Textbook For Cfin 6th Edition by Scott Besley PDF

Textbook for CFIN 6th Edition by Scott
Besley
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4LTR STUDENT EDITION

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Copynghl 2019 Cengage LA•rwng. AU Ri,ghts Reserved. May not be copied scanned or duphcated 1n who.. or 1n part.. WCN 02·200-202
5-5 Interest Rate Levels and Stock Prices 97
5-5a The Cost of Money as a Determinant of Value 97 8 Risk and Rates of Return 140
Key Cost ofMoney (Interest Rate) Concepts 98 8-1 Defining and Measuring Risk 141
6 Bonds (Debt)-Characteristics 8-2

8-1 a Probability Distributions 141
Expected Rate of Return 142
and Valuation 102 8-2a Measuring Total (Stand-Alone) Risk:The Standard
6-1 Characteristics and Types of Debt 103 Deviation (<1) 142
8-2b Coefficient of Variation (Risk/Return Ratio) 144
6-1a Debt Characteristics 103
8-2c Risk Aversion and Required Returns 144
6-lb Typesof0ebt 103
8-3 Portfolio Risk-Holding Combinations
6-lc Short-Term Debt 104
of Invest ments 146
6-1d Long-Term Debt 105
8-3a Firm-Specific Risk Versus Market Risk 149
6-1e Bond Contract Features 107
8-3b The Concept of Beta 150
6- lf Foreign Debt Instruments 108
8-3c Portfolio Beta Coefficients 152
6-2 Bond Ratings 109
8-4 The Relat ionship between Risk and Rates of Return :
6-2a Bond Rating Criteria 109 The CAPM 153
6-2b Importance of Bond Ratings 110 8-4a The Impact of Inflation 154
6-2c Changes in Ratings 110 8-4b Changes in Risk Aversion 155
6-3 Va luation of Bonds 111 8-4c Changes in a Stock's Beta Coefficient 155
6-3a The Basic Bond Valuation Model 111 8-4d AWord of Caution 156
6-3b Bond Values with Semiannual Compounding 11 2 8-5 Stock Market Equilibrium 156
6-4 Finding Bond Yields (Market Rates): Yield to Maturity 8-6 Different Types of Risk 156
and Yield to Call 112
Key Risk and Return Concepts 159
6-4a Yield to Maturity (YTM) 112
6-4b Yield to Call (YTC) 113
6-5 Interest Rates and Bond Va lues 114
6-5a Changes in Bond Values over Time 115
PART 4
6-5b Interest Rate Risk on a Bond 116
6-5c Bond Prices in Recent Years 118 VALUATION REALASSETS
Key Bond Valuation and Characteristics Concepts 120
(CAPITAL BUDGETING)
7 Stocks (Equity)-Characteristics
and Valuation 122
7-1 Types of Equity 123
7- la Preferred Stock 123
7-1 b Common Stock 124
7-1c Equity Instruments in International Markets 126
7-2 Stock Valuation-The Dividend Discount Model
(DOM) 127
7-2a Expected Dividends as the Basis for Stock Values 128
7-2b Valuing Stocks with Constant, or Normal, Growth (g) 129
7-2c Valuing Stocks with Nonconstant Growth 132
7-3 Ot her Stock Valuation Methods 135
7-3a Valuation Using P/ERatios 135
7-3b Evaluating Stocks Using the Economic Value Added
9 Capital Budgeting
Approach 135 Techniques 162
7-4 Changes in Stock Prices 136 9-1 Importance of Capital Budget ing 163
Key Stock Valuation Concepts 138 9-1a Generating Ideas for Capital Projects 164
VI Cont ents
Copyright 2019 Cengage Learning. AU Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02·200.202
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9-1b Project Classifications 164
9-2
9-lc The Post-Audit 165
Evaluat ing Capital Budget ing Projects 165
PART 5
9-2a Net Present Value (NPV) 166
9-2b Internal Rate of Return (IRR) 167
COST OF CAPITAL AND
9-3 Comparison of t he NPV and IRR Met hods 169 CAPITAL STRUCTURE
9-3a NPVs and Required Rates of Return- NPV
Profiles 169 CONCEPTS
9-3b Independent Projects 170
9-3c Mutually Exclusive Projects 171
9-3d Cash Flow Patterns and Multiple
IRRs 172
9-4 Modified Internal Rate of Return 173
9-5 Use of Capital Budgeting Techniques
in Pract ice 174
9-5a Payback Period: Traditional (Nondiscounted) and
Discounted 174
9-5b Conclusions on the Capital Budgeting Decision
Methods 176
9-5c Capital Budgeting Methods Used in
Practice 177
Key Capital Budgeting Concepts 178
11 The Cost of Capital 206
11-1 Component Cost s of Capital 207
11-1a Cost of Debt, r., 208
10 Project Cash Flows 11-1b

11-1c
Cost of Preferred Stock, ros 209
Cost of Retained Earnings (Internal Equity), r, 209
and Risk 182 11-1d Cost of Newly Issued Common Stock (External
10-1 Cash Flow Estimation 183 Equity), r. 212
11-2 Weighted Average Cost of Capital (WACC) 213
I 0-1a Relevant Cash Flows 183
10-1b Incremental (Marginal) Cash Flows 185 11-2a Determining WACC 213
I 0-1c Identifying Incremental Cash Flows 186 11-2b The Marginal Cost of Capital (MCC) 214
10-2 Capital Budgeting Project Evaluat ion 187 11-2c The MCC Schedule 215
11-2d Other Breaks in the MCC Schedule 217
I 0-2a Expansion Projects 187
11-3 Combining t he MCC and Invest ment Opportunity
I 0-2b Replacement Analysis 190
Schedules (105) 219
10-3 Incorporat ing Risk in Capital Budgeting
Analysis 194 11-4 WACC versus Required Rate of Ret urn of Investors 221
I 0-3a Stand-Alone Risk 194 Key Cost of Capital Concepts 223
I0-3b
I 0-3c
I 0-3d
Corporate (Within-Firm) Risk 197
Beta (Market) Risk 198
Project Risk Conclusions 199
12 Capital Structure 226
12-1 The Target Capital Structure 227
I 0-3e How Project Risk Is Considered in Capital Budgeting
Decisions 199 12-1a Business Risk 228
12-1b Financial Risk 228
10-4 Multinational Capital Budgeting 200
12-2 Determining t he Optimal Capital St ructure 229
Key Concepts about Project Cash Flows and Risk 202
12-2a EPS Analysis of the Effects of Financial Leverage 230
12-2b EBIT/EPSExamination of Financial Leverage 233
12-2c The Effect of Capital Structure on Stock Prices and
the Cost of Capital 234
Contents VII
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12-3 Degree of Leverage 236
12-3a Degree of Operating Leverage (DOL) 236
12-3b Degree of Financial Leverage (DFL) 238
PART 6
12-3c Degree of Total Leverage (DTL) 239
12-4 Liqu idity and Capital Structure 240
WOR KING CAPITAL
12-5 Capital Struct ure Theory 240 MANAGEMENT
12-5a Trade-Off Theory 241
12-5b Signaling Theory 242
12-6 Variat ions in Capital Struct ures
among Firms 243
12-6a Capital Structures around the World 243
Key Capital Structure Concepts 245
13 Distribution of Retained
Earnings: Dividends and
Stock Repurchases 248
13-1 Dividend Policy and Stock Value 249
13-la Information Content, or Signaling 250 14 Managing Short-Term
13-1 b Clientele Effect 250 Financing (Liabilities) 266
13-1 c Free Cash Flow Hypothesis 251
14-1 Working Capital 267
13-2 Dividend Payments in Pract ice 251
14-2 The Cash Conversion Cycle 268
13-2a Residual Dividend Policy 251
13-2b Stable, Predictable Dividends 253 14-3 Current Asset (Working Capital) Financing Policies 271
13-2c Constant Payout Ratio 254 14-4 Sources of Short-Term Financing 272
13-2d Low Regular Dividend PlusExtras 254 14-4a Accruals 273
13-2e Application of the Different Types of Dividend Pay- 14-4b Accounts Payable (Trade Credit) 273
ments: An Illustration 255 14-4c Short-Term Bank Loans 273
13-2f Payment Procedures 255 14-4d Commercial Paper 274
13-29 Dividend Reinvestment Plans (DRIPs) 257 14-4e Secured Loans274
13-3 Factors Influencing Dividend Policy 257 14-5 Computing the Cost of Short-Term Credit 275
13-4 Stock Dividends and Stock Splits 258 14-5a Computing the Cost of Trade Credit (Accounts
13-4a Stock Splits 258 Payable) 276
13-4b Stock Dividends 259 14-5b Computing the Cost of Bank loans 276
13-4c Price Effects of Stock Splits and Stock 14-5c Computing the Cost of Commercial Paper 278
Dividends 259 14-5d Borrowed (Principal) Amount Versus Required
13-4d Balance Sheet Effects of Stock Splits and Stock (Needed) Amount 278
Dividends 259 14-6 Multinat ional Working Capital Management 280
13-5 Stock Repurchases 261 Key Concepts for Managing Short-Term Financing 281
13-5a Advantages and Disadvantages of Stock
Repurchases 261
13-6 Dividend Policies Arou nd the World 262 15 Managing Short-Term Assets
Key Distribution ofRetained Earnings Concepts 263 284
15-1 Alternative Current Asset Invest ment Policies 285
15-2 Cash Management 286
VIII Contents
15-2a The Cash Budget 286 16-1 b Step 2: Forecast the Balance Sheet 309
15-2b Cash Management Techniques 290 16-1c Step 3: Raising the Additional Funds Needed 310
15-2c Acceleration of Receipts 291 16-1d Step 4: Accounting for Financing Feedbacks 310
15-2d Disbursement Control 291 16-1e Analysis of the Forecast 312
15-3 Market able Securities 292 16-2 Other Considerations in Forecasting 313
15-4 Cred it Management 292 16-2a Excess Capacity 313
15-4a Credit Policy 293 16-2b Economies of Scale 313
15-4b Receivables Monitoring 293 16-2c Lumpy Assets 313
15-4c Analyzing Proposed Changes in Credit Policy 294 16-3 Financial Control-Budget ing and Leverage 314
15-5 Inventory Management 297 16-3a Operating Breakeven Analysis 314
15-Sa Types of Inventory 297 16-3b Operating Leverage 317
15-Sb Optimal Inventory Level 297 16-3c Financial Breakeven Analysis 319
15-Sc Inventory Control Systems 300 16-3d Financial Leverage 321
15-6 Multinational Working Capital Management 301 16-3e Combining Operating and Financial Leverage-
Degree of Total Leverage (DTL) 322
15-6a Cash Management 301
16-4 Using Leverage and Forecasting for Cont rol 323
15-6b Credit Management 301
15-6c Inventory Management 302 Key Financial Planning and Control Concepts 324
Key Concepts for Managing Short·term Assets 302

APPENDIX A
Using Spreadsheets to Solve
Financial Problems 327
A-1 Setting up Mathemat ical Relat ionships 327
PART 7 A-2 Solving Time Value of Money (TVM) Problems Using

Preprogrammed Spreadsheet Funct ions 328
STRATEGIC PLANNING AND A-2a Solving for Future Value (FV): Lump-Sum Amount and
Annuity 329
FINANCING DECISIONS A-2b Solving for Present Value (PV): Lump-Sum Amount
and Annuity 331
A-2c Solving for r: Lump-Sum Amount and Annuity 332
-·I
A-2d Solving for n: Lump-Sum Amount and Annuity 332
•
l A-2e Solving for Present Value and Future Value:
~
i- Uneven Cash Flows 333
i1 7 u A-2f Setting Up an Amortization Schedule 334
.-- ll!
!:l
Index 336
r I fl
16 Financial Planning
and Control 306
16-1 Projected (Pro Formal Financial St atement s 307
16-1a Step 1: Forecast the Income Statement 307
Contents IX
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LEARNIN G OUTCOMES
After studying thischapter, you will be able to . ..
• Explain what finance entails and why everyone should have an understanding of
basic financial concepts.
this chaRter,
• Identify different forms of business organization as well as the advantages and
disadvantages of each .
• Identify major goals that firms pursue and what a firm's primary goal should be.
• Explain the roles ethics and good governance play in successful businesses .
• Describe how foreign firms differ from U.S. firms, and identify factors that affect
financial decisions in multinational firms.
In this chapter, we introdu ce finan ce by providing you with
(1) a description of the discipline and (2) an indication of the goals
companies sh ould at tain, as well as the conduct that is acceptable
wh en pursuing these goals. As you will discover, a corporation acts in
the best interests of its owners (stockholders) when decision s are
made that increase the firm's value, which in turn increase the valu e
of it s stock .
of t he general financial services marketplace. The suc-
• WHAT IS FINANCE? cess of t hese organizations requires an understanding
of factors that cause interest rates and other returns in
In si1n ple te nns, ftnance is concerned \\>ith d ecisions the financial markets to rise and fall, regulations that
about 1noney. Financial decisions deal \\>ith ho,v money affect such institutions, and various types of financial
is raised a nd used by businesses, govem1nents, and in- instruments, such as mortgages, automobile loans, and
cli,>iduals. To 1nake sound ftnancial decisions, you must certificates of deposit, that financial institutions offer.
understand three gene ral, yet reasonable, concepts. Ev-
2. Investmen ts- This area of finance focuses on the
e1),thing e lse equal, (1) rnore value is preferred to less;
decisions made by businesses and individuals as
(2) the soone r cash is received, the n,ore valuable it is;
t hey choose securities for their investment portfo-
and (3) less risk-y assets are more valuable than (pre -
lios. The major functions in the investments area are
ferred to) riskier assets. These concepts are discussed in
(a) determining the values, risks, and returns associ-
d etail late r in the book. At this point, ,ve can state that
ated with such financial assets as stocks and bonds
finns that 1nake d ecisions \\>ith these concepts in n,ind
and (b) determining the optimal mix of securities that
are able to provide bette r products to custome rs at lo,ver
should be held in a portfolio of investments, such as a
p1ices, pay higher sala1ies to e rnployees, and still pro-
retirement fund.
vide greate r re turns to investors. In general, then, sound
financial managen,e nt contributes to the well-being of 3. Financial services- Financial services refer to
both indi\>ic.luals and the gene r'<li popu lation. functions provided by organizations that deal wit h
Although the emphasis in this b<K>k iS on business t he management of money. Persons who work in
finance, you ,\>ill 1liscover that the san,e c.-oncepts that firms t hese organizations, which incl ude banks, insurance
apply ,vhen rnaking sound business decisions can be used compan ies, brokerage firms, and similar companies,
to rnake infi>rmed decisions relating to personal finances. provide services that help individuals and companies
For exan,ple, consider the decision you n,ight have to rnake determine how to invest money to achieve such goals
if you ,von a state lottery ,vo1th $105 million. \.Yhich tvould as home purchase, retirement, financial stability and
you choose: a lu,np-surn pay1nent of $54 1nillion today or sustainability, budgeting, and so forth.
a payrnent of $3.5 rnillion each year fr>r the ne;,.i 30 years? 4. Managerial (business) finance-Managerial finance
\Vhich should you choose? In Chapter 4, ,ve ,\>ill sho,v the deals with decisions that all firms make concerning
tin,e v.Jue of rnoney techniques that firms use to make t heir cash flows, including both inflows and outflows.
finance-re lated business deci5ions. These sarne techniques As a consequence, managerial finance is important in
c-a n be used to answe r this and other questions that re late all types of businesses, whether they are public or pri-
to personal finances. vate, and whether t hey deal with financial services or
t he manufacture of products. The duties encountered
1-la General Areas of Finance in managerial finance range from making decisions
about plant expansions to choosing what types of se-
The study of finance consists of four inte rre late d areas:
curities should be issued to finance such expansions.
1. Financial m arkets and institut ions- Financial institu- Financial managers also have the responsibility for
tions, which include banks, insurance companies, sav- deciding the credit terms under which customers can
ings and loans, and credit unions, are an integral part buy, how much inventory the firm should carry, how
CHAPTER 1: An Overview of Managerial Finance 3
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much cash to keep on hand, whether to acquire other employee relations, strategic planning, and the general
firms (merger analysis), and how much of each year's operations of the firm. Strategic planning, which is
earnings should be paid out as dividends versus how one of the most important activities of management,
much should be reinvested in the firm. cannot be accomplished without considering how
such plans impact the overall financial well-being of
Alth<>ugh <>ur concern in this b<>ok is prima1ily ,vith
the firm. Such personnel decisions as setting salaries,
1nanagerial finance, because all areas of finance are in-
terrelated, an individual ,vh<> ,v<>rks in any <>ne area hiring new staff, and paying bonuses must be coordi-
nated with financial decisions to ensure that needed
sh<>uld have a g<><>d understanding <>f the <>ther areas
funds are available. For these reasons, senior managers
as well. F<>r exarnple, a banker lending t<> a business
1n ust have a basic understanding <>f managerial finance must have at least a general understanding of financial
management concepts to make informed decisions in
t<> judge h<>,v ,veU the b<>rrO\\~ng company is <>perated,
their areas.
,vhich pro,~cles an indicati<>n of its ability to repay a l<>an.
The sarne h<>lds true f<>r a securities analyst, ,vho roust 2. Marketing- If you have taken a basic marketing
understand h<>,v a firm's current financial positi<>n can course, you learned that the four Ps of morketing-
afl'ect its future pr<>spects and thus its stock price. At the product, price, place, and promotion- determine
sarne time, <..~:> rporate financial rnanagers need to kn<>,v the success of products that are manufactured and
,vhat their bankers are thinking and h<>,v investors are sold by companies. Clearly, the price that should be
likely to judge their c<>rporations' perf<>rmances ,vhen charged for a product and the amount of advertising
establishing their st<>ck prices. a fi rm can afford for the product must be determined
in conjunction with financial managers because the
1-1b The Importance of Finance firm will lose money if the price of the product is too
low or too much is spent on advertising. Coordination
in Non-Finance Areas of the finance function and the marketing function is
Everyone is ex'Posed to finance concepts alm<>st everyday. critical to the success of a company, especially a small,
F<>r exa1nple, ,vhen you borrc:>,v t<> buy a car or a h<>use, newly formed firm because it is necessary to ensure
finance con<..-epts are used t<> deterrnine the 1nonthly that sufficient cash is generated to survive. For these
payrnents y<>u are required to make. When you retire, reasons, people in marketing must understand how
finance con<..-epts are used t<> detennine the amount of marketing decisions affect and are affected by such is-
the m<>nthly payments y<>u receive fr<>m your retiren,ent sues as funds availability, inventory levels, and excess
fund5. Fu1ther, if you ,vant t<> start your own business, an plant capacity.
understanding of finance con<..-epts
is essential for sun~val. Thus, even
if you do n<>t intend to pursue a ca-
reer in a finance-related professi<>n,
it is imp<ntant that you have son,e
basic understanding <>f finance con-
cepts. Sin,ilarly, if you pursue a ca-
reer in finance, it is i1npo1tant that
y<>u have an understanding <>f other
areas in the business, including
1narketing, accounting, pr<>ducti<>n,
and so fo,th, to 1n ake ,veU-infonned
financial decisions.
Let's consider h<>,v finance re-
lates to s<>me of the non-finance
e
areas that students often study in a 8
business c.~:>llege. i
1. Management- When we think "
of "management;' we often
think of personnel decisions and
4 PART ONE: Introduction to Managerial Finance
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3. Accounting- In many firms (especially small ones), finances, that you ,~ll make finance-related decisions.
it is difficult to distinguish between the finance func- Therefore, it is ~ tally important that you have sorne
tion and the accounting function. Because the two unclersta ncling of general finance c.~:incepts. There are
disciplines are closely related, often accountants are financial irnplications in virtually all business deci-
involved in finance decisions and financial managers sions, and non-financial executives rnust kn,nv enough
are involved in accounting decisions. As our discus- finance to incorporate these irnplications into thei,· own
sions will show, financial managers rely heavily on speciali:;ed tnutlyses. For this reason, every student of
accounting information because making decisions business, regardless of his or he r rnajor, should be con-
about the future requires information that accoun- cerned \\>ith finance.
tants provide about the past. As a consequence, ac-
countants must understand how financial managers Finance in the Organizational Structure of the Firm.
use accounting information in planning and decision Although organizational st111ctures vary from c.~:>rnpany
making so that it can be provided in an accurate and to co1npany, the chief financial ofl'\cer (CFO), ,vho of-
timely fashion. Similarly, accountants must under- te n has the title of vice president of finance, generally
stand how accounting data are viewed (used) by reports to the president. The financial ,>ice preside nt's
investors, creditors, and others who are interested in key subordinates are the ti·easurer and the controller.
the firm's operations. In niost finns, tl1e treti~urer has direct responsibility
for rnanaging the finn's cash and 1narketable securi-
4. Information systems- To make sound decisions,
ties, planning ho,v the firrn is financed and ,vhen fi1nds
financial managers rely on accurate information that
are raised, managing risk, and overseeing the corporate
is available when needed. The process by which the
pe nsion fund. The treasure r also supervises the creclit
delivery of such information is planned, developed,
rnanager, the invento1y manager, and the clirector of
and implemented is costly, but so are the problems
capital budgeting, ,vho analyzes decisions related to
caused by a lack of good information. Without ap-
investn1en ts in fixed assets. The controller is responsible
propriate information, decisions relating to finance,
for the activities of the ac.-counting and tax departmen ts.
management, marketing, and accounting could
prove disastrous. Different types of information
requ ire different information systems, so information
system specialists work w ith financial managers to • ALTERNATIVE
determine what information is needed, how it should
be stored, how it should be delivered, and how man-
FORMS OF BUSINESS
aging information affects the profitability of the firm. ORGANIZATION
5. Economics- Finance and economics are so simi-
lar that some universities offer courses related to There are three major forms of business organiza-
these two subjects in the same functional area tion in the United States: (1) proprietorships, (2) pa1t-
(department). Many tools used to make financial nerships, and (3) corporations. In te rms of nu1nbers,
decisions evolved from theories or models developed 70-75 percen t of businesses are ope rated as proprietor-
by economists. Perhaps the most noticeable differ- ships, 9-12 pe rcent are pa1tne rships, and the rernaining
ence between finance and economics is that financial 15-20 percent are c.~:>rporations. Based on the dollar value
managers evaluate information and make decisions of sales, ho,vever, app roxi1nately 82 pe rcent of all busi-
about cash flows associated with a particular firm or a ness is conducted by corporations, ,vhile the rernaining
group of firms, whereas economists analyze informa- 18 percent is generated by proprietorships (~ perce nt)
tion and forecast changes in activit ies associated and partne rships (14-15 percent).1 Because 1nost busi-
with entire industries and the economy as a whole. ness is c.~:inducted by corporations, ,ve ,vill focus on that
It is important that financial managers understand form in this book. Howeve1~it is impo1tant to understand
economics and that economists understand finance tl1e differe nces among the three 1najor forms of busi-
because economic activity and policy impact financial ness, as ,veil as the popu lar "hyb1id" forms of business
decisions, and vice versa. that have evolved frorn these 1najor fonns.
Finance ,vill be a part of your life no matter ,vhat
'The statistics provided inthissection are based on business tax filings reported bylhe Internal
career you choose. The re \\>ill be a numbe r of ti rnes Revenue Service (IRS), whi<h can be found on the IRS website at httpJ/www.lrs.usireas.gov
<luring your li fe, both in business ancl in your personal /laJCStatl/.
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cards, access to bank loans, loans from relatives
1-2a Proprietorship and friends, and so forth . Unlike corporations, pro-
A proprietorship is an unincorporated business o,vned prietorships cannot raise funds by issuing stocks
by one individual. Starting a proprietorship is generally as and bonds to investors.
easy as just begi nning business operations. For these reasons, individual proprietorships are
The proprietorship has three i1nportant advantages: confined primarily to srnall business operations. In fact,
1. It is easily and inexpensively formed. Not much only about 1 percent of all proprietorships have assets
"red tape•is involved when starting a proprietorship; that are valued at $1 million or rnore; nearly 90 percent
generally, only licenses required by the state and have assets valued at $100,000 or less. However, rnost
the municipality in which the business operates are businesses start out as proprietorships and then convert
needed. to corporations \vhen their gro,vth causes the disad-
2. It is subject to few government regu lations. Large
van tages of being a proprietorship-namely, unl in,ited
firms that potentially threaten competition are
personal liability and the inability to raise large sun,s of
much more heavily regulated than small so-called rnoney-to ouhveigh the advantages.
mom-and-pop businesses, such as proprietorships.
1-2b Partnership
3. It is taxed like an individual, not like a corporation;
thus, earnings are taxed only once. The double taxa- A partnership is the san,e as a proprietorship, except
tion of dividends is discussed later in the chapter. that it has hvo or more o,vners. Partnerships can oper-
ate under different degrees of fonnality, ranging frorn
The prop1ietorship also has fr>ur unportant li1nitations:
inforrnal, oral understandings to fonnal agreen,ents filed
1. The proprietor has unlimited personal liability for ,vith the secretary of the state in ,vhich the partnership
business debts because any debts of the business are does business. Most legal ex-perts recon,mend that part-
considered obligations of the sole owner. With un- nership agree,nents be put in ,v1iting.
limited personal liability, the proprietor (owner) can The advan tages of a partnership are the same as
potentially lose all of his or her personal assets, even those of a proprietorship, except that rnost pa rtner-
those assets not invested in the business. Thus, losses ships have more sources availabl e for raising funds
can far exceed the money that he or she has invested because there are more owne rs, wi th rno re rela-
in the company. An explanation of this concept is tives, rno re friends, and more opportunities to raise
given later in this chapter. funds through credit. Even though they generally
2. A proprietorship's life is limited to the time the have greater capabilities than proprietorships to raise
individual who created it owns the business. When a funds to support gro,vth, partne rships still have 1lif-
new owner takes over the business, legally the firm ficul ty in attracting substanti al a,nounts of funds. This
becomes a new proprietorship (even if the name of is not a rnajor problen, for a slo,v gro,ving partnership.
the business does not change). Ho,vever, if a business's products really catch on and
it needs to raise large arnounts of funds to capitalize
3. Transferring ownership is somewhat difficult.
on its opportunities, the difficulty of attracting funds
Disposing of the business is similar to selling a house
becon,es a real dra,vback. For this reason, gro\vth
in that the proprietor must seek out and negotiate
con,panies, such as Google Inc. and Amazon.corn
with a potential buyer, which generally takes weeks
Inc., generally begin life as proprie torships or part-
or months to complete.
nerships bu t at sorne point find it necessary to conve rt
4. It is difficult for a proprietorship to obtain large to corporations.
sums of capital because the firm's financial Under partnership la,v, each pa1tner is liable for the
strength generally is de bts of the business. Therefore, if any pa1tner is unable
based solely on the to rneet his or her pro rata clairn in the event the pa1tner-
proprietorship An financial strength of the ship goes bankrupt, the ren,aining partners must make
unincorporated business owned by
one individual.
only owner. A propri- good on the unsatisfied daims, dra\\~ng on their personal
etorship's funds are assets if necessary. Thus, the business-related activities
partnership An unincorporated derived from the owner's of any of the finn's partners can bring 111in to the other
business owned by two or more
persons.
sources of credit, wh ich pa1tners, even though those partners are not direct par-
include his or her credit ties to such acti,~ties.
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3. A corporation can continue
after its original owners and
managers no longer have a rela-
tionship with the business; thus
it is said to have unlimited fife.
The life of a corporation is based
on the longevity of its stock, not
the longevity of those who own
E
ll the stock (the owners).
1S
0
"~•
The first three factors- limited
4.
'5i
5,
=
-
liability, easy transferability
of ownership interest, and
Q
~
6
:,a unlimited life- make it much
:,a
easier for corporations than for
..,.3c
"
~
proprietorships or partnerships
"
:,a to raise money in the financial
markets. In addition, corpo-
rations can issue stocks and bonds to raise funds,
1-2c Corporation whereas proprietorships and partnerships cannot.
A corporation is a legal e ntity created by a state, ,vhich Even though the corporate fonn of business offe rs
1neans that a corporation has the legal autho1ity to act like significan t advan tages ove r prop1ie torships and partne r-
a pe rson ,vhen conducting business. It is separate and ships, it does have hvo rnajor disadvantages:
distinct frorn its o,vne rs and manage rs. This separateness
1. Setting up a corporation is more complex and time-
gives the c<n11oration four ,najor advantages:
consuming than for a proprietorship or a partnership.
1. A corporation offers its owners limited liability. To When a corporation is created, (a) a corporate charter,
illustrate the concept of limited liability, suppose you which provides general information, including the
invested $10,000 to become a partner in a business name of the corporation, types of activities it will
formed as a partnership that subsequently went bank- pursue, amount of stock that initially will be issued, and
rupt, owing creditors $1 million. Because the owners so forth, must be filed with the secretary of the state
are liable for the debts of a partnership, as a partner in which the firm incorporates; and (b) a set of rules,
you would be assessed for a share of the company's called bylaws, that specify how the corporation will
debt; you could even be held liable for the entire be governed must be drawn up by the founder(s). In
$1 million if your partners could not pay their shares. This addition, corporations
is the danger of unlimited liability. On the other hand, if must file periodic corporation A legal entity created
you invested $10,000 in the stock of a corporation that state and federal by a state, separate and distinct from
then went bankrupt, your potential loss on the invest- reports that are not its owners and managers, having
ment would be limited to your $10,000 investment.2 required of other unlimited life, easy transferability of
ownership, and limited liability.
2. Ownership interests can be divided into shares of forms of businesses.
stock, which can be transferred far more easily than can corporate charter A document
2. Because the earn- filed with the secretary of the state
proprietorship or partnership interests. Shares of stock ings of the corpora- in which a business is incorporated
can be bought and sold in minutes, whereas interests t ion are taxed at the that provides information about the
in proprietorships and partnerships generally cannot. corporate level and company, including its name, address,
directors, and amount of capital stock.
then any earnings
~nthe case of small corporations. the limited liability feature is often a fiction because banker1 paid out as dividends bylaws A set of rules drawn up
and credit managers frequently require personal guarantees from lhe stockholders of small, by the founders of the corporation
are again taxed as
weak corporations. that indicates how the company is
income to stockhold- to be governed; includes procedures
'There was a push In Congress in2003 to eliminate the dooble taxation of dividends IYf
either treatingdividends paidbycorporations lhe same as interest-Iha! is, making them a ers, corporate earn- for electing directors, rights of
tax-deductible business expense-or allowing dividends to be tax exempt to stockholder1. ings are subject to stockholders, and how to change the
Congress passed neither, Instead. the tax on dividends received byInvestors was reduced fiom
double taxation.' bylaws when necessary.
the ordinary tax rate to lhe capital gains rate.
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1-2d Hybrid Forms of Business: Limited Liability Company (LLC). A limited liability
company (LLCJ is a relatively ne,v business fonn that has
LLP, LLC, and S Corporation become popular duiing the past G'(>uple of decades; it
Alternative business forms that inclucle some of the ad- combines the features of a corporation and a pa1tner-
vantages, and avoid some of the c:lisaclvantages, of the ship. An LLC offers the limited personal liability a.550-
three rnajor fonns of bus iness have evolved over tin,e. ciated " ,jth a corporation, but the con,pany can choose
T hese alternative fonns of business <X>lnbine so,ne char- to be taxed as ei ther a corporation or as a pa1tnership.
acteristics of prop1ietorships and partnerships with son,e If an LLC is taxed li ke a pa1tnership, inc.~:>rne is said to
characte ristics of corporations. In this section, ,ve pro- pa.5s through to the o,vners, so that it is taxed only once.
vicle brief descriptions of three popular hybrid business The structure of the LLC is fairly flexible; owners gen-
fonns that exist today. erally can divide liability, n,anagement responsibilities,
O\vnership shares, and control of the business any \vay
they please. In addition, LLC o,vners, \vho are called
Limited Liability Partnership [LLP). In the earlier
members, can be indh,jduals or other businesses. Unlike
c:liscussion of a partners hip, ,ve described the forrn of
a pa1tnership, an LLC can have a single owner. As ",jth
business that is referred to as a general JJartnershiJJ,
a G'<:>rporation, legal papenvork, ,vhich is tern,ed articles
\vhe rein each partner is personally liable for any of
of organization, 1nust be filed ,vith the state in \vhich the
the debts of the business. It is possible to lirnit the li-
business is set up, and there are ce1tain financial repo,t -
ability faced by some of the partne rs by establishing a
ing requirernents after the fonnation of an LLC. Because
limited liability partners hip (LLPJ. The legal aspects of
LLCs are created by state la,vs, \vhich va•)' c.~:>nsiderably
LLPs vary fro,n state to state . Even so, an LLP gener-
from state to state, there can be substantial differences
ally is set up as one of hvo forms. In sorne states an
behveen ho,v an LLC can be fonned in one state ver-
LLP can be established that perrnits pe rsons to in-
sus another state. As this type of business organization
vest in partne rships ,vithout exposure to the pe rsonal
becomes ,nore ,videspread, state regu lation likely \viii
liabi lity that general partners face. \~lith this ty11e of
become n,ore uniform.
LLP, at least one partner is designated a general ]Jart-
ner and the others are limited partners. T he gene ral S Corporation. A dornestic co111oration that ha.5 no
partne rs ren,ain fully personally liab le for all business rnore than 100 stockholders and only one t)11e of stock
debts, \vhereas the li1nited partners are liab le only for outstanding can elect to file taxes as an S corporation. If
the a,nounts they have inves ted in the business. \.Yith a co111oration elects the S corporation status, then its in-
this form of an LLP, only the general partners can par- come is ta.xed the same as income earned by prop rietor-
ticipate in the 1nanage- ships and pa1tne rships; that is, income passes through
limited liability partnership 1nent of the bus iness; the company to the O\vners so that it is taxed only once.
( LLP) A part nershi p w herein at partners ,vith lirnited The rnajor c:lifferences behveen an S co1poration and an
least one partner is designated as liability are conside red LLC are that an LLC can have 1nore than 100 stockhold-
a general partner w ith unl imited
personal fi nancial l iabil it y, and t he
investors only. In other ers (rnembers) and more than one t)'Pe of stock (rne,n -
other part ners are limited partners states, all partners in an bership interest).
w hose l iabil ity is limit ed to amounts LLP are fully liable for
t hey invest in t he firm. the general debts of the
limited liability company business, but an individ- 1-2e Which Form of Business
( LLC) Offers the l imited ual partne r is not liable Is Best?
personal liability associated wit h a for the negligence, ir-
corporation; however, t he company's Diffe rent fonns of business se,ve diffe rent purposes.
responsibility, or sin,ilar
income is taxed l ike that of a For the following rea.5ons, however, the value of any
part nership. acts con,rnitted by any
business, other than a ve•)' small concern, probably \viii
other partne r (thus the
S corporation A corporat ion be rnaxirnized if it is o rganized as a co111oration:
w ith no more t han 100 stockholders
li mited liability). So,ne
t hat elects t o be taxed i n t he states requi re LLPs to 1. Li mited liability reduces the risks borne by investors.
same manner as propriet orships file partne rship agree- All else equal, the lower the firm's risk, the higher its
and partn erships, so t hat 1nents ,vith the secreta1)' market value.
business income is only taxed
once.
of state, \vhereas other 2. A firm's current value is related to its future growth
states do not. opportunities, and corporations can more easily
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&lilOIU.l R"\ie'II• lwi dttmcd th11111ny :raapptt.:c,;td tomcm Q.)t.ol nm mmtrially aff'«11ht U'lt.ml lt.ll'flin&upc,ricntt.. Ccng11gt lnmillg lnl:f'YCS lh: ris:h1io R'Q'Kl'lt addill(lllul ronai:M • •Y Ii.mt if ~ u m1rig.las rec1ric1ions roquitt it.
attract funds to take advantage of g rowth
opportunities than can unincorporated busi-
nesses (only corporations can issue stocks
and bonds to ra ise funds).
3. Corporate ownership can be transferred more

easily than ownership of either a proprietor-
sh ip or a partnership.Therefore, all else equal,
investors would be willing to pay more for
a corporation t han for a proprietorship or
partnership, which means that t he corporate
form of organizat ion can enhance the value of
a business.
Most finns are 1nanaged "~th value maximi-

zation in mind, and this, in tu 111, has caused most
large businesses to be organized as c..~:>rporations.
• WHAT GOAL(S)
SHOULD BUSINESSES
PURSUE?
of course, have other objec..tives. In particular, managers
Depending on the fonn of business, one finn's rnajor goals ,vho n1ake tl1e acrual decisicms are also interested in tl1eir
1nigh t differ sorne\vhat fro1n another firrn's rnajor goals. O\vn personal satisfaction, in their e inployees' ,velfare,
But, in general, every business O\vner ,vants the value of and in the good of the comrnunity and of society at large.
his or he r investn1ent in the 6nn to increase. The o,vner Still, stock price maxi1ni::.ation is the most irnportant goal
of a propii e torship has direct contn1l over his or her ofrrwst <XJtpO rations.
investrnent in the c.·ompany because it is the prop1ietor If a finn atternpts to rnaxi1nize its stock price, is this
\vho owns and nJns the business. As a result, a proprietor good or is this bad for society? In general, it is gocKL
1nigh t choose to ,vork three days pe r ,veek and play golf As ide frorn such illegal actions as atten1pting to fonn
or fish the rest of the week as long as the business rernai ns monopolies, ,~olating safety codes, and failing to meet
suc..-cessful and he or she is satisfied living this type of life. pollution c.~:>ntrol requirenie nts, the sa111e actions that
On the other hand, the o,vners (stockholders) of a large maxirnize stock pdces also benefit society. First, note
c..~:>rporation have ve•)' little contn:>l ove r their investnients that stock p1ice maximization requires e fficient, low-cost
because they generally do not run the business. Because plants that produce high-quality g<K:>ds and services that
they are not involved in tl1e day-to-day decisions, these are sold at tl1e k1,vest possible prices. Second, stock price
stockholders e>.-pect that the rnanagers who run tl1e busi- maximization requires tl1e development of products
ness do so ,vith the best interests of the o,vners in mind. that c..~:>nsumers \van t and need , so the p rofit 1notive leads
Investors purchase the stock of a c.-01-poration to ne,v technology, to ne,v products, and to ne,v jobs.
because they e;-.-pect to ea111 an acceptable rehJm on the Finally, stock p1ice 1naxi1n ization necessitates efHcient
n1oney they invest. Bec.-ause \ve kno,v investors want to and c.~:>urteous service, adequate stocks of me rchandise,
increase their \vealth posi tions as much as possible, all and \veil located bus iness
e lse equal, it follows that 1nanagers shou Id behave in estab lish men ts. Th ese
stockholder wealth
a manner tl1at is consistent ~th enhancing the 6nr1's factors are necessa1)' to maximization The appropriate
value. For this reason, throughout this book ,ve oper- maintain a customer base goal for management decisions;
ate on the assun1ption that 1nanagernent's p1i 1na1)' goal that generates sustain - considers the risk and ti ming
is stockholder wealth maximization, ,vhich, as ,ve ,vill associated with expected cash flows
able profits. Therefore,
to maximize the price of the firm's
see, translates into 1naximizing the value of the firm a5 most actions tl1at help a common stock.
1neasured by tl1e p1ice of its oomrnon stock. Finns do, flrm increase the p1ice
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&lilOIU.l R"\ie'II• lwi dttmtd th11111ny :raapptt.:c,;td comcm Q.)t.ol nm mmtrially a««11ht U'lt.ml lt.ll'flin&upc,ricllC'C'. Ccngugt lnmillg lnl:f'Yt.S lh: ris:h1io R'Q'Kl'lt addill(lllul ronai:M • •Y Ii.mt if ~ -1rig.las rec1ric1ions roquitt it.
of its stock also are beneficial to society at large. This factors are legal constraints, the general level of eco-
is \vhy profit-n,otivated, free-enterpiise economies have nomic activity, tax la,vs, and condi tions in the financial
been so rnuch 1nore successful than socialistic and G~:>rn- rnarkets. Based on both internal and external con-
1nunistic eG~:>no1nic syste,ns. Because n1anage1ial finance straints, managernent makes a set of long-run strate-
plays a crucial role in the operation of sue,-cessful finns gic policy decisions that chart a future course for the
and because suce,-essfiil 6nns are necessary for a healthy, firm. These policy decisions, along ",ith the general
productive economy, it is easy to see \vhy finance is level of econornic activity and governn,ent regu lations
important fron1 a social standpoin t.• and rules (e.g., tax payn,ents), influence the firm's ex-
pected cash flo,vs, the tirning of these cash flo,vs, as
1-3a Managerial Actions to ,veil as their even tual trans fe r to stockholders in the
form of dh,idends, and tl1e degree of risk inheren t in
Maximize Shareholder Wea lth the ex-pected cash flo,vs.
Ho,v do ,ve measu re value, and ,vhat types of actions Figure 1.1 diagrarns the general relationships in-
can rnanagen,ent take to 1naxi1nize value? Although \Ve volved in the valuation process. As you can see, and as
\vii i d iscuss valuation in rnuch greater detail late r in the ,ve \viii discuss in 1nuch greater detai l th roughout the
book, \ve introduce the concept of value here to give book, a fi rrn's value is ulti1nately a function of tl1e cash
you an indication of ho,v rnanage,nent can affect the flo,vs it is expected to generate in the futu re and the
price of a company's stock. First, the value of any in- rate of retu rn at ,vhich investors are willing to provide
vestrnen t, such as a stock, is based on the cash flows funds to the firm fr>r the purposes of financing opera-
the asset is expected to generate du ring its life. Second, tions and gro\vth. Many factors, including conditions
investors prefer to receive a particular cash flo,v sooner in the econo1ny and financial rnarkets, the co,npetitive
rather than late r. And, third, investors generally are risk environrnent, and the general operations of the firm,
averse, ,vhich rneans they are ">illing to pay rnore for affect the detennination of the eiqiected cash flo\vS and
investments \vith n,ore certain future cash flo,vs than the rates people dernand ,vhen investing their funds.
for investments ,vi th less certain, or riskier, cash flo,vs, As ,ve progress through the book, ,ve ,viii 1liscuss these
eve1)'thing else equal. For these reasons, we kno,v that and other factors that affect a firn1's value. For no,v,
1nanagers can increase the value of a fi rrn by rnaking howeve r, it is important to kno\v that ,vhen \Ve refer to
decis ions that increase the firrn's expected future cash value, ,ve rnean the ,vorth of the expected fu tu re cash
flows, generate the eiqiected cash flo,vs sooner, increase flo,vs restated in curren t doll ars- that is, the present
the certainty of the e>.11ected cash flo,vs, or produce any (current) value of the future cash flo,vs.
co,nbination of these actions.
The financial 1nanager rnakes d ecis ions about the 1-3b Should Earnings per Share
e>.11ected cash flo,vs of the firrn, ,vhich include deci-
sions about ho,v rnuch and ,vhat types of debt and equity
Be Maximized?
should be used to finance the firm (capital stn1cture Will pn:>6t maxiJnization also result in stock piice
decisions); ,vhat types of assets should be purchased to rnaximization? In anS\ve1ing this question, ,ve introduce the
help generate ex-pected cash flo\vS (capital budgeting de- C:.'Oncept of earnings per share (EPS), ,vhich equals net in-
ci.~ions ); and ,vhat to do ,vith net cash flo,vs generated C:.'Orne (NI) divided by the number of outstanding shares of
by the finn- reinvest the1n in the flrm or pay dividends cornn,on stock (Shares)- that iS, EPS = NI/Shares. Many
(dividend policy deci.~ions). Each of these topics ">ill be investors use EPS to gauge the value of a stock. A piirnai)'
adc:li-essed in detail later in the book. But, at this point, reason EPS reG-eives so much attention is the belief tl1at
it should be clear that the decisions financial rnanagers net inC:.'(llne, and thus EPS, c:.-an be used as a barometer for
1nake can significantly affect a finn's value because tl1ey rneasu1ing tl1e 6.nn's potential for generating fiihire cash
affect the arnount, ti1ning, and Iiskiness of the cash flows
the 6nn produces. 'People sometimes argue that firms. intheir efforts to raise profits and stock prices, Increase
product prices andgouge the publit Ina reasonablycompetitive economy, which exists In
Although 1nanage- the United States. prices are constrained bycompetitionandconsumerres~tance. If a firm
rial actions affect the raises Its prices beyood reasonable levels. it will simplylose Its marl<et share. Of course, firms
value The present, or current, value of a finn's stock, want to earn m01e, and they constantlytryto cut costs ordevelop new products inanattempt
value of the cash flows that an to eam abov~normal profits. Note, though, that ff they are Indeed successfuland do earn
asset is expected to generate in
external factors also above-normal profits, those veryprofits willattract competition that will eventually drive
the future. influence s tock prices. prices down so that normal profits are generated; again, the mainlong-term benefidary
Included arnong these Is the consumer.
10 PART ONE: Introduction to Ma nagerial Finance
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FIGURE 1.1 VALUE OF THE FIRM
'
FIICtors/Considerations:
con,omic conditions
rnment regulations and rules
petitive environment-domestic and l'oreiig
Firm Factors/Considerations: Investor Factors/Considerations:

• Normal operations-revenues and expenses • Income/savings
• Financing (capital structure) policy • Age/lifestyle
• Investment (capital budgeting) policy • Interest rates
• Dividend policy • Risk atti tude/preference
/\
Net cash flows, CF Rate of return, r
Value of the Firm

. I
/\
Value = Current (present) value of expected (future) cash flows (CF)
based on the return demanded by investors (r), which
is dependent on the risk associated with the firm
flo,vs. Although current eanungs and cash flo,vs are gener- project is better? In other ,vords, is $0.20 per year for
ally highly oon elated, as mentioned earlie1~ a firm's value five years bette r or ,vorse than Sl.25 in Year 5? T he an -
iS deterrnined by the cash flo,vs it is eiq:iected to generate s,ver depends on ,vhich project contribu tes the most to
in the future, as ,veil as the risk associated ,vith those ex- the value of the firm, ,vhich in turn d epends on the tirne
pected cash flows. T hus, fi.nancial 1nanagers ,vho attempt value of 1noney to investors. T hus, tirning is an i mpor-
to 1naxi1nize earrungs rnight not 1naxi1nize value because tan t reason to G~>ncentrate on ,vealth as measured by the
earrlings 1naximization is a shortsighted goal. Most 1nanag- price of the stock rather than on eanungs alone.
ers ,vho focus solely on earrungs Second, consider risk. Suppose one project is ex-
do not consider the irnpact pected to increase EPS by $1, ,vhile another is e;,,11ected
that maximizing eanlings to increase earnings by $1.20 per share. The fi.rst project
in the current period is not very risk-y. If it is unde1taken, EPS ,viii
has on either future aln,ost certainly rise by approxi -
earrli ngs ( ti1ning) ~ mately $1. Ho,vever,
or the fi.nn's future the other project
1isk position. is quite 1isk-y. Al -
First, con- though our best
sider the tirning guess is that EPS ~
=
of the earnings. ,viii ,i se by $1.20, f
Suppose Xerox has ,ve rn ust recognize [
•
a project that ,viii cause the possibility that i
=
EPS to rise by $0.20 per year for there n,igh t be no in - i
~
fi.ve years, or $1 in total, ,vhereas another proj-
ect ,vould have no effect on earnings for four years but
crease ,vhatsoever or ~
that the finr, rnigh t even j -
,vould increase EPS by $1.25 in the fifth year. \.Yhich suffer a loss. Depending .3
&lilOIU.l R"\iew.• lwi dttmcd th11111ny :raapptt:c,;ed comcm O,lC',I nm mmcrially a««1 die U'IC!ml IC!ll'flin& upc,ricllC'C'. Ccngll!" lnmillg lnl:f'YC!S lh: ris:h1io ll'm!Wt addill(lllul ronai:M • •Y Ii.mt if ~ -1rig.las rec1ric1ions roquitt it.
on ho\v averse stockholde rs are to ,i sk, the first project ,vith widely clispersed o,vnership-for exarnple, IBM
,night be preferable to the seG~>nd. and Gene ral Motors-because individual stockholders
In ,nany instanG-es, finns have taken actions that in- O\Vll ei.t1·e n,ely s,nall proportions of the co,npanies and
creased earnings per share, yet the stock p1i ce decreased rnanagers have little, if any, of their O\vn ,vealth tied up
because investors believed that eithe r the higher eanlings in these con,panies. For this reason, rnanagers rnight be
\vou ld not be sustained in the future o r the risk level of rnore concerned about pursuing their o,vn agendas, such
the finn ,vould be increased substantially. Of course, the as increased job secu,ity, highe r sala,ies, or more po,ver,
opposite effect has been observed as well. We see, the n, than about maximizing shareholder ,vealth.
that the finn's stock price, and thus its value, is depe n- l\1echanisms used by large corporations to rnoti -
dent on (1) the cash flows the finr, is ei.'Pected to provide vate ,nanage rs to act in the shareholde rs' best inte rests
in the future, (2) ,vhen those cash flows are expected to include:
occur, and (3) the risk associated with those cash flo\vS.
As \ve proceed through the l:x><>k, you ,vill discover that 1. Managerial compensation (incentives)- A com-
every significant co11x>rate decision should be analyzed mon method used to motivate managers to
in terms of these factors and their effects on the finn's operate in a manner consistent with stock price
value and he nce the price of its stock. maximization is to tie managers' compensation to
t he company's performance. Such compensation
1-3c Managers' Roles as Agents packages should be d eveloped so that managers
are rewarded on the basis of the firm's performance
of Stockholders over a long period of time, not on its performance in
Because they generally are not involved in day-to-day any particular year. For example, a company might
operations, stockholders of large corporations "pennit" implement a compensation plan where managers
(ernpowe r) the executives to ,nake decisions about ho,v earn 100 percent of a specified reward w hen the
the firms are run. Of course, the stockholders ,vant the company achieves a targeted growth rate. If the
,nanagers to make decisions that are consistent \vith the performa nce is above the target, higher rewards can
goal of ,vealth ,naxi,nization. However, ,nanagers' in te r- be earned, whereas managers receive lower rewards
ests can potentially conflict ,vith stockholders' inte rests. when performance is below the ta rget. Often the
An agency relationship exists ,vhen one o r rnore reward that managers receive is the stock of the
individuals, \vho are called the p rincipals, lure anothe r company. If managers own stock in the company,
person, the agent, to perfonn a service and delegate t hey should be motivated to make decisions that
decision-,naking autho,ity to that agent. If a firm is a will increase t he firm's value and thus the value of
proprietorship, there is no agency relationship because t he stock t hey own.
the O\vner-rnanager ope rates the business in a fashion All incentive compensation plans should be
that will i1nprove his or her o,vn welfare, \vith \velfare designed to accomplish two things: (1) Provide
,neasured in the fonn of increased personal \veal th, rnore inducements to executives to act on those factors
leisure, or pe rqui~ites.5 Ho,vever, if the o,vne r-manager under their control in a manner that will contribute
incorporates and sells some of the firrn's stock to outsid- to stock price maximization. (2) Attract and reta in top-
e rs, potential conflicts of in te rest i,nmediately atise. For level executives. Well-designed plans can accomplish
exa,nple, the O\vner-rnanager (agent) n,ight now decide both goals.
not to ,vork as hard to rnaxirnize shareholder (princi- 2. Shareholder intervention- More t han 25 percent
pals') ,vealth because less of the firn,'s \vealth ,vill go to of the individuals in the United States invest directly
him or he r, or he or she might decide to take a lughe r in stocks. Along w ith such inst itutional stockhold-
salary or e njoy more perquisites because part of those ers as pension funds and mutual funds, individual
G~>sts ,vill fall on the outside stockholde rs. This poten- stockholders often "flex their muscles"to ensure that
tial G~>nflict be hveen hvo parties-the principals (outside firms pursue goa ls that are in the best interests of
share holders) and the shareholders rather than of the managers (where
agency problem A potential age nts (,nanagers)- is an confl icts might arise). In addition, many institutional
conflict of interest between outside agency problem.
shareholders (owners) and managers
investors routinely monitor t op corporations to
The pote ntial for
who make decisions about how to
operate the firm. agency proble rns is great- 'Perqullites (or"perks1 are executi,. fringe benefit~such as luxurious offices, use ofcorporate
est in large G~>rporations planes and yachts. personalassistants.and general use of businessassets for personal purpose!.
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&lilOIU.l R"\it:11• tu,; dttmcd th11111ny :raapprc,:,:,;,ed comiem Q.)C'ol nm mmierially a««11bt U'ltml ltll'flin&u pcriiellC'C'. Ciengugie lnmillg lnl:f'YCS lh: ris:h1io R"Q'Kl'lt addill(lllul ronai:M • •Y Ii.mt if ~ -1rig.las rec1ric1ions roquitt i1..
ensure that managers pursue the goal of wea lth ,vhich ,najor decisions increase value and ,vhich ones
maximization. When it is determined that action is decrease value.
needed to rea lign management decisions with the
interests of investors, these institutional investors
exercise their influence by suggesting possible rem-
edies to management or by sponsoring proposals • WHAT ROLES DO ETHICS
that must be voted on by stockholders at the annual
meeting. Stockholder-sponsored proposals are not
AND GOVERNANCE PLAY
binding, but the results of the votes are noticed by IN BUSINESS SUCCESS?
corporate management.
In situations where large blocks of the stock are In the previous section, ,ve e»J>lained ho,v the ,nan-
owned by a relatively few large institutions that have agers of a finn, who act as the agents of the o,vners,
enough clout to influence a firm's operations, these should make decisions that are in the best inte rests of
institutional owners often have enough voting power the finn's investors. vVould you consider it unethical
to overthrow management teams that do not act in for manage rs to act in thei r O\vn best inte rests rather
the best interests of stockholders. Examples of major than the best inte rests of the O\vners? \.Yould you invest
corporations whose managements have been in a flrm that espoused unethical practices or had no
ousted in past years include Coca- direction about ho,v the co,npany's day-to-day
Cola, General Motors, and operations should be handled? Prob-
United Airlines. ' I I ably not. In this section, \ve discuss
3. Threat of takeover- !;/ business ethics and corporate
Hostile takeovers,
instances in which
management does not
~s\NEs;'.r '>r, 7
governance, and the roles
each of these concepts play
in successful businesses.
want the firm to be taken
over, are most likely to
occur when a firm's stock
1-4a Business
is undervalued relative to Ethics
its potential, which often
is caused by inefficient
C:=:.:::::::...-n The \vord ethics can be
defined as "moral behav-
operations that result
from poor management
In a hostile takeover,
en !
ior" or "standards of c.x>n -
~ duct." Business ethics can
~ be thought of as a co,npa-
the managers of the ,5;
: ny's attitude and c..~:>nduct
acquired firm generally
_____ _. i to\vard its e inployees,
are fired, and those who
customers, com,nunity,
stay on typically lose the power
and stockholders. High standards of e thical behavior de-
they had prior to the acquisition.Thus, to avoid takeover
mand that a finn treat each party it deals \\~th in a fair
threats, managers have a strong incentive to take actions
and honest rnanne r. A firrn's comn1ihnen t to business
that maximize stock prices.
e thics can be n,easured by the tendency of the 6nn and
Because \vealth 1naxin1ization is a long-te rm goal its e ,nployees to adhere
rathe r than a short-te nn goal, ,nanage n,e nt must be to laws and regulations
hostile takeover The
able to convey to stockholders that their best inte rests re lating to such factors acquisition of a company over the
are being pursued. As you proceed through this book, as product safe ty and opposition of its management.
you ,vill discove r that many factors affect the value of quality, fair e rnployment
business ethics A company's
a stock, ,vhich ,nake it difficult to de te rmine precisely practices, fair marke ting attitude and conduct toward its
\vhen rnanage n,ent is acting in the stoc kholders' best in- and selling practices, the stakeholders (employees, customers,
use of confidential infor- stockholders, and community).
terests. Ho\vever, a finn's ,nanageme nt tearn ,vill flnd it
Ethical behavior requires fair and
difficult to fool investors, both in general and for a long rnation for pe rsonal gain,
honest treatment of all parties.
pe,iod, because stockholders can generally dete nnine co1n1nu1'lity involveme nt,
&lilOIU.l R"\iew.• lwi dttmcd th11111ny :raapptt:c,;ed comcm O,lC',I nm mmcrially a««1 die U'IC!ml IC!ll'flin&upc,ricllC'C'. Ccngll!" lnmillg lnl:f'YC!S lh: ris:h1io R'Q'Kl'lt addill(lllul ronai:M • •Y Ii.mt if ~ -1rig.las rec1ric1ions roquitt it.
bribery, and illegal payrnents to foreign governmen ts to high ethical standards in all of their business dealings.
obtain business. Further, 1nost executives believe that there is a posi-
Although rnost firms have policies that espouse ethi- tive correlation behveen ethics and long-run profit-
cal business G'<)nduct, in 1nany instances large corporations ability because ethical behavior (1) prevents Hnes
have engaged in unethical behavior. 0 :>Jnpanies such as and legal expenses, (2) builds pub lic trust, (3) a ttracts
Arthu1· Andersen, En ron, and \.YorldC01n ~1 CI have fallen business frorn custorners ,vho ap preciate and support
or have been changed significantly as tl1e resu lt of unetlli- ethical policies, (4) a ttracts and keeps ernp loyees of the
cal, and sometirnes illegal, practices. In sorne cases, e1n- highest caliber, and (5) supports the econornic viabihty
ployees (generally top n,anagen,ent) have been sentenced of the con,n,uni ties ,vhe re these fi nns operate.
to piison for illegal actions tl1at resulted from unetllical Today n,ost large Hnns have in place strong G'<)des
behavior. Not long ago, the number of !ugh-profile in- of e tllical behavior, and they conduct training programs
stanc:.-es in " 'hich unetlucal behavior p n>vided substantial designed to ensure that all employees understand ,vhat
gains for executives at tl1e e>.1">ense of stockholders' posi- the correct behavior is in different business situations. It
tions increased to the point ,vhere public outcry resulted is irnperative that executives and top 1nanage1nent-the
in legislation ai ,ned at a1Testing the apparent tide of un- cornpany's chairman, presiden t, and vice presidents-
etllical behavior in tl1e corporate ,vorld. A 1najor reason be open ly G'<)JTHni tted to etlucal behavior and tl1at they
for the legislation was that accounting scandals caused C(Hn1nunicate this comn,itrnent through thei r O\Vll
the public to be skeptical of accounting and financial in- personal actions as ,veil as through con,pany policies,
formation reported by large U.S. G'<>111orations. Simply directives, and punishment/re,vard syste1ns. Investors
pu t, tl1e public no longer tiusted what 1nanagers said. e>.11ect nothing less.
Investors felt that executives ,vere pursuing interests that
too often resul ted in large gains for tl1en,selves and large
losses for stockholders. As a result, Congress passed the
1-4b Corporate Governance
Sarbanes-Oxley Act of 2002. The term corporate goveniance has become a regular
The 11 sections (titles) in the Sarbanes-Oxley Act of part of business vocabula1y. As a resu lt of the scandals
2002 establish standards for accountability and respon- uncovered at Arthur Andersen, Enron, \.YorldC01n, and
sibility in rep<>Jting financial infonnation for publicly rnany other co,npanies, stockholders, 1nanagers, and
traded co11x1rations. T he act requires a publicly-traded Congress have becon,e quite concerned ,vith ho,v firms
G'<>rporation to (1) have a con,mittee that G'<)nsists of out- are operated. Corporate governance deals ,vith tl1e set
side directors to oversee the firm's audits, (2) hire an of roles that a firm follo,vs ,vhen conducting business.
e>.ternal auditing finn that renders an unbiased (indepen- These rules provide the "road map" that managers fol-
dent) opi1lion G'(>ncerning the finn's financial staten,ents, 1<,,v to pursue the various goals of the firrn, including
and (3) provide additional infonnation about the proce- rnaxirnizing its stock price. It is irnportant for a firrn
dures used to constn1ct and report financial staten,ents. to clearly specify its corporate governance sti·ucture
In addition, the !inn's duef executive officer (CEO) and so that individuals and entities that have an interest in
CFO rnust certify financial repo1ts that are subrnitted to the ,veil-being of the business understand ho,v their
the Securities and Exchange Com1nission. The act also interests ,vill be p ursued. A good corporate governance
stiffens tl1e crirninal l">enalties that can be in,posed for stroctu re should pro,~de those ,vho have a relationship
producing fraudulent H- ,vi th a Hnn "~th an understanding of ho,v executives
nancial in fonnation and ron the business and ,vho is accountable for irnpo r-
corporate governance gives regulatory bodies tant decisions. As a result of the Sarbanes-Oxley Act of
Deals wit h the set of rules that
greater authority to pros- 2002 and increased stockholder pressure, n,ost firms
a firm follows when conducting
business; these rules identify who ecute such actions. carefully ,vrite their co rporate governance policies so
is accountable for major fi nancial Despite the de- that all stakeholders-,nanagers, stockholders, crecli-
decisions. cline in investor trust tors, custo1ners, suppliers, and e ,nployees- better un -
stakeholders Those who are of financial reporting by derstand thei r rights and responsibilities.6 In addition,
associated with a business, including corporations, the execu-
managers, employees, customers, tives of rnost rnajor firms 'Broadlyspeaking. the term stakeholders shoo Id indude the environment In whidl we live and
suppliers, creditors, stockholders, do buslnes~ ll shooldbe apparent that a firm cannot survive-that is. remain sustalnabl-
in the United States be-
and other parties with an interest in unless it treaJS both human stakeholden andeiwironmentalstakeholders fairly. Afirm that
the firm's well-bei ng. lieve their Hrms shou ld, desuoys either the uust of iJS employees, cu11omers, and shareholders. or the environmenJ in
and do, try to rnaintain whldl it operates, destroys iJSelf.
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&lilOIU.l R"\ie'II• lwi dttmcd th11111ny :raapptt.:c,;td comcm Q.)t.ol nm mmtrially aff'«11ht U'lt.ml lt.ll'flin& upc,ricntt.. Ccng11gt lnmillg lnl:f'YCS lh: ris:h1io R'Q'Kl'lt addill(lllul ronai:M • •Y Ii.mt if ~um1rips rec1ric1ions roquitt it.
from our p revious discussions, it should be cle ar that of diffe re nt investo rs, both individuals and institutions.
1naxi1nizing share holde r ,vealth requires the fair trea t- On the othe r hand, in much of contine ntal Europe,
n1 ent of all stake holde rs. stock O\\>ne rship is n,ore conG-entrated; rnajor investor
Studies sho,v fi rms that practice good corporate groups include fa1nilies, banks, and othe r corporations.
governance gene rate highe r re turns to stockholde rs In Ge rmany and France, for instance, othe r domestic
than those that don't have good gove rnance policies. co1npanies re present the prin,ary group of shareholde rs,
Good corporate governance includes a board of chrec- fr>llowed by families. Although ban ks in these countries
tors \vith rne rnbers ,vho are inde pendent of the com- do not hold large nu1nbe rs of shares of stocks, they can
pany's n,anage n,e nt. An indepe ndent board gene rally greatly influence cornpanies because 1nany shareholders
se rves as a chec ks-and-balances syste1n that rnonito rs assign banks tl1eir proxy votes for the directors of tl1e
iinportant 1nanage1ne nt d ecisions, including executive co1npanies. In addi tion, ofte n tl1e fan,ily unit has concen-
co1npe nsation. It has also been sho\vn that finns that trated ownership and tl1us rep resents a major in fluence
d evelop gove rnance structu res that 1nake it easie r to in many large G'<:>rnpanies in d eveloped countiies such as
identify and co rrect accounting prob len,s and pote n- these. The O\\>ne rship sti·uctures of these firrns and 1nany
tially uneth ical or fraudu lent p ractices pe rforrn bette r otl1er large non-U .S. G'<:>mpanies ofte n are concentrated
than finns that have poor governance policies (internal in tl1e hands of a re lative ly fe,v investors or investment
controls).7 groups. Such firms are conside red closed because shares
of stock ofte n are not publicly traded, re latively fe\v indi -
viduals or groups o,vn the stock, and 1najor stockholders
• FORMS OF BUSINESSES ge ne rally are involved in the firms' daily ope rations.
The p1imary reason non-U.S. finns are likely to be
IN OTHER COUNTRIES rnore closed, and tl1us have 1nore conce ntrate d O\vne r-
ship, than U.S. finns results fro1n tl1e unive rsal banking
Large U.S. co111orations can best be d escribed as "open" re lationships that exist outside the Uni ted States. Finan-
<X>lnpan ies because they are publicly-ti·aded organiza- cial institutions in otl1er countries ge ne rally are less reg-
tions that, for the most part, are independent of each ulated than in the Uni ted States, which 1neans fore ign
othe r and of the govemrnent. \.Yhile most developed banks can pro,~de businesses a greater va1iety of sef\ices
G'<:>untiies ,vith free econon,ies have business orga- than U.S. banks can, inclucling short-te nn loans, long-
nizations that are similar to U.S. G'<:>1porations, son,e te nn financing, and even stock o,vnership. As a resu lt,
diffe re nces exist re lating to o,vnership stnJctu re and non-U.S. firrns te nd to have close relationships "~tl1
1nanagement of ope rations. Although a con,pre he nsive individual banking orga nizations that also might take
<liscussion is beyond the scope of this book, this section O\vnership positions in the con,panies. What this means
provides so1ne examples of differences benveen U.S. is that banks in G'<:>untiies like Gerrnany ca n meet tl1e
G'<:>rnpanies and non-U.S. G'<:>rnpanies. Hnancing needs of farnily-O\\>ned businesses, e ve n if they
Finns in most d eveloped eGX>nornies, such as are ve•)' large. T herefore, such G'<:>rnpanies do not need
G'<:>rporations in the Uni ted States, offe r equities \vith lirn- to go public and thus re linquish G'<:>n trol to finance addi -
ited liability to stockholders that can be traded in dornes- tional gro\vth. The opposite is true in the United States,
tic financial rnarkets. Ho,vever, such firms are not al,va)'S ,vhere large firms do not
called coryJorations. For instance, a comparable firm in have G'<:>rnparable "one-
England is called a public lirnited cornpany, or PLC, \vhile stop" Hnancing outlets. proxy votes Voti ng power
Hence, their gro",th ge n- that is assigned to another party,
in Ge nnany it is kno,vn as an Akt iengesellscluift, or AG. such as another stockholder
In ~1exiG'<), Spain, and Latin A1ne1ica, such a co1npany is e rally must be financed
or institution.
called a Sociedad An6nirna, o r SA. Some of these Hrn,s by bringing in outside
O\vners, " 'hich resul ts in industrial groups
are publicly traded, ,vhereas othe rs are p1ivate ly held. Organizations of companies in
Like co1porations in the United States, most large more \vide ly dispersed
different industries with common
G'<:>rnpanies in England and Canada are open, \vhich rneans O\vnership. ownership interest s, which include
their stocks are ,videly dispe rsed an,ong a large nu1nbe r In so1ne parts of fi rms necessary to manufactu re
the ,vorld, firms be long and sell products; networks of
to industrial groups, manufactu rers, suppliers, marketing
'See, for example. ReshmaKapadia, "Stod<s Reward Firms' Good Behavior,· The Wall Stffl't organizations, distributors, retailers,
kmrnal Online, March 18. 2006. and David Reilly, "Ched<s on Internal ControlsPay Off; The Wall ,vhich are organizations and creditors.
Strttc Joornal. M.ly 8. 2006, Cl cornposed of cornpanies
Copyriglll 2019Ccni;igt lnrnulg. AO Ri.$h1~ Rcstn'td. May noc ht cqiitd, icunntd. or wplkMtd. in 11ffllt (It in p;an.. Oi.t IIO d enmnk rip , M'.llfllt 1hitd pll1)' ron1cm may ht suppcsia:d from the t.Boot .ndfor t0upi:r(i).
&lilOIU.l R"\ie'II• lwi dttmcd th11111ny :raapptt.:c,;td tomcm Q.)t.ol nm mmtrially aff'«11ht U'lt.ml lt.ll'flin&u pc,ricntt.. Ccng11gt lnmillg lnl:f'YCS lh: ris:h1io R'Q'Kl'lt addill(lllul ronai:M • •Y Ii.mt if ~um1rips rec1ric1ions roquitt it.
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contra Cristianos prelati legibus suis positiuis
instituunt et prosequntur.
Capm. vi. Ante sue mortis tempus dedit atque reliquit

330 Pacem discipulis Cristus habere suis;
Et quia tunc solum cupiebant nil nisi Cristum,
In Cristi pace cuncta tulere pie.
Set quia nunc mundum cupiunt tantummodo
vanum,
Que sibi sunt mundus bella ministrat eis;
Et quia belligeram ducit clerus modo vitam,
Auctor eos pacis non iuuat ipse deus.
Dixerat ad Petrum Cristus, ‘Quicumque virorum
Percutit in gladio, fine peribit eo’:
Nec poterit falli fateor sentencia Cristi,
340 Quamuis sit cleri mortifer ensis ibi.
Percuciunt ense; si quisque repercutit, inde
Dampnat eum libri lex positiua noui.
Predicat en Petrus, set pugnat papa modernus,
Hic animas, alius querit auarus opes:
Hic fuit occisus pro iure dei, tamen alter
Occidit, neque ius sic habet ipse deus:
Simplicitate fidem non viribus excitat vnus,
Alter et in pompis prouocat arma magis.
Vult Deus vt non sit temeraria nostra querela,
350 Set mala que patimur vindicet illa deus:
Hostiles acies inimicaque vinximus ora,368
Cum vindex nostras nesciat ira vias.
Mollibus in rebus non se probat accio Cristi,
Tempore set duro se probat alta fides:
Militat in Cristo pia que pacientia tristi
Materiam vere tempore laudis habet.
Cristus erat paciens, probra dum tulit omnia, set
nos
De facto minimo commouet ira modo.
Omne vigebat opus, dum cleri nobiliores
360 Cuncta sub arbitrio deseruere dei;
Ipsa vetus pietas plantare fidem dabat, et nunc
Extirpat vindex ira superba patrum.
‘Non gladius saluat, et qui sperabit in arcu
Non saluatur eo,’ testificante Dauid:
Set nos Dauiticam variamus tradicionem,
Dumque sacerdotis sit gladiata manus.
Archa vetus Moysi valuit, nobisque valebit
Arcus qui populum tensus in orbe ferit.
In celo posuit deus arcum, sit quod ibidem
370 Federis in signum pacis ad omne genus;
Nos tamen in terris nostrum dum tendimus arcum,
Pacis in exilium signa cruoris habet.
Adiuuet ipse deus quos vult, set noster in armis
Saluus erit clerus militis acta tenens.
Criste, tua forti Sathanam virtute 369Nota hic370
ligasti, de bello Cleri
Quem nos de clero soluimus ecce tempore Regis
nouo; Ricardi in
Flandria, quia
Ipse solutus enim soluit tunc non solum
quoscumque ligatos, seculares set
Quo sua vota deo soluere nemo eciam
venit. regulares
Abbatem monachus nescit, nec presbiteri in
claustra priorem373 guerris371
ibidem
Ordinis in forma iam retinere mortalibus
380 queunt; quasi Laici
A dextro latere meretricem dumque spoliantes372
sacerdos insisterunt.
Et gladium leua promptus ad arma
tenet.
Quis tali melius est consignatus in orbe,
Forcior armatus, vt bene bella ferat?
Tempore quo cohitum natura mouet, pecus omne
Prouocat ex facili bella furore suo:
Set si causa sit hec, sumat qua presbiter arma,
Longior a pace pugna perhennis erit.
Militis officium non aris thurificare
390 Est, neque presbiteri publica bella sequi.
Si valet in bello clerus sibi ferre triumphum,
Ammodo quid validi militis acta valent?
Quem decet orare clerum pugnare videmus,
Curam de bellis, non animabus habent.
Quid si vulneribus superaddat homo tibi vulnus,
Num dici medicus debeat ipse tuus?
Num decet aut medicum morbo superaddere
morbum,
Quo fugit interius longius ipsa salus?
Hoc experta docet natura, quod omnis in orbe
400 Qua magis infirmor, est medicina mala.
Quos reperare decet pacem, si bella
frequentent,374
Nescio quo pacis tutus inire viam.
Dicitur vt fortuna rei de fine notatur,
Rebus et in dubiis exitus acta probat:
Qualis erit finis, seu que fortuna sequetur
In cleri bellis scit magis ipse deus.
Hic loquitur qualiter clerus in amore dei et

proximi deberet pius et paciens existere et non
bellicosus.
Capm. vii. Semper in aduersis est virtus maior, et ecce

Lumen in obscuro clarius esse solet.
Nobile vincendi genus est paciencia; vincit
410 Qui patitur; si vis vincere, disce pati.
Armiger ipse tuus et signifer est tibi Cristus,
Si simplex fueris et pacienter agas.
Ense manu, iaculis, aliis pugnare iubetur,
Nos pugnare fide, spe, pietate decet.
In seruum domini nichil hostis iuris habebit,
Ordine seruato causa fauebit ei:
Sic cum doctrinis fueris completus honestis,
Tunc hostes poteris inde fugare tuos.
Vt sis sublimis meritis accinctus in hostes,
420 Scripture iaculis hostica tela fugas.
Pro nobis pugnet Ysaïas cum Ieremia,
Cum Daniele Iohel, cum Samuele Dauid;
Lex euangelii, vox Pauli, sermo prophete,
Tres michi sunt testes, nostra stat vnde salus.
Cogitat ecce Dauid domino fundare, set audit
A domino, templum, ‘Non fabricator eris:
Es vir sanguineus, ideo dignum michi templum
Sanguine fedatus tu fabricare nequis.’
Sanguinis effusor, amplectens crimina mundi,
430 Ex bellis templum non valet esse dei:
Ecclesie sancte talis non erigit edem,
Nec sacre fidei collocat ipse domum.
Est nam mors odium, sicut scriptura fatetur;
Qui fratres odit est homicida sui:
Quomodo nos igitur, plebis de sanguine tincti,
Altaris famuli possumus esse dei?
Peccantis Cristus vult vitam, nec moriatur,
Set conuertatur, viuat vt ipse deo:
Et nos pro mundi rebus iugulamus in ense,
440 Quos Cristi sanguis viuere fecit, eos.
Quas statuit Cristus leges fuerant pietatis,
Nec peciit mundi quid nisi corda sibi;
Non cordis carnem, set quam dileccio mentem
Prestat, et has leges vendicat esse suas:
Nos tamen econtra cum sanguine carnea corda
Poscimus, vt nostra sit magis ira fera.
Nescio si mundum sub guerra vincere tali
Possumus; hoc reputo, displicet illa deo:
Namque malignantis deus ecclesiam magis odit,
450 Subque manu tali prospera nulla sinit.
Virtutem dat eis, qui mundum vincere norunt,
Ipsa fides Cristi fratris et intus amor.
Fratris amor pacem confirmat, federa seruat,
Stringit amicicias continuatque fidem:375
Fratris amor nescit aliena sitire, nec vmquam
Que sua sunt querit, nec scit habere suum:
Fratris amor ledi non vult nec ledere querit,
Nec queritur, nec dat vnde queratur homo.
Augens merorem male vindicat ipse dolorem,
460 Dum pugnat clerus obstat et ipse deus:
Nam mundanus amor premit omni tempore
quosque,
Set diuina manus seruat ab hoste suos.376
Prima dei timor est sapiencia, prima salutis
Est via, lux prima premia prima parans:
Federe perpetuo timor amplexatur amorem,
Quem sibi consimili federe iungit amor.
Vna nequit virtus alia virtute carere,
Nam timor est et amor connumeratus idem:
Est pater, hinc amor est; est iudex, inde timetur;
470 Et timor hic et amor comoda multa ferunt.
Non timor est serui set nati, suppliciumque
Non parit, immo parat premia magna viro.
Omnis amans Cristum timet illum; qui timet ipse
Non facit excessum, prouocet vnde d e u m:
Hic amor inspirat hominem discernere celum,
Iudicat et mundi gaudia vana fore.
Est igitur mirum, modo quod discordia cleri
Non se pacificat huius amoris ope.
Litera sacra docet, virtus quod amor placet omnis,
480 Et non mundanus ambiciosus honor;
Namque suos mundus dilectores magis arcet,
Et minus in fine commoditatis habent.
In veteri lege nullas habuere Leuite
Terras, nec mundus sollicitauit eos;
Immo deo soli plebis pro pace vacare
Est et non alia sollicitudo sua.
Non est ergo bonum mundanas sumere guerras,
Cum deus est mitis et bona pacis amat.
Hic tractat eciam qualiter non decet prelatos
contra populum Cristianum ex impaciencia
aliqualiter bella mouere; set tantum ex
precibus, deo mediante, absque ire impetu
omnem mundi deuincant377 maliciam.
Capm. viii. Inuoluens mentem meditando me stupor angit,

490 Cristi doctrina quam pietosa fuit;
Omne quod est pacis instruxit regula Cristi,
Quicquid et est belli nostra cupido mouet.
Ponit et opponit racio michi de racione,
Qualiter ex clero bellicus vnus erit.
Plures sunt cause, quod non ita fiat, et inde
Cristus in exemplum plurima verba docet:
Et si pro mundo fiat, sapiencia mundi
Arguit econtra, si videatur opus:
Nam dum pacifici fuerant nec honoris auari,
500 Omnis tunc requies glorificabat eos.
Si mundana decet mundanos bellica pugna,
Longius a clero sit tamen ille furor:
Que prosunt aliis, aliis nocuisse probantur,
Q u o d facit hunc stare, corruet alter eo:
Non bene conueniunt laicis misteria cleri,
Nec clero laici conuenit arma sequi.
Bella gerant alii, regat et paciencia clerum,
Quique tubis resonant, nos tacuisse decet.
Quo leuius cessit cuiquam victoria belli,
510 Victoris tanto gloria maior erit.
Non hiis, qui poterunt ex verbo cuncta ligare,
Expedit vt ponant quomodocumque manus:
Non opus est armis, vbi vox benedicta triumphat;
Qui vincit precibus, est sibi guerra nichil:
Quem deus in tanto promouit munere clerum,
Sollempnes satis est voce mouere preces.378
Qui sibi vult pacem, paciens in pace quiescat;
Non grauat hunc mundus quem iuuat ipse deus:
Quo casu queris, tibi respondere tenebor:
520 Qui bellator erit, bella parantur ei.
O quam perduros habet impaciencia fines,
Vnde solet preceps exitus esse grauis.
Impetus, vt memini, grauis est deformiter illis,
Quos sine iure dei propria iura regunt;
Stultaque multociens nocuit vexacio stulto,
Qui proprio capiti fine refundit onus:
Cumque suas vires quis vult preponere Cristi
Viribus, et bellum vincere credit eis,
Tanto debilior erit, et cum sic superare
530 Se putat, en victus subditur ille prius.
Vult implere viam Balaam, set trita flagellis
Et diuina videns tardat asella viam:
Quod sibi sic hominis habet impetuosa voluntas,
Denegat effectus commoditatis opus.
Quam variis vicibus humane res variantur,
Hoc docet expertus finis vbique rei:379
Quam minima causa magnum discrimen oriri
Possit, ab effectu res manifesta docet.
Rebus in aduersis opus est moderamine multo,
540 Nec decet in grauibus precipitare gradum:
Micius in duris sapiens Cato mandat agendum,
Nam nimis accelerans tardius acta facit:
Rebus in ambiguis quociens fortuna laborat,
Plus faciet paciens quam furor ille potest.
Talia rite docet, aliis dum predicat, ecce
Clerus, et econtra sic quasi cecus agit.380
Turpia doctorem fedant, cui culpa repugnat,
Nec sibi quid longo tempore laudis erit.
Nos nisi prosperitas nichil excusare valebit,
550 Quam constat nimiam nos tenuisse diu:
Extitit in letis minor et sollercia nobis,
Cernere nec cecos nostra cupido sinit.
Copia multociens hominem defraudat inanem,
Atque magis plenum causat habere famem.
Quam fuerat requies nuper sine crimine clero
Dulcis, amara modo sollicitudo docet.
Casibus in letis magis est metuenda voluptas,
Sepius in vicium que vaga corda ruit:
Casibus in letis quam sit vicina ruina,
560 Et lapsus facilis, nemo videre potest.
Non reputet modicum modico contenta
voluntas,381
Res de postfacto que fuit ante docet:
Nec magnum reputet quisquam, quin tempore
quouis
Fortuito casu perdere possit idem.
Discant precipites et quos mora nulla retardat,
Ne nimis accelerent in sua dampna manus:
Hoc docet in clero magis experiencia facti,
Quod mundana nichil cura valoris habet.
Est homo iumentis similis, qui fulget honore
570 Vanus, et ignorat quid sit honoris onus.
Est honor ille deo, puto, quando superbia mentem
Non grauat, immo dei debita iura tenet.
‘Qui mecum non est, hic contra me reputatur,
Collector sine me spersor inanis erit’:
Hec sunt verba dei, cuius de pondere legis
Addit vel minuit lex positiua nichil.
Hic tractat quod, sicut non decet dominos

temporales vsurpare sibi regimen in
spiritualibus, ita non decet382 cleri prelatos
attemptare sibi guerras et huiusmodi
temporalia, que mundi superbia et auaricia
inducunt.
Capm. ix. Anulus et baculus sunt ius papale sequentes,

Quos velut in signum spirituale tenet;
Cesaris et ceptrum mundi sibi signat honorem,383
580 Quo quasi mundane res famulantur ei.
Papa colens animas has dampnat viuificatque,
Corpora set Cesar subdita iure regit.
Non licet vt Cesar animas torquere valebit,
Nec de posse suo res tenet illa sibi;
Nec decet ex guerris hominum quod papa fatiget
Corpora, namque sibi non tenet illud opus:
Quisque suum faciat factum, pro quo venit ille,
Saltem qui pondus tam capitale gerit.
Qui tenet hic animas sub cura, celsior extat,
590 Et gradus anterior glorificabit eum.
Quicquid agit papa, licet, vt status ille fatetur,
Errat persona, non status ille tamen:
Nam sacer ille status mundum transcendit, et eius
Celorum claues dextera palma gerit.
Hinc aperitque polum, tetram quoque claudit
abissum,384
Que super aut subtus sunt, sua iura colunt;
Quod ligat est firmum, quod soluit eritque solutum,
Posse suum nostris sic animabus habet.
Cesaris hec que sunt, lex vt reddantur eidem
600 Vult, et vt illa dei sint tribuenda deo.
Cesaris est vt ei caput inclines, animamque
Pape, sic proprium reddis vtrique suum:
Cesar habere statum pape nequit, aut sibi papa
Cesaris imperium non propriare potest.
Cesaris hoc non est vt spiritualia temptet,
Nec decet vt papa Cesaris arma gerat:
Papa suum teneat Cesarque suum, quod vtrique
Iura coequata stent racione rata.
Si sibi presumat Cesar papalia iura,
610 Hoc non papa sinit, immo resistit ei:
Ergo quid est bellum pape quod Cesaris extat?
Nam deus ecclesie pacis amator erat.
Set quia papa suis mundum scrutatur in armis,
Inueniet similem quem petit inde modum:
Opponis mundo, mundus respondet, et illam
Quam sibi preponis rem dabit ipse tibi.
Quos prius ecclesia fundauerat ipsa fideles,385
Nunc magis impaciens dura per arma necat.
Rusticus agricolam, miles fera bella gerentem,
620 Rectorem dubie nauita puppis amat:
Cristus amat pacem, pax vendicat et sibi clerum,
Clerus et ergo suos debet habere pios.
Turpe referre pedem nec passu stare tenaci,
Turpe laborantem deseruisse ratem;
Turpius est Cristi pro mundo iura fugare,
Qui statuunt bellum pacis adesse loco.
Omnia regna quasi, Cristi que nomen invndat,
Bella gerunt reprobis horridiora Gethis.
Sufficeret tamen hoc, quod bella forent laicorum,
630 Si non quod proprio clerus in ense ferat:
Quicquid agant laici, minus excusare valebo
Clerum, quem Cristi regula pacis habet.
Set bona que mundi fugitiua sunt velut vmbra,386
Postposito Cristo, bella nephanda mouent.
Quicquid in humanis sit spiritualiter actum,
Clerus in officio clamat habere suo:
Est et mundanis que maior gloria rebus,
Vendicat hoc gladii proprietate sui.
Sic modo fert clerus geminas quibus euolat alas,
640 Illa tamen mundi plus placet ala sibi.
Sic piper vrtice mordacis semina miscent,387
Dum clerus mundi sponsus adheret ei;
Dumque tumens mundo clerus se miscet auaro,
Quo doleat populus, fit magis egra salus.
Non satis est illis populum vexare quietum,
Set magnum bello sollicitare deum.
Est ‘Non occides’ scriptum, set in orbe manentem
Preualet hoc certum nullus habere locum.
Est vbi dic ergo ius nostrum, nonne caducis
650 Talibus in rebus quas retinere nequis?
Linea natalis matris de iure fatetur
Heredem Cristum, qua fuit ortus, humi:
Si quid in hoc mundo nobis proprium magis esset,
Pars foret hoc Cristi que titulatur ei:
Hanc tenet intrusor modo set paganus, ab illa
Thesauris nostris nulla tributa feret.
Nos neque personas neque res repetendo
mouemus
Bella viris istis, lex ibi nostra silet:
Non ibi bulla monet, ibi nec sentencia lata
660 Aggrauat, aut gladius prelia noster agit:
Que sua sunt Cristus ibi, si vult, vendicet ipse,
Proque sua bellum proprietate ferat.
Nos ita longinquis non frangimus ocia guerris,
It neque pro Cristi dote legatus ibi;
Set magis in fratres, signat quos vnda renatos,
Pro mundi rebus publica bella damus.
Mandatum Cristi clerus quod predicet extat,
Et sibi sic lucrum spirituale gerat;
Non lego quod mundi pro lucro clerus ad arma
670 Procedat, set ibi parcat amore dei.
Sermo tamen cleri paganos nescit, vt illos
Conuertat, nec eo se iuuat ipse lucro:
Castra sibi que domos pocius lucratur et vrbes,
Pro quibus, vt vincat, forcius arma mouet.
Est sibi quod proprium, sic spirituale recusat,
Torpet et improprie quo foret ipse vigil;
Que tamen impropria Cristus sibi dixerat, i l l a
Mundi terrena propriat ipse sua:
Sic magis impropria propriat, propriisque
repugnans
680 Dispropriat clerus, que dedit acta deus.
Venit enim princeps huius mundi, famulatum
Optinet et nostrum, fert quia grande lucrum.
Cristi pauperiem mens nostra perhorret auara,
Ocia ne nostri corporis ipsa premat;
Nec sua cor mulcet humilis paciencia nostrum,388
Hoc etenim nostra pompa superba negat:
Nullus nos cinget nisi libera nostra voluntas,
Cuius habet tenera ducere frena caro.
Conditor est iuris qui spernere iura videtur,
690 Nec tenet ipse vias, quas docet esse suas;
Crimina condempnat qui crimine primus habetur,
Corripiens alios deteriora facit.
Ipse suas maculas, qui noscere vult aliorum,
Noscat, et emendet que sua culpa parat:
Qui claues Petri gestaret vt ostia celi
Panderet, illa viris claudit in orbe prius.
Cum magis hoc penso, magis obstupefactus in illo
Sum, nam lux quicquid predicat vmbra fugat:
Vnius gustus infecit milia multa,
700 Commaculantur eo cuncta sapore malo.
Sublimo residens dux prima superbia curru,
Multa minans vultu, lumine, voce, manu:
Subsequitur liuor, turba comitatus acerba,
Pallida res, atra pestis, amara lues;
Que solet et pietas peccata remittere vindex,
Extat auaricia lucra caduca petens.
Quam grauis est pestis, quam triste superbia
nomen,
Radix peccati, fons et origo mali!
Fons fuit hec sceleris, tocius causa doloris,
710 Virtutum morbus, saltus ad yma cadens,
Hospes auaricie, paupertas prodiga, fraudis
Principium, fallax sensus, iniqus amor,
Irrequies mentis, lis proxima, mortis amica,
Perfida mens, racio deuia, vanus honor.
Hec quasi de proprio sunt apropriata superbo,
Heres et baratri primus habetur ibi:
Hoc capitale malum quo regnat egens caput omne
Conficit, et caude par facit esse sue.
Hoc caput est rerum viciis seruire coactum,
720 Liber homo didicit hoc graue ferre iugum;
Non illud domini, quod dicitur esse suaue,
Immo quod imposuit invidus hostis ei;
Non quo libertas perquiritur illa salutis,
Set quod seruili condicione premit.
Fabrica prima, decus primum, primatis honore
Preditus, est prime perdicionis opus.
Prodolor, heu! tante dic que sit causa ruine:
Elate mentis motus origo fuit.
O mens elata, presumpcio dira, superni
730 Regis habere locum, iudicis esse parem,
Equarique suo factori, non imitari,
Equiperare deum nec bonitate sequi!
Expedit exemplis vt talibus euacuetur
Fastus, et ex humili corde paretur opus.
Incertum dimitte, tene certum, quia Cristi
Actus erat pacis, bella nec vlla mouet.
Si caput ecclesie delinquat ab ordine sacro,
Ecce nephas capitis membra nephanda parat.
Ordo sacerdotum pro Cristi nomine guerras

740 Non dedit, immo pati cum pietate solet.
Fustibus hii torti quemquam torquere recusant,
Cunctaque sic vincunt, dum pacienter agunt;
Inque bono vicere malum, quia Cristus eorum
Dux fuit, et iustis iusta petita dabat.
Quesiuit precibus bona spiritualia Petrus,
Vicit et egregie sic sua bella prece:
Hec fuit excelsi dextre victoria, cuius
Viribus efficitur quicquid adesse cupit.
Omnia namque pie moderatur, et omnia iusto
750 Pondere perpendit, dum sua vota dedit:
Sic qui prospiceret Cristi meditans pietatem,
Non tumidus fieret nec leuitate fluens.
Non fuit argentum sibi dixit Petrus et aurum,
Set preciosa magis dat sibi dona deus:
Dixerat hic claudo quod surgat, surgit et ille,
Ambulet et vadat, vadit et ipse statim.
Nunc quid erit nobis? nam si vir postulet omnis
Vt sic curemus, absque salute sumus.
Non habet elatus animus, quo digna precetur,
760 Molle cor; ad timidas dat deus immo preces.
Qui fuerat dulcis salibus viciatur amaris,
Floriger et veris floribus extat inops.
Auro magnifici sumus et virtutis egeni,
Nam que sunt auri duximus illa sequi:
Aurum si quis habet, satis ipsum constat habere,
Est et in hoc mundo sic benedictus homo.
Influit in cleri totus quasi mundus hiatum,
Inque suas fauces aurea queque vorat:
Vt tamen inde iuuet inopes, non paruula gutta
770 Refluit, immo tenax propriat omne sibi.
Se dedit in precium Cristus pro munere plebi,
Nos tamen ingrati nostra negamus ei.
O caput ecclesie, reminiscere tempora Cristi,
Si dedit exemplis talia sicut agis.
Ipse redemit oues, a morteque viuificauit,
Quas pietatis inops tu cruciando necas.
Precipit ipse, vices per septem septuagenas
Dimittat Petrus, parcat et ipse reis;
Tu tamen ad primam gladio cum vindice culpam
780 Percutis, et nullo parcis amore viro.
Ecce Rachel plorat nec habet solamina tristis,
Dum genus ex proprio ventre reliquit eam.
O genus electum, gens sancta, quid est quod
auara
Scandala iudiciis ponis in orbe tuis?
Prodolor! ecclesie bona, que debentur egenis,
Dissipat in bellis qui dominatur eis.
Prodolor! a clero, pietatis iure remoto,
Cauda fit ecclesie qui solet esse caput;
Fitque salus morbus, fit vitaque mors, releuamen
790 Lapsus, lex error, hostis et ipse pater.
Hic querit quod, exquo prelati scribunt et

docent ea que sunt pacis, quomodo in
contrarium389 ea que sunt belli procurant et
operantur. Ad quam tamen questionem ipse
subsequenter respondet.
Capm. x. In libris cleri Rome sic scribere vidi:
‘Vt melius viuas, hec mea scripta legas.
Vis seruire deo, vis noscere qualia querit?
Hec lege, tuncque scies qualiter illud erit.
Dilige mente deum, pete, crede, stude reuereri:’
Teste libro cleri, sic iubet ipse geri.
‘Est quia vita breuis, fuge luxus corporis omnes,
Preponens anime celica dona tue:
Iusticiam serua, tua sit lex omnibus equa;
800 Hoc facias alii, quod cupis ipse tibi:
Ex toto corde dominum tu dilige, tota
Ex animaque simul sit tibi fratris amor:
Gignit nempe dei dileccio fratris amorem,
Et diuinus amor fratris amore viget.
Munera fer miseris, que Cristo ferre teneris,
Arma quibus noceas, bella nec vlla geras:
Sis pius et paciens, tua sitque modestia cunctis
Exemplum pacis, duret vt illa magis.’
Hec ita cum legi, confestim me stupor vrget,
810 Qualiter in clero bella videre queo:
Querere sic volui de clero, quis foret ille;
Qui michi responsum de racione daret.
Questio mota fuit, qua sumpta clericus vnus
Astat et oppositis prompserat ista meis;
Supponens primis quod ei sit culmen honoris
Pontificis summi, talia dixit ibi.
‘Diuidit imperium terrena potencia mecum,
Iureque celicolo subdita regna colo;
Set quia terra prope nos est celumque remotum,
820 Que magis est nobis terra propinqua placet.
Aula michi grandis, sublimis et arte decora,
Nobilis est thalamus, mollis et ipse thorus:
Vt placeant ori que postulo, de meliori
Fercula lauta cibo sunt michi, vina bibo:
Ex auium genere, de piscibus omne salubre,
Vt magis est placitum, dant michi ferre cibum:
Singula que genera vini dat potibus vua
Optineo, quod in hiis sit michi nulla sitis.
Sunt michi carmina consona, timpana, letaque
musa,
830 Histrio dat variis cantica plena iocis:
Que mare, terra parit, meliora vel aera format,
Sunt michi prompta foro, sicut habere volo.
Est michi vinea, sunt viridaria fonte reclusa,
Que peto de mundo cuncta tenere queo:
Est michi fecundus dotalibus ortus in agris,
Pompaque castrorum, summus et vrbis honor:
Silua feras, volucres aer suscepit habendas,
Et mare quam vario pisce repleuit aquas.
Set loca non tantum nobis, nec et illa creata
840 Sufficiunt, auri sint nisi dona l u c r i.390
‘Ecce fores large, quas seruat ianitor arte,
Sic vt in has pauper nullus habebit iter:
Curia quos reprobat isto sermone repellit,
“State foras, vacui, flebitis ante fores.”
Que non dona manum presentat ianitor illam
Excludat, nostras nec sciat ipsa vias:
Qui tamen occulto cupit vt sit noster amicus,
Aurum det, sine quo victima nulla placet:
Que manus est plena, magis inuitabitur illa,
850 Stet foris et vacua, nec veneretur ita.
Omnia soluo, ligo, summo diademate regno,
Orbis ego dominus: quid michi velle magis?
Me dominum clamat, me viuens omnis adorat,
Omne solum calco sic deus alter ego.
Est thronus excelsus, quo possumus omnibus vna
Et benedicta manu, sic maledicta dare:
Sicque potestate nostra reuerenter vbique
Magnus in ecclesia, maior in orbe sumus.
‘Dicimus, et facta iam sunt, mandamus, et ecce
860 Accrescunt subiti dona creata lucri.
Que Cristus renuit suscepimus omnia regna
Mundi, que dominans gloria vana dedit:
Sic exaltati de terra traximus ad nos
Omnia deliciis amplificata magis.
Sic status assumptus quales sumus approbat, vt
nos
Ocia plectentes qui cruciamus humum.
Suaue iugum, leue Cristus onus nobis dedit, et
nos
Pondera que mundi sunt grauiora damus:
Iura damus populis, set nos non lege tenemur,
870 Que michi lex placuit iuris habebit onus.
Iudiciis hominum non stat quod pecco per orbem,
Sic michi cuncta licent, que magis acta placent;
Et si mundus in hiis fiat michi forte rebellis,
Est mea de guerris forcior ecce manus.
Hiis quoque de causis respondeo papa, quod
omnes
Per mea terrigenos bella retrudo viros.
‘Inter discipulos fuerat discordia facta,
Norma set infantis pacificauit opus:
Nos tamen ad veram nullo moderamine pacem
880 Flectere quis poterit, hoc neque pompa sinit.
In cruce confixus patitur sua funera Cristus,
Et fuit illa viris passio vera salus:
Omnibus exemplum fuit hec paciencia Cristi,
Alterutrum socii simus vt inde pii.
Nos tamen in signum vindicte ponimus illam,
Plebis et in mortem ferre iubemus eam:
Sicque pium signum diuertimus a pietate,
Que fuit et vita, nunc noua pestis erit.
Sic modo sunt mortis nuper vexilla salutis,
890 Que tulit et pacem crux modo bella gerit:
Sicque crucem domini baiulamus, mente set vlla
Non sequimur dominum, qua tulit ipse crucem.
Quod nequit hoc virtus, supplebunt ammodo vires,
Non mos set mortis pugna parabit iter:
Nostra sinistra teret quicquid fundauerat olim
Dextra, que sic humilis non parit oua fides.
Quam collegerunt alii dispergere messem
Tendimus, et feritas nostra vorabit humum:
Vinea sic domini nostros inculta labores
900 Non habet, estque magis bellica facta manus:
Sic magis, extrahere quem de pietate tenemur,
Sternimus in puteum de feritate bouem.
‘Quod tulerat Petrus lucrum Iudea fatetur,
Quas tulit et Paulus gens manifestat opes:
Nos neque cum vacuis manibus veniemus in auro,
Quod tamen est lucrum spirituale nichil.
Postera quicquid agat etas, iam nulla veremur
Crimina, dum mundus noster amicus erit:
Vt sit enim nomen nostrum nomen super omne,
910 Est vbi rarus honor, pugna iuuabit opus.
Ense peribit homo iuxta leges Machometi,
Eius qui nomen spernit habere sacrum:
Nos ita decretum iam ponimus ense volutum,
Nomen vt hinc nostrum presit in omne solum.
Cesaris imperio qui contradicit, amicus
Eius in hoc mundo non reputatur homo:
Sic homo, qui nomen nostrum non preficit altum,
Filius est mortis, ensis in ore reus.
‘Mittere sic gladium non pacem venimus orbi,
920 Et noua iam facimus omnia, dampna tamen.
Sic caput in membra iam seuit, et aggrauat illos,
Quos minus officio lederet ipse suo:
Sic pater in natos nunc fit magis ipse Saturnus,
Quos sua deberet lexque fouere, necat:
Sic et pastor oues, quas pascere iure tenetur
Iam vorat, et proprium predat ouile suum:
Sic ferus vt iudex agitamus secla per ignem,
Purgatique magis eris habemus opes.
Vendat enim tunicam sibi clerus et hinc emat
ensem,
930 Cesset et a sacris quilibet ordo suis:
Nomen et in terris sic nostrum magnificemus,
Vt timeant alii bella futura sibi.
Iam pastoralis baculus vertetur in hastam,
Mitra fit in galeam, pax ruit inque necem:391
Qui prodesse velit prosit, nam nos super omnes
Preferri volumus, gestet et alter onus.
‘Sic nos, qui summi portamus nomina cleri,
Corde magis ceci duximus arma sequi:
Quicquid agant anime, nos subdere corpora mundi
940 Tendimus, et nobis lex positiua fauet;
Nam licet ex glosa gladium quod sumat vtrumque,
Quo ferat extenta bellica, nostra manus.
Ergo magis paueant omnes dedicere nobis,
In quorum bellis os ferit atque manus.
Attamen ad pacem nostram suscepimus omnes
Barbaricas gentes, ne cruciemur eis:
Contra Cristicolas pretendimus arma mouere,
Qui modo sunt ausi vix sua iura loqui.
Auriculam Petrus abscidit, vulnus et illud
950 Sanum restituit Cristus vt ante fuit;
Nostra set ira caput aufert, quo vulnere nullum
Nouimus in sanum post reuenire statum.
Est igitur Petri maior sentencia nostra,
Et gladius noster forcior ense suo.’
Sic differt Clemens nunc a clemente vocatus,
Errat et Acephalo nomine nomen habens.
Hic loquitur de prelatis illis, qui nomen

sanctum sibi presumunt, appropriant tamen sibi
terrena, nec aliis inde participando ex caritate
subueniunt.
Capm. xi. Angelus, vt legitur, sancto quandoque Iohanni

Dixit, cumque cadens alter adorat eum,
‘Tu michi, serue dei, videas ne feceris illud,
960 Immo deum toto cordis honore cole.’
‘Quem tamen in terris celestis ciuis honorem
Respuit, hunc repetit curia nostra sibi;
Flectitur inde genu, que pedes post oscula nostros
Mulcent, vt Cristi pes foret alter ibi.’
Precipit hoc Cristus, eius quod discipulorum
Nemo patris nomen querat habere sibi:
In celo sancti proclamant ‘Sanctus’ vt illi
Qui sedet in solio dignus honore suo.
‘Nos tamen in gente nomen portamus vtrumque,
970 “O pater, o sancte,” quisque salutat, “aue!”
Extitit a Cristo data nobis magna potestas,
Vndique quam mundus amplificare studet.
Hoc sit vt esse potest: celum quicumque ligabit,
Scimus nos mundum posse ligare satis:
Nam modo lex posita bellorum ponit auara
Quod valet ecclesia vi reuocare sua.
Set quicquid clerus rapit et tenet ex alienis,
Hoc valet a clero tollere nullus homo.’
Quicquid habet clerus proprios hoc vertit in vsus,
980 De laicis partem vult set habere suam.
Hic bona cuncta sua fore dicit sanctificata,
Nec licet vt laicus mittat ad illa manus;
Partem sed laici petit ipse per omnia lucri,
Nec vult cum dampno participare suo.
Si communis amor fuerit, commune sit omne,
Quod liquet alterutrum posse iuuare virum:
Set quia iam clerus non est communis amoris,
Quicquid habet soli vult retinere sibi.
Ex veteri lege raptum sit quicquid ab hoste,392
990 Non valet illud homo sanctificare deo;
Nostra set ecclesia clerus vicinia rapta
Predat, et hec propria dicit habere sacra.
Sic multat laicum clerus, multare set ipsum
Nemo potest, et ita stant modo iura noua:
Sic non pastor oues pascit, set pastus ab ipsis
Lac vorat et vellus, alter vt ipse lupus:
Sic libras siciens libros non appetit, immo
Marcam pro Marco construit ipse libro:
Summas non summa memoratur, et optima vina
1000 Plusquam diuina computat esse sacra:

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Textbook for CFIN 6th Edition by Scott

4LTR STUDENT EDITION

6 Bonds (Debt)-Characteristics 8-2

10 Project Cash Flows 11-1b

Key Concepts for Managing Short·term Assets 302

PART 7 A-2 Solving Time Value of Money (TVM) Problems Using

i1 7 u A-2f Setting Up an Amortization Schedule 334

------- -·-- -----------· - - -- --·-- ...·,•. .

CHAPTER 1: An Overview of Managerial Finance 3

4 PART ONE: Introduction to Managerial Finance

CHAPTER 1: An Overview of Managerial Finance 5

6 PART ONE: Introduction to Managerial Finance

CHAPTER 1: An Overview of Managerial Finance 7

8 PART ONE: Introduction to Managerial Finance

3. Corporate ownership can be transferred more

Most finns are 1nanaged "~th value maximi-

CHAPTER 1: An Overview of Managerial Finance 9

10 PART ONE: Introduction to Ma nagerial Finance

Firm Factors/Considerations: Investor Factors/Considerations:

Value of the Firm

CHAPTER 1: An Overview of Managerial Finance 11

12 PART ONE: Introduction to Managerial Finance

CHAPTER 1: An Overview of Managerial Finance 13

14 PART ONE: Introduction to Managerial Finance

CHAPTER 1: An Overview of Managerial Finance 15

Capm. vi. Ante sue mortis tempus dedit atque reliquit

Hic loquitur qualiter clerus in amore dei et

Capm. vii. Semper in aduersis est virtus maior, et ecce

Capm. viii. Inuoluens mentem meditando me stupor angit,

Hic tractat quod, sicut non decet dominos

Capm. ix. Anulus et baculus sunt ius papale sequentes,

Ordo sacerdotum pro Cristi nomine guerras

Hic querit quod, exquo prelati scribunt et

Hic loquitur de prelatis illis, qui nomen

Capm. xi. Angelus, vt legitur, sancto quandoque Iohanni

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