr. Scofield, of Pennsylvania, and it was not claimed that any
obligation existed from Mr. Ames to him as the result of it.
In relation to the purpose and motives of Mr. Ames in contracting
to let members of Congress have Credit Mobilier stock at par, which
he and all other owners of it considered worth at least double that
sum, the committee, upon the evidence taken by them and submitted
to the House, cannot entertain doubt. When he said he did not
suppose the Union Pacific Company would ask or need further
legislation, he stated what he believed to be true. But he feared the
interests of the road might suffer by adverse legislation, and what he
desired to accomplish was to enlist strength and friends in Congress
who would resist any encroachment upon or interference with the
rights and privileges already secured, and to that end wished to
create in them an interest identical with his own. This purpose is
clearly avowed in his letters to McComb, copied in the evidence. He
says he intends to place the stock “where it will do most good to us.”
And again, “we want more friends in this Congress.” In his letter to
McComb, and also in his statement prepared by counsel, he gives the
philosophy of his action, to wit, “That he has found there is no
difficulty in getting men to look after their own property.” The
committee are also satisfied that Mr. Ames entertained a fear that,
when the true relations between the Credit Mobilier Company and
the Union Pacific became generally known, and the means by which
the great profits expected to be made were fully understood, there
was danger that congressional investigation and action would be
invoked.
The members of Congress with whom he dealt were generally
those who had been friendly and favorable to a Pacific Railroad, and
Mr. Ames did not fear or expect to find them favorable to movements
hostile to it; but he desired to stimulate their activity and
watchfulness in opposition to any unfavorable action by giving them
a personal interest in the success of the enterprise, especially so far
as it affected the interest of the Credit Mobilier Company. On the 9th
day of December, 1867, Mr. C. C. Washburn, of Wisconsin,
introduced in the House a bill to regulate by law the rates of
transportation over the Pacific Railroad.
Mr. Ames, as well as others interested in the Union Pacific road,
was opposed to this, and desired to defeat it. Other measures
apparently hostile to that company were subsequently introduced
into the House by Mr. Washburn of Wisconsin, and Mr. Washburne
of Illinois. The committee believe that Mr. Ames, in his distributions
of stock, had specially in mind the hostile efforts of the Messrs.
Washburn, and desired to gain strength to secure their defeat. The
reference in one of his letters to “Washburn’s move” makes this quite
apparent.
The foregoing is deemed by the committee a sufficient statement
of facts as to Mr. Ames, taken in connection with what will be
subsequently stated of his transactions with particular persons. Mr.
Ames made some contracts for stock in the Credit Mobilier with
members of the Senate. In public discussions of this subject the
names of members of both Houses have been so connected, and all
these transactions were so nearly simultaneous, that the committee
deemed it their duty to obtain all evidence in their power, as to all
persons then members of either House, and to report the same to the
House. Having done this, and the House having directed that
evidence transmitted to the Senate, the committee consider their
own power and duty, as well as that of the House, fully performed, so
far as members of the Senate are concerned. Some of Mr. Ames’s
contracts to sell stock were with gentlemen who were then members
of the House, but are not members of the present Congress.
The committee have sought for and taken all the evidence within
their reach as to those gentlemen, and reported the same to the
House. As the House has ceased to have jurisdiction over them as
members, the committee have not deemed it their duty to make any
special finding of facts as to each, leaving the House and the country
to their own conclusions upon the testimony.
In regard to each of the members of the present House, the
committee deem it their duty to state specially the facts they find
proved by the evidence, which, in some instances, is painfully
conflicting.

Instant Download Ebook PDF Financial Management Principles and Applications 13th Edition PDF Scribd

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Instant Download Ebook PDF Financial Management Principles and Applications 13th Edition PDF Scribd

Uploaded by

Copyright:

Available Formats

(eBook PDF) Financial Management:

Principles and Applications 13th

ISBN 10: 0-13-441721-6

A01_TITM7219_13_SE_FM.indd 4 02/12/16 5:58 PM

To my parents, wife (Meg), and sons (Trevor, Elliot, and Gordon)

Barb, Emily, and Artie

A01_TITM7219_13_SE_FM.indd 5 16/11/16 12:10 PM

Part 1: Introduction to Financial Management

Part 2: Valuation of Financial Assets

A01_TITM7219_13_SE_FM.indd 6 16/11/16 12:10 PM

Part 3: Capital Budgeting

Part 4: Capital Structure and Dividend Policy

Part 5: Liquidity Management and Special Topics

Appendices Available in MyFinanceLab

A01_TITM7219_13_SE_FM.indd 7 16/11/16 12:10 PM

A01_LO5943_03_SE_FM.indd iv 04/12/15 4:22 PM

Part 1: Introduction to Financial Management

A01_TITM7219_13_SE_FM.indd 9 16/11/16 12:11 PM

A01_TITM7219_13_SE_FM.indd 10 16/11/16 12:11 PM

Part 2: Valuation of Financial Assets

A01_TITM7219_13_SE_FM.indd 11 16/11/16 12:11 PM

A01_TITM7219_13_SE_FM.indd 12 16/11/16 12:11 PM

A01_TITM7219_13_SE_FM.indd 13 16/11/16 12:11 PM

Part 3: Capital Budgeting

A01_TITM7219_13_SE_FM.indd 14 16/11/16 12:11 PM

A01_TITM7219_13_SE_FM.indd 15 16/11/16 12:11 PM

Part 4: Capital Structure and Dividend Policy

A01_TITM7219_13_SE_FM.indd 16 16/11/16 12:11 PM

Part 5: Liquidity Management and Special

A01_TITM7219_13_SE_FM.indd 17 16/11/16 12:12 PM

FINANCE FOR LIFE: Do You Need Life Insurance? 638

Hedging Commodity Price Risk Using Forward Contracts 639

18.5 Managing the Firm’s Investment in Current Assets 591

Step 5: Monitor and Manage the Firm’s Risk Exposure 636

20.1 Five-Step Corporate Risk Management Process 634

FINANCE FOR LIFE: International Investing 620

Hedging Currency Risk Using Forward Contracts 639

20.2 Managing Risk with Insurance Contracts 637

Step 3: Decide How Much Risk to Assume 635

Principle 2: There Is a Risk-Return Tradeoff 607

Types of Foreign Exchange Transactions 613

Corporate Risk Management 632

Principle 2: There Is a Risk-Return Tradeoff

The International Fisher Effect 617

Types of Insurance Contracts 637

Interest Rate Parity 616

Chapter Summaries 625

Study Questions 627

Study Problems 628

Appendices Available in MyFinanceLab

A01_TITM7219_13_SE_FM.indd 19 16/11/16 12:12 PM

The Five Principles of Finance

The chapter-opening vignette provides a

promoting deeper understanding and

Within the chapter, the authors draw on the Five Principles of

A01_TITM7219_13_SE_FM.indd 20 16/11/16 12:12 PM

Checkpoints provide a consistent problem-

put their knowledge to the test by completing the

linked end-of-chapter Study Problem(s).

boxes provide the students with a

quick reference source for the deci- 3

sion tools used in financial analysis.

This feature appears throughout the