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Ebook PDF Corporate Finance A Focused Approach 6th Edition PDF
Ebook PDF Corporate Finance A Focused Approach 6th Edition PDF
Ebook PDF Corporate Finance A Focused Approach 6th Edition PDF
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Preface ix
Web Extension 10A: The Accounting Rate of Return (ARR)
PART 1 THE COMPANY AND ITS ENVIRONMENT 1 CHAPTER 11 Cash Flow Estimation and Risk Analysis 453
Web Extension 11A: Certainty Equivalents and Risk-
CHAPTER 1 An Overview of Financial Management
and the Financial Environment 3 Adjusted Discount Rates
Web Extensions 1A: An Overview of Derivatives
PART 5 CORPORATE VALUATION AND
CHAPTER 2 Financial Statements, Cash Flow, and Taxes 57
Web Extension 2A: The Federal Income Tax System for
GOVERNANCE 501
Individuals
CHAPTER 12 Corporate Valuation and Financial
CHAPTER 3 Analysis of Financial Statements 101 Planning 503
CHAPTER 13 Corporate Governance 541
PART 2 FIXED INCOME SECURITIES 137
CHAPTER 4 Time Value of Money 139 PART 6 CASH DISTRIBUTIONS AND CAPITAL
Web Extensions 4A: The Tabular Approach STRUCTURE 563
4B: Derivation of Annuity Formulas CHAPTER 14 Distributions to Shareholders: Dividends
4C: Continuous Compounding and Repurchases 565
CHAPTER 5 Bonds, Bond Valuation, and CHAPTER 15 Capital Structure Decisions 607
Interest Rates 193 Web Extension 15A: Degree of Leverage
Web Extensions 5A: A Closer Look at Zero Coupon Web Extension 15B: Capital Structure Theory: Arbitrage
and Other OID Bonds Proofs of the Modigliani-Miller Theorems
Web Extensions 5B: A Closer Look at TIPS: Treasury
Inflation-Protected Securities PART 7 MANAGING GLOBAL OPERATIONS 653
Web Extensions 5C: A Closer Look at Bond Risk: Duration
CHAPTER 16 Supply Chains and Working Capital
Web Extensions 5D: The Pure Expectations Theory and
Management 655
Estimation of Forward Rates
Web Extension 16A: Secured Short-Term Financing
CHAPTER 17 Multinational Financial
PART 3 STOCKS AND OPTIONS 239 Management 705
CHAPTER 6 Risk and Return 241
Web Extensions 6A: Continuous Probability Distributions APPENDIXES
Web Extensions 6B: Estimating Beta with a Financial Calculator
APPENDIX A Solutions to Self-Test Problems 749
CHAPTER 7 Corporate Valuation and Stock Valuation 293
APPENDIX B Answers to End-of-Chapter Problems 773
Web Extension 7A: Derivation of Valuation Equations
CHAPTER 8 Financial Options and Applications in APPENDIX C Selected Equations 781
Corporate Finance 343 APPENDIX D Values of the Areas under the
Standard Normal Distribution Function 791
PART 4 PROJECTS AND THEIR VALUATION 373
CHAPTER 9 The Cost of Capital 375 GLOSSARY AND INDEXS
Web Extension 9A: The Required Return Assuming Glossary 793
Nonconstant Dividends and Stock Repurchases
Name Index 831
CHAPTER 10 The Basics of Capital Budgeting:
Evaluating Cash Flows 413 Subject Index 833
iii
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Contents
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Claims on Future Cash Flows: Types of Financial Securities 16 Analysis of Financial Statements 101
Claims on Future Cash Flows: The Required Rate of Return Box: Intrinsic Value and Analysis of Financial Statements 102
(The Cost of Money) 20 Financial Analysis 102
The Functions of Financial Institutions 24 Liquidity Ratios 104
Financial Markets 29 Asset Management Ratios 106
Overview of the U.S. Stock Markets 33 Debt Management Ratios 109
Trading in the Modern Stock Markets 34 Box: The Great Recession of 2007: The Price Is
Box: Measuring the Market 42 Right! (Or Wrong!) 110
Finance and the Great Recession of 2007 42 Profitability Ratios 114
Box: Anatomy of a Toxic Asset 50 Box: The World Might Be Flat, but Global Accounting Is Bumpy!
The Case of IFRS versus FASB 115
The Big Picture 52
Market Value Ratios 116
e-Resources 53
Trend Analysis, Common Size Analysis, and Percentage
Summary 53
Change Analysis 120
Web Extensions
Tying the Ratios Together: The DuPont Equation 123
1A: An Overview of Derivatives
Comparative Ratios and Benchmarking 124
CHAPTER 2
Uses and Limitations of Ratio Analysis 125
Box: Ratio Analysis on the Web 126
Financial Statements, Cash Flow,
and Taxes 57 Looking Beyond the Numbers 126
Summary 127
Box: Intrinsic Value, Free Cash Flow, and Financial
Statements 58
Financial Statements and Reports 58 PART 2 FIXED INCOME SECURITIES 137
The Balance Sheet 59 CH APTER 4
Box: The Great Recession of 2007: Let s Play Time Value of Money 139
Hide-and-Seek! 62 Box: Corporate Valuation and the Time Value of Money 140
The Income Statement 62 Time Lines 140
Statement of Stockholders’ Equity 65
iv
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Contents v
The Risk-Free Interest Rate: Nominal (rRF) and Real (r *) 213 CHAPTER 7
The Inflation Premium (IP) 214 Corporate Valuation and Stock Valuation 293
The Maturity Risk Premium (MRP) 216 Box: Corporate Valuation and Stock Prices 294
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
vi Contents
Legal Rights and Privileges of Common Stockholders 294 Cost of Common Stock: The Market Risk Premium, RPM 384
Types of Common Stock 295 Using the CAPM to Estimate the Cost of Common Stock, rs 388
Stock Market Reporting 296 Using the Dividend Growth Approach to Estimate the Cost of
Valuing Common Stocks—Introducing the Free Cash Flow Common Stock 390
(FCF) Valuation Model 297 The Weighted Average Cost of Capital (WACC) 393
The Constant Growth Model: Valuation When Expected Free Box: Global Variations in the Cost of Capital 395
Cash Flow Grows at a Constant Rate 300 Adjusting the Cost of Equity for Flotation Costs 395
The Multistage Model: Valuation when Expected Short-Term
Privately Owned Firms and Small Businesses 397
Free Cash Flow Grows at a Nonconstant Rate 305
The Divisional Cost of Capital 398
Application of the FCF Valuation Model to MicroDrive 309
Do Stock Values Reflect Long-Term or Short-Term Cash Estimating the Cost of Capital for Individual Projects 401
Flows? 315 Managerial Issues and the Cost of Capital 402
Value-Based Management: Using the Free Cash Flow Valuation Summary 404
Model to Identify Value Drivers 316 Web Extensions
Why Are Stock Prices So Volatile? 319 9A: The Required Return Assuming Nonconstant Dividends and
Valuing Common Stocks with the Dividend Growth Model 320 Stock Repurchases
The Market Multiple Method 328
CHAPTER 10
Comparing the FCF Valuation Model, the Dividend Growth
Model, and the Market Multiple Method 329 The Basics of Capital Budgeting: Evaluating Cash Flows 413
Preferred Stock 330 Box: Corporate Valuation and Capital Budgeting 414
Summary 331 An Overview of Capital Budgeting 414
Web Extensions The First Step in Project Analysis 416
7A: Derivation of Valuation Equations Net Present Value (NPV) 417
Internal Rate of Return (IRR) 419
CHAPTER 8
Financial Options and Applications in Modified Internal Rate of Return (MIRR) 426
Corporate Finance 343 Profitability Index (PI) 429
Box: The Intrinsic Value of Stock Options 344 Payback Period 430
Overview of Financial Options 344 How to Use the Different Capital Budgeting Methods 432
The Single-Period Binomial Option Pricing Approach 347 Other Issues in Capital Budgeting 435
Box: Financial Reporting for Employee Stock Options 348 Summary 441
The Single-Period Binomial Option Pricing Formula 353 Web Extensions
The Multi-Period Binomial Option Pricing Model 355 10A: The Accounting Rate of Return (ARR)
The Black-Scholes Option Pricing Model (OPM) 357 CHAPTER 11
Box: Taxes and Stock Options 362 Cash Flow Estimation and Risk
The Valuation of Put Options 363 Analysis 453
Applications of Option Pricing in Corporate Finance 365 Box: Project Valuation, Cash Flows, and Risk Analysis 454
Summary 367 Identifying Relevant Cash Flows 454
Analysis of an Expansion Project 459
Box: Mistakes in Cash Flow Estimation Can Kill
PART 4 PROJECTS AND THEIR VALUATION 373 Innovation 466
Risk Analysis in Capital Budgeting 467
CHAPTER 9 Measuring Stand-Alone Risk 467
The Cost of Capital 375 Sensitivity Analysis 468
Box: Corporate Valuation and the Cost of Capital 376
Scenario Analysis 471
The Weighted Average Cost of Capital 376 Monte Carlo Simulation 474
Choosing Weights for the Weighted Average Cost of Capital 378 Project Risk Conclusions 477
After-Tax Cost of Debt: rd 1 T and rstd 1 T 379 Replacement Analysis 478
Box: How Effective Is the Effective Corporate Tax Rate? 382 Real Options 480
Cost of Preferred Stock, rps 384 Phased Decisions and Decision Trees 482
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Contents vii
Forecasting When the Ratios Change 526 Capital Structure Decisions 607
Summary 530 Box: Corporate Valuation and Capital Structure 608
An Overview of Capital Structure 608
CHAPTER 13
Business Risk and Financial Risk 610
Corporate Governance 541
Capital Structure Theory: The Modigliani and Miller
Box: Corporate Governance and Corporate Valuation 542
Models 614
Agency Conflicts 542 Box: Yogi Berra on the MM Proposition 616
Corporate Governance 545 Capital Structure Theory: Beyond the Modigliani and Miller
Box: Would the U.S. Government Be an Effective Models 618
Board Director? 550
Capital Structure Evidence and Implications 623
Box: The Dodd-Frank Act and Say on Pay 552
Box: The Sarbanes-Oxley Act of 2002 and Estimating the Optimal Capital Structure 628
Corporate Governance 553 Anatomy of a Recapitalization 634
Box: International Corporate Governance 555 Box: The Great Recession of 2007: Deleveraging 639
Employee Stock Ownership Plans (ESOPs) 557 Risky Debt and Equity as an Option 639
Summary 560 Managing the Maturity Structure of Debt 642
Summary 645
Web Extensions
PART 6 CASH DISTRIBUTIONS AND CAPITAL 15A: Degree of Leverage
STRUCTURE 563 15B: Capital Structure Theory: Arbitrage Proofs of the
CHAPTER 14
Modigliani-Miller Theorems
Distributions to Shareholders: Dividends and
Repurchases 565 PART 7 MANAGING GLOBAL OPERATIONS 653
Box: Uses of Free Cash Flow: Distributions to
CHAPTER 16
Shareholders 566
Supply Chains and Working Capital
An Overview of Cash Distributions 566 Management 655
Procedures for Cash Distributions 568 Box: Corporate Valuation and Working Capital
Cash Distributions and Firm Value 571 Management 656
Clientele Effect 575 Overview of Supply Chain Management 656
Signaling Hypothesis 576 Using and Financing Operating Current Assets 658
Implications for Dividend Stability 577 The Cash Conversion Cycle 662
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
viii Contents
Box: Some Firms Operate with Negative Working Trading in Foreign Exchange 720
Capital! 667
Interest Rate Parity 722
Inventory Management 668
Purchasing Power Parity 724
Receivables Management 669 Box: Hungry for a Big Mac? Go to Ukraine! 725
Box: Supply Chain Finance 671
Inflation, Interest Rates, and Exchange Rates 726
Accruals and Accounts Payable (Trade Credit) 673
International Money and Capital Markets 726
Box: A Wag of the Finger or Tip of the Hat? The
Box: Greasing the Wheels of International
Colbert Report and Small Business Payment Terms 674
Business 727
The Cash Budget 677 Box: Stock Market Indices around the World 731
Cash Management and the Target Cash Balance 681 Multinational Capital Budgeting 732
Box: Use It or Lose Part of It: Cash Can Be Costly! 682 Box: Consumer Finance in China 733
Cash Management Techniques 682 Box: Double Irish with a Dutch Twist 735
Managing Short-Term Investments 685 International Capital Structures 737
Box: Your Check Isn t in the Mail 686 Multinational Working Capital Management 738
Short-Term Financing 687 Summary 741
Short-Term Bank Loans 688
Commercial Paper 692
Use of Security in Short-Term Financing 692 APPENDIXES
Summary 693 Appendix a Solutions to Self-Test Problems 749
Web Extensions Appendix b Answers to End-of-Chapter
16A: Secured Short-Term Financing Problems 773
Appendix c Selected Equations 781
CHAPTER 17
Appendix d Values of the Areas under the Standard
Multinational Financial Management 705 Normal Distribution Function 791
Box: Corporate Valuation in a Global Context 706
Multinational, or Global, Corporations 706
Multinational versus Domestic Financial Management 707 GLOSSARY AND INDEXES
Exchange Rates 709
Glossary 793
Exchange Rates and International Trade 714
Name Index 831
The International Monetary System and Exchange Rate
Policies 715 Subject Index 833
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Preface
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resource When we wrote the first edition of Corporate Finance: A Focused Approach, we had four goals: (1) to
Students: Access the
create a text that would help students make better financial decisions; (2) to provide a book that covers
Corporate Finance: A the core material necessary for a one-semester introductory MBA course but without all the other
Focused Approach (6th interesting-but-not-essential material that is contained in most MBA texts; (3) to motivate students by
Edition) companion site demonstrating that finance is both interesting and relevant; and (4) to make the book clear enough so
and online student that students could go through the material without wasting either their time or their professors’ time
resources by visiting
www.cengagebrain trying to figure out what we were saying.
.com, searching ISBN The events precipitating the recession of 2007, the dramatic changes in financial technology at
9781305637108, and stock exchanges across the world, and the sovereign debt crisis in Greece make it more important
clicking “Access Now” than ever for students and managers to understand the role that finance plays in a global economy,
under “Study Tools” to
go to the student
in their own companies, and in their own lives. So in addition to the four goals listed above, this
textbook companion edition has a fifth goal: to prepare students for a changed world.
site.
Intrinsic Valuation as a Unifying Theme
Instructors: Access the
Corporate Finance: A Our emphasis throughout the book is on the actions that a manager can and should take to increase the
Focused Approach (6th intrinsic value of the firm. Structuring the book around intrinsic valuation enhances continuity and
Edition) companion site helps students see how various topics are related to one another.
and instructor resources
As the title indicates, this book combines theory and practical applications. An understanding of
by going to login.
cengage.com, logging in finance theory is essential for anyone developing and/or implementing effective financial strategies.
with your faculty But theory alone isn’t sufficient, so we provide numerous examples in the book and the accom-
account username and panying Excel spreadsheets to illustrate how theory is applied in practice. Indeed, we believe that
password, and using the ability to analyze financial problems using Excel also is essential for a student’s successful job
ISBN 9781305637108 to
reach the site through
search and subsequent career. Therefore, many exhibits in the book come directly from the
your account. accompanying Excel spreadsheets. Many of the spreadsheets also provide brief “tutorials” by way
of detailed comments on Excel features that we have found to be especially useful, such as Goal
Seek, Tables, and many financial functions.
The book begins with fundamental concepts, including background on the economic and financial
environment, financial statements (with an emphasis on cash flows), the time value of money, bond
valuation, risk analysis, and stock valuation. With this background, we go on to discuss how specific
techniques and decision rules can be used to help maximize the value of the firm. This organization
provides four important advantages:
1. Managers should try to maximize the intrinsic value of a firm, which is determined by cash
flows as revealed in financial statements. Our early coverage of financial statements helps
students see how particular financial decisions affect the various parts of the firm and the
resulting cash flow. Also, financial statement analysis provides an excellent vehicle for
illustrating the usefulness of spreadsheets.
2. Covering time value of money early helps students see how and why expected future cash flows
determine the value of the firm. Also, it takes time for students to digest TVM concepts and to
learn how to do the required calculations, so it is good to cover TVM concepts early and often.
3. Most students—even those who do not plan to major in finance—are interested in investments.
The ability to learn is a function of individual interest and motivation, so Corporate Finance’s
early coverage of securities and security markets is pedagogically sound.
4. Once basic concepts have been established, it is easier for students to understand both how and
why corporations make specific decisions in the areas of capital budgeting, raising capital,
working capital management, mergers, and the like.
ix
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
x Preface
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Preface xi
drivers in much more detail (we also included a corresponding Spreadsheet Problem in the end-of-
chapter problems). We also use the FCF valuation model to frame the discussion of stock price
volatility and the relative values of cash flows in the first four years versus the value of later cash flows
(we illustrated these concepts using the dividend growth model in previous editions). We have been
using this approach in our own classrooms for several years and have found it to be effective.
CHAPTER 11: CASH FLOW ESTIMATION AND RISK ANALYSIS
We added a new box, “Mistakes in Cash Flow Estimation Can Kill Innovation,” describing common
mistakes in project analysis that are made by many managers.
CHAPTER 12: CORPORATE VALUATION AND FINANCIAL PLANNING
We expanded our coverage of valuation and included an additional Spreadsheet Problem on
valuation. We did this to reinforce our treatment of valuation in Chapter 7.
CHAPTER 15: CAPITAL STRUCTURE DECISIONS
We added a short section (15-8) discussing insights gained from comparing the equity in a risky
levered firm with a call option written on the underlying value of the firm, with an expiration equal to
the debt’s maturity and a strike price equal to the debt’s face value. We also included a short section
(15-9) discussing the debt maturity choice and providing recent empirical evidence on the shift away
from long-term debt. For those instructors wishing to cover the Modigliani and Miller proofs, we have
added a new Web Extension (15B) and PowerPoint file showing the MM proofs.
CHAPTER 16: SUPPLY CHAINS AND WORKING CAPITAL MANAGEMENT
We improved our discussion of the cash conversion cycle and reduced its length by simplifying
the example. To more quickly reinforce the concepts of the cash conversion cycle, we now
follow it immediately with coverage of inventory management, receivables management, and
payables management. We added a new section (16-9a) that explains the U.S. payment, clearing,
and settlement infrastructure. We added a box on the recent phenomenon of banks charging
corporate customers for cash deposit accounts, “Use It or Lose Part of It: Cash Can Be Costly!”
CHAPTER 17: MULTINATIONAL FINANCIAL MANAGEMENT
A new opening vignette uses Medtronic and Covidien to illustrate a tax inversion merger.
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
xii Preface
partial spreadsheets for the Build a Model problems are available to students on the book’s Web site; the
completed models are in files on the Instructor’s portion of the Web site.
PowerPoint Slides
For each chapter, we provide a set of PowerPoint slides that present graphs, tables, lists, and calculations
for use in lectures. Although the slides correspond to the Mini Cases at the end of the chapter, the slides
are completely self-contained in the sense that they can be used for lectures regardless of whether
students have read the Mini Cases. In fact, we often don’t assign the Mini Case, but we do use the
PowerPoint slides. Copies of these files are on the Instructor’s Web site and the CengageNOWTM site.
Instructors can easily customize the slides and convert them quickly into any PowerPoint Design
Template.1 If you add some of your own slides or modify the existing slides to better illustrate important
concepts, please share your changes with us—many of our best learning points have come from
instructors and we appreciate all suggestions for ways to improve learning experiences for students.
In addition to the slides, there is a Mini Case at the end of each chapter. We assign the Mini
Cases only for specific chapters, but some professors assign the Mini Cases for most chapters. These
cases cover all the essential issues presented in the chapter, and they provide the structure for our
class lectures even if we don’t assign the Mini Case.
1
To convert into a different design template in PowerPoint for Office 2010, select Design, Theme, and choose a
theme. Always double-check the conversion; some templates use fonts of different sizes, which can cause some
slide titles to run over their allotted space.
2
To toggle between two open programs, such as Excel and PowerPoint, hold the Alt key down and hit the Tab
key until you have selected the program you want to show.
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Preface xiii
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
xiv Preface
ApliaTM Finance
ApliaTM Finance, an interactive learning system, engages students in course concepts, ensures they
practice on a regular basis, and helps them prepare to learn finance through a series of problems and
tutorials. Created by an instructor to help students excel, book-specific problem sets have instant
grades and detailed feedback, ensuring students have the opportunity to learn from and improve
with every question.
Chapter assignments use the same language and tone of the course textbook, giving students a
seamless experience in and out of the classroom. Problems are automatically graded and offer
detailed explanations, helping students learn from every question.
ApliaTM Finance offers:
• Problem Sets: Chapter-specific problem sets ensure that students are completing finance
assignments on a regular basis.
• Preparing for Finance Tutorials: Hands-on tutorials solve math, statistics, economics, and
accounting roadblocks before they become a problem in the course, and financial calculator
tutorials help students learn to use the tools needed in a finance course.
• Finance in Action: Exploratory modules help students understand how financial theories are
applied in the real world, and how finance professionals synthesize, use, and apply financial
information.
• Course Management System
• MindTap Reader: Aplia now features Cengage’s premier e-book format. MindTap Reader is
highly interactive, allows for inline note-taking and highlighting, and features a variety of apps
to further assist students.
For more information, visit www.aplia.com/finance.
Acknowledgments
This book reflects the efforts of a great many people over a number of years. In addition to our immediate
colleagues, we appreciate very much the many helpful comments and suggestions we receive from
professors who use our book in their classes. Professors Greg Faulk, Anthony Gu, Andrew Mose, Chee
Ng, John Stieven, and Serge Wind have been especially helpful, providing many hints and tips for
improving the learning points in our textbook.
Many professors and professionals who are experts on specific topics reviewed earlier versions of
individual chapters or groups of chapters, and we are grateful for their insights; in addition, we
would like to thank those whose reviews and comments on earlier editions and companion books
have contributed to this edition:
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Preface xv
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
xvi Preface
Special thanks are due to Dana Clark, Susan Whitman, Amelia Bell, and Kirsten Benson, who
provided invaluable editorial support; to Joel Houston and Phillip Daves, whose work with us on
other books is reflected in this text; and to Lou Gapenski, our past coauthor, for his many
contributions.
Our colleagues and our students at the Universities of Florida and Tennessee gave us many
useful suggestions, and the Cengage staff—especially Jennifer King, Jana Lewis, Mike Reynolds,
Heather Mooney, and Brad Sullender—helped greatly with all phases of text development, produc-
tion, and marketing.
Conclusion
Finance is, in a real sense, the cornerstone of the free enterprise system. Good financial management is
therefore vitally important to the economic health of business firms, hence to the nation and the world.
Because of its importance, corporate finance should be thoroughly understood. However, this is easier
said than done—the field is relatively complex, and it is undergoing constant change in response to
shifts in economic conditions. All of this makes corporate finance stimulating and exciting, but also
challenging and sometimes perplexing. We sincerely hope that Corporate Finance: A Focused Approach
will help readers understand and solve the financial problems businesses face today.
November 2015
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
PART 1
CHAPTER 1
An Overview of Financial Management and the Financial
Environment 3
CHAPTER 2
Financial Statements, Cash Flow, and Taxes 57
CHAPTER 3
Analysis of Financial Statements 101
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
CHAPTER 1
An Overview of Financial
Management and the
Financial Environment
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
4 Part 1 The Company and Its Environment
resource This chapter should give you an idea of what financial management is all about, including
The textbook’s Web site an overview of the financial markets in which corporations operate. Before going into
has tools for teaching, details, let’s look at the big picture. You’re probably in school because you want an
learning, and conducting
financial research.
interesting, challenging, and rewarding career. To see where finance fits in, here’s a
five-minute MBA.
S E L F - T E S T
What are three attributes of successful companies?
What two essential financial skills must every successful manager have?
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
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