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Fundamentals of
CORPORATE FINANCE
viii PREFACE FROM THE AUTHORS

variety of features in the book to help students to learn about corporate finance. We also
provide flexibility in package options by offering the most extensive collection of teaching,
learning, and technology aids of any corporate finance text. Whether you use only the text-
book, or the book in conjunction with our other products, we believe you will find a combi-
nation with this edition that will meet your current as well as your changing course needs.

Stephen A. Ross
Randolph W. Westerfield
Bradford D. Jordan
 Coverage
This book was designed and developed explicitly for a first course in business or corporate finance,
for both finance majors and non-majors alike. In terms of background or prerequisites, the book is
nearly self-contained, assuming some familiarity with basic algebra and accounting concepts, while
still reviewing important accounting principles very early on. The organization of this text has been
developed to give instructors the flexibility they need.
The following grid presents, for each chapter, some of the most significant features as well as a few
selected chapter highlights of the 11th edition of Fundamentals. Of course, in every chapter, opening
vignettes, boxed features, in-chapter illustrated examples using real companies, and end-of-chapter
material have been thoroughly updated as well.

Chapters Selected Topics of Interest Benefits to You

PART 1 Overview of Corporate Finance
CHAPTER 1 Goal of the firm and agency problems. Stresses value creation as the most fundamental
aspect of management and describes agency
Introduction to Corporate
issues that can arise.
Finance
Ethics, financial management, and Brings in real-world issues concerning conflicts
executive compensation. of interest and current controversies surrounding
ethical conduct and management pay.
Sarbanes-Oxley. Up-to-date discussion of Sarbanes-Oxley and its
implications and impact.
Minicase: The McGee Cake Company. Examines the choice of organization form for a
small business.

CHAPTER 2 Cash flow vs. earnings.
Financial Statements, Taxes,
and Cash Flow Market values vs. book values.
Brief discussion of average corporate
tax rates.
Minicase: Cash Flows and Financial
Statements at Sunset Boards, Inc.
Clearly defines cash flow and spells out the
differences between cash flow and earnings.
Emphasizes the relevance of market values over
book values.
Highlights the variation in corporate tax rates
across industries in practice.
Reinforces key cash flow concepts in a small
business setting.

PART 2 Financial Statements and Long-Term Financial Planning

CHAPTER 3 Expanded DuPont analysis.
Working with Financial
Statements
DuPont analysis for real companies
using data from S&P Market Insight.
Ratio and financial statement analysis
using smaller firm data.
Understanding financial statements.
The enterprise value–EBITDA ratio.
Minicase: Ratio Analysis at S&S Air,
Inc.
Expands the basic DuPont equation to better
explore the interrelationships between operating
and financial performance.
Analysis shows students how to get and use real-
world data, thereby applying key chapter ideas.
Uses firm data from RMA to show students how
to actually get and evaluate financial statement
benchmarks.
Thorough coverage of standardized financial
statements and key ratios.
Defines enterprise value (EV) and discusses the
widely used EV–EBITDA ratio.
Illustrates the use of ratios and some pitfalls in a
small business context.

ix
x COVERAGE
Chapters Selected Topics of Interest
CHAPTER 4 Expanded discussion of sustainable
growth calculations.
Long-Term Financial Planning
and Growth Explanation of alternative formulas for
sustainable and internal growth rates.
Thorough coverage of sustainable
growth as a planning tool.
Long-range financial planning.
Minicase: Planning for Growth at S&S
Air.
PART 3 Valuation of Future Cash Flows
CHAPTER 5 First of two chapters on time value of
money.
Introduction to Valuation:
The Time Value of Money
CHAPTER 6 Growing annuities and perpetuities.
Second of two chapters on time value
Discounted Cash Flow
of money.
Valuation
Minicase: The MBA Decision.
CHAPTER 7 Bond valuation.
Interest Rates and Bond
Valuation Interest rates.
“Clean” vs. “dirty” bond prices and
accrued interest.
TRACE system and transparency in
the corporate bond market.
“Make-whole” call provisions.
Islamic finance
Minicase: Financing S&S Air’s
Expansion Plans with a Bond Issue.
CHAPTER 8 Stock valuation.
Stock Valuation
New! NYSE market operations.
Valuation using multiples.
Minicase: Stock Valuation at
Ragan, Inc.
Benefits to You
Illustrates the importance of financial planning in
a small firm.
Explanation of growth rate formulas clears up a
common misunderstanding about these formulas
and the circumstances under which alternative
formulas are correct.
Provides a vehicle for examining the interrelation-
ships between operations, financing, and growth.
Covers percentage of sales approach to creating
pro forma statements.
Discusses the importance of financial plan and
capacity utilization for a small business.
Relatively short chapter introduces just the basic
ideas on time value of money to get students
started on this traditionally difficult topic.
Covers more advanced time value topics with
numerous examples, calculator tips, and Excel
spreadsheet exhibits. Contains many real-world
examples.
Explores the financial pros and cons of pursuing
an MBA degree.
Complete coverage of bond valuation and bond
features.
Discusses real versus nominal rates and the
determinants of the term structure.
Clears up the pricing of bonds between coupon
payment dates and also bond market quoting
conventions.
Up-to-date discussion of new developments in
fixed income with regard to price, volume, and
transactions reporting.
Up-to-date discussion of a relatively new type of
call provision that has become very common.
Discusses the issues that come up in selling
bonds to the public.
Thorough coverage of constant and non-
constant growth models.
Up-to-date description of major stock market
operations.
lllustrates using PE and price/sales ratios for
equity valuation.
Illustrates the difficulties and issues surrounding
small business valuation.

Chapters Selected Topics of Interest
PART 4 Capital Budgeting
CHAPTER 9 First of three chapters on capital
budgeting.
Net Present Value and Other
Investment Criteria
NPV, IRR, payback, discounted
payback, and accounting rate of
return.
Minicase: Bullock Gold Mining.
CHAPTER 10 Project cash flow.
Making Capital Investment
Decisions Alternative cash flow definitions.
Special cases of DCF analysis.
Minicase: Conch Republic Electronics,
Part 1.
CHAPTER 11 Sources of value.
Project Analysis and Evaluation
Scenario and sensitivity “what-if”
analyses.
Break-even analysis.
Minicase: Conch Republic Electronics,
Part 2.
PART 5 Risk and Return
CHAPTER 12 Expanded discussion of geometric
vs. arithmetic returns.
Some Lessons from Capital
Market History
Capital market history.
Market efficiency.
The equity risk premium.
The 2008 experience.
Minicase: A Job at S&S Air.
CHAPTER 13 Diversification, systematic and
unsystematic risk.
Return, Risk, and the Security
Market Line Beta and the security market line.
Minicase: The Beta for
Colgate-Palmolive.
COVERAGE xi
Benefits to You
Relatively short chapter introduces key ideas
on an intuitive level to help students with this
traditionally difficult topic.
Consistent, balanced examination of advantages
and disadvantages of various criteria.
Explores different capital budgeting techniques
with nonstandard cash flows.
Thorough coverage of project cash flows and the
relevant numbers for a project analysis.
Emphasizes the equivalence of various formulas,
thereby removing common misunderstandings.
Considers important applications of chapter
tools.
Analyzes capital budgeting issues and
complexities.
Stresses the need to understand the economic
basis for value creation in a project.
Illustrates how to actually apply and interpret
these tools in a project analysis.
Covers cash, accounting, and financial break-
even levels.
Illustrates the use of sensitivity analysis in capital
budgeting.
Discusses calculation and interpretation
of geometric returns. Clarifies common
misconceptions regarding appropriate use of
arithmetic vs. geometric average returns.
Extensive coverage of historical returns,
volatilities, and risk premiums.
Efficient markets hypothesis discussed along
with common misconceptions.
Section discusses the equity premium puzzle and
latest international evidence.
Section on the stock market turmoil of 2008.
Discusses selection of investments for a 401(k)
plan.
Illustrates basics of risk and return in a
straightforward fashion.
Develops the security market line with an intuitive
approach that bypasses much of the usual
portfolio theory and statistics.
Detailed discussion of beta estimation.
xii COVERAGE

Chapters Selected Topics of Interest Benefits to You

PART 6 Cost of Capital and Long-Term Financial Policy
CHAPTER 14 Cost of capital estimation. Contains a complete, Web-based illustration of
cost of capital for a real company.
Cost of Capital
Geometric vs. arithmetic growth rates. Both approaches are used in practice. Clears up
issues surrounding growth rate estimates.
New! Firm valuation. Illustrates the free cash flow approach to firm
valuation.
Minicase: Cost of Capital for Hubbard Covers pure play approach to cost of capital
Computer, Inc. estimation.

CHAPTER 15 Dutch auction IPOs. Explains uniform price auctions using recent
Google IPO as an example.
Raising Capital
IPO “quiet periods.” Explains the SEC’s quiet period rules.
Rights vs. warrants. Clarifies the optionlike nature of rights prior to
their expiration dates.
IPO valuation. Extensive, up-to-date discussion of IPOs,
including the 1999–2000 period.
Minicase: S&S Air Goes Public. Covers the key parts of the IPO process for a
small firm.

CHAPTER 16 Basics of financial leverage.
Financial Leverage and Capital Optimal capital structure.
Structure Policy
Financial distress and bankruptcy.
Minicase: Stephenson Real Estate
Recapitalization.
Illustrates effect of leverage on risk and return.
Describes the basic trade-offs leading to an
optimal capital structure.
Briefly surveys the bankruptcy process.
Discusses optimal capital structure for a medium-
sized firm.

CHAPTER 17
Dividends and Payout Policy
Very recent survey evidence on
dividend policy.
Effect of new tax laws.
Dividends and dividend policy.
Optimal payout policy.
Stock repurchases.
Minicase: Electronic Timing, Inc.
New survey results show the most important (and
least important) factors considered by financial
managers in setting dividend policy.
Discusses implications of new, lower dividend
and capital gains rates.
Describes dividend payments and the factors
favoring higher and lower payout policies.
Extensive discussion of the latest research and
survey evidence on dividend policy, including
life-cycle theory.
Thorough coverage of buybacks as an alternative
to cash dividends.
Describes the dividend/share repurchase issue
for a small company.
 COVERAGE xiii

Chapters Selected Topics of Interest Benefits to You

PART 7 Short-Term Financial Planning and Management
CHAPTER 18 Operating and cash cycles. Stresses the importance of cash flow timing.
Short-Term Finance Short-term financial planning. Illustrates creation of cash budgets and potential
and Planning need for financing.
Purchase order financing. Brief discussion of PO financing, which is popular
with small and medium-sized firms.
Minicase: Piepkorn Manufacturing Illustrates the construction of a cash budget and
Working Capital Management. short-term financial plan for a small company.

CHAPTER 19 Float management. Thorough coverage of float management and

potential ethical issues.
Cash and Liquidity
Management Cash collection and disbursement. Examination of systems used by firms to handle
cash inflows and outflows.
Minicase: Cash Management at Webb Evaluates alternative cash concentration systems
Corporation. for a small firm.

CHAPTER 20 Credit management Analysis of credit policy and implementation.

Credit and Inventory Inventory management Brief overview of important inventory concepts.
Management Minicase: Credit Policy at Howlett Evaluates working capital issues for a small
Industries. firm.

PART 8 Topics in Corporate Finance

CHAPTER 21
International Corporate Finance
Foreign exchange.
International capital budgeting.
Exchange rate and political risk.
Minicase: S&S Air Goes International.
Covers essentials of exchange rates and their
determination.
Shows how to adapt basic DCF approach
to handle exchange rates.
Discusses hedging and issues surrounding
sovereign risk.
Discusses factors in an international expansion
for a small firm.

CHAPTER 22 Behavioral finance. Unique and innovative coverage of the effects of

biases and heuristics on financial management
Behavioral Finance:
decisions. “In Their Own Words” box by Hersh
Implications for Financial
Shefrin.
Management
Case against efficient markets. Presents the behavioral case for market
inefficiency and related evidence pro and con.

CHAPTER 23
Enterprise Risk Management
Volatility and risk.
Hedging with forwards, options, and
swaps.
Minicase: Chatman Mortgage, Inc.
Illustrates need to manage risk and some of the
most important types of risk.
Shows how many risks can be managed with
financial derivatives.
Analyzes hedging of interest rate risk.
xiv COVERAGE
Chapters Selected Topics of Interest
CHAPTER 24 Stock options, employee stock options,
and real options.
Options and Corporate Finance
Option-embedded securities.
Minicase: S&S Air’s Convertible Bond.
CHAPTER 25 Put–call parity and Black–Scholes.
Option Valuation
Options and corporate finance.
Minicase: Exotic Cuisines Employee
Stock Options.
CHAPTER 26 Alternatives to mergers and
acquisitions.
Mergers and Acquisitions
Defensive tactics.
Divestitures and restructurings.
Mergers and acquisitions.
Minicase: The Birdie Golf–Hybrid Golf
Merger.
CHAPTER 27 Synthetic leases.
Leasing
Leases and lease valuation.
Minicase: The Decision to Lease or
Buy at Warf Computers.
Benefits to You
Discusses the basics of these important option
types.
Describes the different types of option found in
corporate securities.
Examines security issuance issues for a
small firm.
Develops modern option valuation and factors
influencing option values.
Applies option valuation to a variety of corporate
issues, including mergers and capital budgeting.
Illustrates complexities that arise in valuing
employee stock options.
Covers strategic alliances and joint ventures and
why they are important alternatives.
Expanded discussion of antitakeover provisions.
Important actions such as equity carve-outs,
spins-offs, and split-ups are examined.
Develops essentials of M&A analysis, including
financial, tax, and accounting issues.
Covers small business valuation for acquisition
purposes.
Discusses controversial practice of custom-
tailored, “off-balance-sheet” financing.
Essentials of leasing, good and bad reasons for
leasing, and NPV of leasing are examined.
Covers lease-or-buy and related issues for a
small business.
 In-Text Study Features
To meet the varied needs of its intended audience, Fundamentals of Corporate Finance is rich in valu-
able learning tools and support.

CHAPTER-OPENING VIGNETTES
Vignettes drawn from real-world events introduce students to the chapter concepts.

CHAPTER LEARNING OBJECTIVES

C

12
PART 5 Risk and Return T
This feature maps out the topics and learning
goals in every chapter. Each end-of-chapter
g
problem and test bank question is linked to a
p
Some Lessons from learning objective, to help you organize your
le

Capital Market History assessment of knowledge and comprehension.

a

WITH THE S&P 500 UP about 32 percent and the NASDAQ index up about 38 percent in 2013, stock
market performance overall was well above average for the year. However, investors in Fannie Mae had to be
thrilled with the 1,333 percent gain in that stock, and investors in Freddie Mac had to feel pleased with its 963
percent gain. Of course, not all stocks increased during the year. Stock in communications services company NII
Holdings fell 63 percent during the year, and stock in retailer JC Penney fell 54 percent. These examples show that
there were tremendous potential profits to be made during 2013, but there was also the risk of losing money—
lots of it. So what should you, as a stock market investor, expect when you invest your own money? In this chapter,
we study almost nine decades of market history to find out.

Learning Objectives

After studying this chapter, you should understand:

LO1 How to calculate the LO3 The historical risks on
For updates
on the latest return on an investment. various important types of
happenings in
finance, visit LO2 The historical returns on investments.
www.fundamentals
ofcorporate
various important types of LO4 The implications of
finance.blogspot investments. market efficiency.
.com.

PEDAGOGICAL USE OF COLOR FIGURE 9.3

This learning tool continues to be an important Future Value of Project
Cash Flows 700
feature of Fundamentals of Corporate Finance. $642
In almost every chapter, color plays an 600
$541
extensive, nonschematic, and largely self-
Future value ($)

500
evident role. A guide to the functional use of FV of initial investment $481
400
color is on the endsheets of the text.
300
FV of projected cash flow
200

100

0 1 2 3 4 5
Year

Future Value at 12.5%

$100 Annuity $300 Lump Sum
Year (Projected Cash Flow) (Projected Investment)
0 $ 0 $300
1 100 338
2 213 380
3 339 427
4 481 481
5 642 541

xv
xvi IN-TEXT STUDY FEATURES

IN THEIR OWN
IN THEIR OWN WORDS …
WORDS BOXES Robert C. Higgins on Sustainable Growth
This series of boxes are the
popular articles updated from Most financial officers know intuitively that it takes money to make money. Rapid sales growth requires
increased assets in the form of accounts receivable, inventory, and fixed plant, which, in turn, require money to pay
previous editions written by for assets. They also know that if their company does not have the money when needed, it can literally “grow broke.”
a distinguished scholar or The sustainable growth equation states these intuitive truths explicitly.
Sustainable growth is often used by bankers and other external analysts to assess a company’s credit-worthiness.
practitioner on key topics They are aided in this exercise by several sophisticated computer software packages that provide detailed analyses
in the text. Boxes include of the company’s past financial performance, including its annual sustainable growth rate.
Bankers use this information in several ways. Quick comparison of a company’s actual growth rate to its sustainable
essays by Merton Miller on rate tells the banker what issues will be at the top of management’s financial agenda. If actual growth consistently
capital structure, Fischer exceeds sustainable growth, management’s problem will be where to get the cash to finance growth. The banker thus
can anticipate interest in loan products. Conversely, if sustainable growth consistently exceeds actual, the banker had
Black on dividends, and best be prepared to talk about investment products, because management’s problem will be what to do with all the
cash that keeps piling up in the till.
Roger Ibbotson on capital Bankers also find the sustainable growth equation useful for explaining to financially inexperienced small business
market history. A complete owners and overly optimistic entrepreneurs that, for the long-run viability of their business, it is necessary to keep
growth and profitability in proper balance.
list of “In Their Own Words” Finally, comparison of actual to sustainable growth rates helps a banker understand why a loan applicant needs
boxes appears on page xlv. money and for how long the need might continue. In one instance, a loan applicant requested $100,000 to pay off
several insistent suppliers and promised to repay in a few months when he collected some accounts receivable that
were coming due. A sustainable growth analysis revealed that the firm had been growing at four to six times its
sustainable growth rate and that this pattern was likely to continue in the foreseeable future. This alerted the banker to
the fact that impatient suppliers were only a symptom of the much more fundamental disease of overly rapid growth,
and that a $100,000 loan would likely prove to be only the down payment on a much larger, multiyear commitment.

Robert C. Higgins is the Marguerite Reimers Professor of Finance, Emeritus, at the Foster School of Business at the University of Washington.
He pioneered the use of sustainable growth as a tool for financial analysis.

A NOTE ABOUT SUSTAINABLE GROWTH RATE CALCULATIONS

Very commonly, the sustainable growth rate is calculated using just the numerator in our
expression, ROE 3 b. This causes some confusion, which we can clear up here. The issue
has to do with how ROE is computed. Recall that ROE is calculated as net income divided
by total equity. If total equity is taken from an ending balance sheet (as we have done con-
sistently, and is commonly done in practice), then our formula is the right one. However, if
total equity is from the beginning of the period, then the simpler formula is the correct one.
I i i l ’ll l h i bl h dl f hi h

WORK THE WEB WORK THE

As we discussed in this chapter, ratios are an important tool for examining a company’s performance.
Gathering the necessary financial statements to calculate ratios can be tedious and time-consuming.
WEB BOXES
Fortunately many sites on the Web provide this information for free. One of the best is www.reuters These boxes show students
.com. We went there, entered the ticker symbol “HD” (for Home Depot), and then went to the ratio
page. Here is an abbreviated look at the results: how to research financial
issues using the Web
and then how to use the
information they find to
make business decisions.
Work the Web boxes also
include interactive follow-up
questions and exercises.

The website reports the company, industry, and sector ratios. As you can see, Home Depot has
higher quick and current ratios than the industry.

Questions
1. Go to www.reuters.com and find the major ratio categories listed on this website. How do the categories
differ from the categories listed in this textbook?
2. Go to www.reuters.com and find all the ratios for Home Depot. How does the company compare to the
industry for the ratios presented on this website?
 IN-TEXT STUDY FEATURES xvii

REAL-WORLD EXAMPLES
Actual events are integrated throughout the text, tying chapter concepts to real life through illustration and
reinforcing the relevance of the material. Some examples tie into the chapter-opening vignette for added
reinforcement.

SPREADSHEET STRATEGIES SPREADSHEET

How to Calculate Present Values with Multiple STRATEGIES
Future Cash Flows Using a Spreadsheet
Just as we did in our previous chapter, we can set up a basic spreadsheet to calculate the present values of T
This feature introduces
the individual cash flows as follows. Notice that we have simply calculated the present values one at a time students to Excel and
and added them up:
shows them how to set up
spreadsheets in order to
analyze common financial
problems—a vital part of
every business student’s
education.

CALCULATOR HINTS
Brief calculator tutorials appear in selected chapters to help
students learn or brush up on their financial calculator skills.
These complement the Spreadsheet Strategies.

CALCULATOR HINTS
How to Calculate Present Values with Multiple Future
Cash Flows Using a Financial Calculator
To calculate the present value of multiple cash flows with a financial calculator, we will simply discount the
individual cash flows one at a time using the same technique we used in our previous chapter, so this is not
really new. However, we can show you a shortcut. We will use the numbers in Example 6.3 to illustrate.
To begin, of course we first remember to clear out the calculator! Next, from Example 6.3, the first cash
flow is $200 to be received in one year and the discount rate is 12 percent, so we do the following:

Enter 1 12 200
N I/Y PMT PV FV
Solve for 2178.57

Now, you can write down this answer to save it, but that’s inefficient. All calculators have a memory where
you can store numbers. Why not just save it there? Doing so cuts way down on mistakes because you don’t
have to write down andyor rekey numbers, and it’s much faster.
Next we value the second cash flow. We need to change N to 2 and FV to 400. As long as we haven’t
changed anything else, we don’t have to reenter IyY or clear out the calculator, so we have:

Enter 2 400
N I/Y PMT PV FV
Solve for 2318.88
xviii IN-TEXT STUDY FEATURES

CONCEPT BUILDING
Chapter sections are intentionally kept short to promote a step-by-step, building block approach to learning. Each section is then
followed by a series of short concept questions that highlight the key ideas just presented. Students use these questions to make
sure they can identify and understand the most important concepts as they read.

Concept Questions
3.3a What are the five groups of ratios? Give two or three examples of each kind.
3.3b Given the total debt ratio, what other two ratios can be computed? Explain
how.
3.3c Turnover ratios all have one of two figures as the numerator. What are these
two figures? What do these ratios measure? How do you interpret the results?
3.3d Profitability ratios all have the same figure in the numerator. What is it? What do
these ratios measure? How do you interpret the results?

SUMMARY TABLES
These tables succinctly restate key principles, results, and equations. They appear whenever it is useful to emphasize and
summarize a group of related concepts. For an example, see Chapter 3, page 69.

PV for a perpetuity 5 C r [6.4] LABELED EXAMPLES

For example, an investment offers a perpetual cash flow of $500 every year. The return you Separate numbered and titled
require on such an investment is 8 percent. What is the value of this investment? The value examples are extensively
of this perpetuity is: integrated into the chapters.
Perpetuity PV 5 Cyr 5 $500y.08 5 $6,250 These examples provide detailed
For future reference, Table 6.2 contains a summary of the annuity and perpetuity basic applications and illustrations of
calculations we described. By now, you probably think that you’ll just use online calcula- the text material in a step-by-
tors to handle annuity problems. Before you do, see our nearby Work the Web box! step format. Each example is
completely self-contained so
students don’t have to search
Preferred Stock EXAMPLE 6.7 for additional information. Based
Preferred stock (or preference stock) is an important example of a perpetuity. When a
on our classroom testing, these
corporation sells preferred stock, the buyer is promised a fixed cash dividend every period examples are among the most
(usually every quarter) forever. This dividend must be paid before any dividend can be paid useful learning aids because
to regular stockholders—hence the term preferred. they provide both detail and
Suppose the Fellini Co. wants to sell preferred stock at $100 per share. A similar issue of
preferred stock already outstanding has a price of $40 per share and offers a dividend of $1 explanation.
every quarter. What dividend will Fellini have to offer if the preferred stock is going to sell?
 IN-TEXT STUDY FEATURES xix

KEY TERMS
Key Terms are printed in bold type and defined within the text the first time they appear. They also
appear in the margins with definitions for easy location and identification by the student.

EXPLANATORY WEB LINKS

These Web links are provided in the margins of the text. They are specifically selected to accompany text
material and provide students and instructors with a quick way to check for additional information using
the Internet.

1. A petition is filed in a federal court. Corporations may file a voluntary petition, or

The SEC has a good overview
of the bankruptcy process in its
“Online Publications” section at
www.sec.gov.
involuntary petitions may be filed against the corporation by several of its creditors.
2. A trustee-in-bankruptcy is elected by the creditors to take over the assets of the debtor
corporation. The trustee will attempt to liquidate the assets.
3. When the assets are liquidated, after payment of the bankruptcy administration costs,
the proceeds are distributed among the creditors.
4. If any proceeds remain, after expenses and payments to creditors, they are distributed
to the shareholders.

KEY EQUATIONS
Called out in the text, key equations are identified by an equation number. The list in Appendix B
shows the key equations by chapter, providing students with a convenient reference.

Based on our examples, we can now write the general expression for the value of a bond.
If a bond has (1) a face value of F paid at maturity, (2) a coupon of C paid per period, (3) t
periods to maturity, and (4) a yield of r per period, its value is:
Bond value 5 C 3 [1 2 1y(1 1 r)t ]yr 1 Fy(1 1 r)t [7.1]
Present value Present value
Bond value 5 of the coupons 1 of the face amount

HIGHLIGHTED CONCEPTS
Throughout the text, important ideas
are pulled out and presented in a
highlighted box—signaling to students
that this material is particularly relevant
and critical for their understanding.
For examples, Chapter 10, page 313;
Chapter 13, page 434.
EXCEL MASTER
Icons in the margin identify concepts
and skills covered in our unique, RWJ-
created Excel Master program. For
more training in Excel functions for
finance, and for more practice, log on
to McGraw-Hill’s Connect Finance for
Fundamentals of Corporate Finance
to access the Excel Master files. This
pedagogically superior tool will help get
your students the practice they need to
succeed—and to exceed expectations.
Average Returns: The First Lesson 12.3
As you’ve probably begun to notice, the history of capital market returns is too complicated Excel Master It!
to be of much use in its undigested form. We need to begin summarizing all these numbers. Excel Master
Accordingly, we discuss how to go about condensing the detailed data. We start out by coverage online
calculating average returns.
CALCULATING AVERAGE RETURNS
The obvious way to calculate the average returns on the different investments in Table 12.1
is simply to add up the yearly returns and divide by 88. The result is the historical average
of the individual values.
For example, if you add up the returns for the large-company stocks in Figure 12.5
for the 88 years, you will get about 10.61. The average annual return is thus 10.61y88 5
12.1%. You interpret this 12.1 percent just like any other average. If you were to pick a year
at random from the 88-year history and you had to guess what the return in that year was,
the best guess would be 12.1 percent.
AVERAGE RETURNS: THE HISTORICAL RECORD
Table 12.2 shows the average returns for the investments we have discussed. As shown, in a
typical year, the small-company stocks increased in value by 16.9 percent. Notice also how
much larger the stock returns are than the bond returns.
These averages are, of course, nominal because we haven’t worried about inflation.
Notice that the average inflation rate was 3.0 percent per year over this 88-year span. The
nominal return on U.S. Treasury bills was 3.5 percent per year. The average real return on
Treasury bills was thus approximately .5 percent per year; so the real return on T-bills has
been quite low historically.
At the other extreme, small stocks had an average real return of about 16.9% 2 3.0% 5
13.9%, which is relatively large. If you remember the Rule of 72 (Chapter 5), then you
k h i kb k f h l l l i ll h 13 9 l h
xx IN-TEXT STUDY FEATURES

CHAPTER SUMMARY AND CONCLUSIONS

Every chapter ends with a concise, but thorough, summary of the important ideas—helping
students review the key points and providing closure to the chapter.

CHAPTER REVIEW AND SELF-TEST PROBLEM CHAPTER REVIEW

2.1 Cash Flow for Mara Corporation This problem will give you some practice work- AND SELF-TEST
ing with financial statements and figuring cash flow. Based on the following informa-
tion for Mara Corporation, prepare an income statement for 2015 and balance sheets
PROBLEMS
for 2014 and 2015. Next, following our U.S. Corporation examples in the chapter, Appearing after
calculate cash flow from assets, cash flow to creditors, and cash flow to stockholders the Summary and
for Mara for 2015. Use a 35 percent tax rate throughout. You can check your answers
Conclusions, each chapter
against ours, found in the following section.
includes a Chapter
2014 2015 Review and Self-Test
Sales $4,203 $4,507 Problem section. These
Cost of goods sold 2,422 2,633 questions and answers
Depreciation 785 952
allow students to test
Interest 180 196
Dividends 225 250
their abilities in solving
Current assets 2,205 2,429 key problems related
Net fixed assets 7,344 7,650 to the chapter content
Current liabilities 1,003 1,255 and provide instant
Long-term debt 3,106 2,085
reinforcement.

CONCEPTS CONCEPTS REVIEW AND CRITICAL THINKING QUESTIONS

REVIEW AND 1. Liquidity [LO1] What does liquidity measure? Explain the trade-off a firm faces
between high liquidity and low liquidity levels.
CRITICAL
2. Accounting and Cash Flows [LO2] Why might the revenue and cost figures shown
THINKING on a standard income statement not be representative of the actual cash inflows and
outflows that occurred during a period?
QUESTIONS 3. Book Values versus Market Values [LO1] In preparing a balance sheet, why do
This successful end-of- you think standard accounting practice focuses on historical cost rather than market
chapter section facilitates value?
your students’ knowledge 4. Operating Cash Flow [LO2] In comparing accounting net income and operating
of key principles, as well cash flow, name two items you typically find in net income that are not in operating
cash flow. Explain what each is and why it is excluded in operating cash flow.
as intuitive understanding
5. Book Values versus Market Values [LO1] Under standard accounting rules, it is
of the chapter concepts. possible for a company’s liabilities to exceed its assets. When this occurs, the own-
A number of the questions ers’ equity is negative. Can this happen with market values? Why or why not?
relate to the chapter- 6. Cash Flow from Assets [LO4] Suppose a company’s cash flow from assets is neg-
opening vignette— ative for a particular period. Is this necessarily a good sign or a bad sign?
reinforcing student 7. Operating Cash Flow [LO4] Suppose a company’s operating cash flow has been
critical thinking skills and negative for several years running. Is this necessarily a good sign or a bad sign?
the learning of chapter 8. Net Working Capital and Capital Spending [LO4] Could a company’s change in
NWC be negative in a given year? (Hint: Yes.) Explain how this might come about.
material.
What about net capital spending?
9. Cash Flow to Stockholders and Creditors [LO4] Could a company’s cash flow to
stockholders be negative in a given year? (Hint: Yes.) Explain how this might come
about. What about cash flow to creditors?
10. Firm Values [LO1] Referring back to the Microsoft example used at the beginning
of the chapter, note that we suggested that Microsoft’s stockholders probably didn’t
suffer as a result of the reported loss. What do you think was the basis for our
conclusion?
11 E i V l [LO1] A fi ’ l i l h k l f
 IN-TEXT STUDY FEATURES xxi

END-OF-CHAPTER QUESTIONS AND PROBLEMS

Students learn better when they have plenty of opportunity to practice; therefore, FCF, 11e, provides extensive end-of-chapter
questions and problems. The end-of-chapter support greatly exceeds typical introductory textbooks. The questions and problems
are separated into three learning levels: Basic, Intermediate, and Challenge. Answers to selected end-of-chapter material appear
in Appendix C. Also, most problems are available in McGraw-Hill’s Connect—see page xxiv for details.
p

QUESTIONS AND PROBLEMS

1. Building a Balance Sheet [LO1] KCCO, Inc., has current assets of $5,300, net BASIC
fixed assets of $24,900, current liabilities of $4,600, and long-term debt of $10,300. (Questions 1–12)
What is the value of the shareholders’ equity account for this firm? How much is net
working capital?
2. Building an Income Statement [LO1] Billy’s Exterminators, Inc., has sales of
$817,000, costs of $343,000, depreciation expense of $51,000, interest expense of
$38,000, and a tax rate of 35 percent. What is the net income for this firm?
3. Dividends and Retained Earnings [LO1] Suppose the firm in Problem 2 paid out
$95,000 in cash dividends. What is the addition to retained earnings?
4. Per-Share Earnings and Dividends [LO1] Suppose the firm in Problem 3 had
90,000 shares of common stock outstanding. What is the earnings per share, or EPS,
figure? What is the dividends per share figure?
5. Calculating Taxes [LO3] The Dyrdek Co. had $267,000 in 2014 taxable income.
Using the rates from Table 2.3 in the chapter, calculate the company’s 2014 income
taxes.

END-OF-CHAPTER CASES
Located at the end of the book’s chapters, these minicases focus on real-life company situations that embody important
corporate finance topics. Each case presents a new scenario, data, and a dilemma. Several questions at the end of each case
require students to analyze and focus on all of the material they learned from each chapter.

MINICASE

Bullock Gold Mining

Seth Bullock, the owner of Bullock Gold Mining, is evaluat- Year Cash Flow
ing a new gold mine in South Dakota. Dan Dority, the compa-
0 2$525,000,000
ny’s geologist, has just finished his analysis of the mine site.
1 74,000,000
He has estimated that the mine would be productive for eight
years, after which the gold would be completely mined. Dan 2 97,000,000
has taken an estimate of the gold deposits to Alma Garrett, 3 125,000,000
the company’s financial officer. Alma has been asked by Seth 4 157,000,000
to perform an analysis of the new mine and present her rec- 5 185,000,000
ommendation on whether the company should open the new 6 145,000,000
mine. 7 125,000,000
Alma has used the estimates provided by Dan to determine 8 102,000,000
the revenues that could be expected from the mine. She has 9 235,000,000
also projected the expense of opening the mine and the annual
operating expenses. If the company opens the mine, it will
QUESTIONS
cost $525 million today, and it will have a cash outflow of $35
million nine years from today in costs associated with closing 1. Construct a spreadsheet to calculate the payback period,
the mine and reclaiming the area surrounding it. The expected internal rate of return, modified internal rate of return,
cash flows each year from the mine are shown in the table. and net present value of the proposed mine.
Bullock Mining has a required return of 12 percent on all of 2. Based on your analysis, should the company open the mine?
its gold mines. 3. Bonus question: Most spreadsheets do not have a built-in
formula to calculate the payback period. Write a VBA
script that calculates the payback period for a project.

WEB
WE B EX
EXER
EXERCISES
ERCI
CISE
SESS (O
(ONLINE
(ONL
NLIN
INEE ON
ONLY
ONLY)
LY))
For instructors interested in integrating even more online resources and problems into their course, these Web activities show
students how to learn from the vast amount of financial resources available on the Internet. In the 11th edition of Fundamentals,
these Web exercises are available to students and instructors through Connect.
Comprehensive Teaching
and Learning Package
This edition of Fundamentals has several options in terms of the textbook, instructor supplements,
student supplements, and multimedia products. Mix and match to create a package that is perfect for
your course!

TEXTBOOK
Customize your version of Fundamentals 11e through McGraw-Hill’s Create platform. Teach the
chapters you want in the order you want—your rep can show you how!

INSTRUCTOR RESOURCES
Keep all the supplements in one place! Your Connect Library contains all the necessary supplements—
Instructor’s Manual, Solutions, Test Bank, Computerized Test Bank, and PowerPoint—all in one easy-
to-find, easy-to-use, integrated place: your Connect Finance course.

• Instructor’s Manual (IM)

Prepared by Denver Travis, Eastern Kentucky University
A great place to find new lecture ideas! The annotated outline for each chapter includes lecture
tips, real-world tips, ethics notes, suggested PowerPoint slides, and, when appropriate, a video
synopsis.

• Solutions Manual (SM)

Prepared by Brad Jordan, University of Kentucky, and Joseph Smolira, Belmont University
The Fundamentals Solutions Manual provides detailed solutions to the extensive end-of-chapter
material, including concept review questions, quantitative problems, and cases.

• Test Bank
Prepared by Kay Johnson
Over 100 questions and problems per chapter ! Each chapter includes questions that test the
understanding of key terms in the book; questions patterned after learning objectives, concept
questions, chapter opening vignettes, boxes, and highlighted phrases; multiple-choice problems
patterned after end-of-chapter questions at a variety of skill levels; and essay questions to test
problem-solving skills and more advanced understanding of concepts.

• Computerized Test Bank (Windows)

Create your own tests in a snap! These additional questions are found in a computerized test bank
utilizing McGraw-Hill’s EZ Test testing software to quickly create customized exams. This user-
friendly program allows instructors to sort questions by format; edit existing questions or add new
ones; and scramble questions for multiple versions of the same test.

• PowerPoint Presentations
Prepared by Denver Travis, Eastern Kentucky University
The PowerPoint slides for the 11th edition have been revised to include a wealth of instructor
material, including lecture tips, real-world examples, and international notes. Each presentation
now also includes slides dedicated entirely to ethics notes that relate to the chapter topics. In
addition, the PPTs provide exhibits and examples both from the book and from outside sources.

xxii
 COMPREHENSIVE TEACHING AND LEARNING PACKAGE xxiii

Applicable slides have Web links that take you directly to specific Internet sites, or a
spreadsheet link to show an example in Excel. Go to the Notes Page function for more
tips and information while presenting the slides to your class.

STUDENT RESOURCES
Student resources for this edition can be found through the Library tab in your Connect
Finance course. If you aren’t using Connect, visit us at http://connect.mheducation.com
to learn more, and ask your professor about using it in your course for access to a great
group of supplement resources!

• Excel Resources
For those seeking additional practice, students can access Excel template problems
and Excel Master, designed by Brad Jordan and Joe Smolira.
• Narrated PowerPoint Slides
The Narrated PowerPoints provide real-world examples accompanied by step-by-
step instructions and explanations for solving problems presented in the chapter. The
Concept Checks from the text are also integrated into the slides to reinforce the key
topics in the chapter. Designed specifically to appeal to the different learning methods
of students, the slides provide a visual and audio explanation of topics and problems.
Click on the slide and listen to the accompanying narration!

TEACHING SUPPORT
Along with having access to all of the student resource materials through the Connect
Library tab, you also have password-protected access to the Instructor’s Manual, solutions
to end-of-chapter problems and cases, Instructor’s PowerPoint, Excel Template Solutions,
video clips, and video projects and questions.

HOW THE MARKET WORKS

Students receive free access to this Web-based portfolio simulation with a hypothetical
brokerage account to buy and sell stocks and mutual funds. Students can use the real data
found at this site in conjunction with the chapters on investments. They can also compete
against students in their class, and around the United States to run the most successful
portfolio. This site is powered by Stock-Trak, the leading provider of investment simulation
services to the academic community.

AVAILABLE FOR PURCHASE & PACKAGING

FinGame Online 5.0
By LeRoy Brooks, John Carroll University
(ISBN 10: 0077219880/ISBN 13: 9780077219888)
Just $15.00 when packaged with this text. In this comprehensive simulation game, stu-
dents control a hypothetical company over numerous periods of operation. The game
is now tied to the text by exercises found on the Connect Student Library. As stu-
dents make major financial and operating decisions for their company, they will develop
and enhance their skills in financial management and financial accounting statement
analysis.
xxiv COMPREHENSIVE TEACHING AND LEARNING PACKAGE

FINANCIAL ANALYSIS WITH AN ELECTRONIC

CALCULATOR, SIXTH EDITION
by Mark A. White, University of Virginia, McIntire School of Commerce
(ISBN 10: 0073217093/ISBN 13: 9780073217093)
The information and procedures in this supplementary text enable students to master the
use of financial calculators and develop a working knowledge of financial mathematics and
problem solving. Complete instructions are included for solving all major problem types
on four popular models: HP 10B and 12C, TI BA II Plus, and TI-84. Hands-on problems
with detailed solutions allow students to practice the skills outlined in the text and obtain
instant reinforcement. Financial Analysis with an Electronic Calculator is a self-contained
supplement to the introductory financial management course.

MCGRAW-HILL’S CONNECT FINANCE

LESS MANAGING. MORE TEACHING. GREATER LEARNING.
McGraw-Hill’s Connect Finance is an online assignment and as-
sessment solution that connects students with the tools and re-
sources they’ll need to achieve success.
McGraw-Hill’s Connect Finance helps prepare students for their future by enabling
faster learning, more efficient studying, and higher retention of knowledge.

MCGRAW-HILL’S CONNECT FINANCE FEATURES

Connect Finance offers a number of powerful tools and features to make managing
assignments easier, so faculty can spend more time teaching. With Connect Finance,
students can engage with their coursework anytime and anywhere, making the learning
process more accessible and efficient. Connect Finance offers you the features
described below.

Simple Assignment Management

With Connect Finance, creating assignments is easier than ever, so you can spend more
time teaching and less time managing. The assignment management function enables
you to:
• Create and deliver assignments easily with selectable end-of-chapter questions and
test bank items.
• Streamline lesson planning, student progress reporting, and assignment grading to
make classroom management more efficient than ever.
• Go paperless with the eBook and online submission and grading of student assignments.

Smart Grading
When it comes to studying, time is precious. Connect Finance helps students learn more
efficiently by providing feedback and practice material when they need it, where they need
it. When it comes to teaching, your time also is precious. The grading function enables
you to:
• Have assignments scored automatically, giving students immediate feedback on their
work and side-by-side comparisons with correct answers.
• Access and review each response; manually change grades or leave comments for
students to review.
• Reinforce classroom concepts with practice tests and instant quizzes.
 COMPREHENSIVE TEACHING AND LEARNING PACKAGE xxv

Instructor Library
The Connect Finance Instructor Library is your repository for additional resources to im-
prove student engagement in and out of class. You can select and use any asset that
enhances your lecture. The Connect Finance Instructor Library includes all of the instructor
supplements for this text.

Student Study Center

The Connect Finance Student Study Center is the place for students to access additional
resources. The Student Study Center:
• Offers students quick access to lectures, practice materials, eBooks, and more.
• Provides instant practice material and study questions, easily accessible on the go.

Student Progress Tracking

Connect Finance keeps instructors informed about how each student, section, and class
is performing, allowing for more productive use of lecture and office hours. The prog-
ress-tracking function enables you to:
• View scored work immediately and track individual or group performance with
assignment and grade reports.
• Access an instant view of student or class performance relative to learning objectives.
• Collect data and generate reports required by many accreditation organizations, such
as AACSB.
Continually evolving, McGraw-Hill Connect has been redesigned to provide the only true
adaptive learning experience delivered within a simple and easy-to-navigate environment,
placing students at the very center.
• Performance Analytics—Now available for both instructors and students, easy-to-
decipher data illuminates course performance. Students always know how they’re
doing in class, while instructors can view student and section performance
at-a-glance.
• Mobile—Available on tablets, students can now access assignments, quizzes, and
results on-the-go, while instructors can assess student and section performance
anytime, anywhere.
• Personalized Learning—Squeezing the most out of study time, the adaptive engine in
Connect creates a highly personalized learning path for each student by identifying
areas of weakness, and surfacing learning resources to assist in the moment of need.
This seamless integration of reading, practice, and assessment, ensures that the focus
is on the most important content for that individual student at that specific time, while
promoting long-term retention of the material.

http://connect.mheducation.com

DIAGNOSTIC AND ADAPTIVE LEARNING OF CONCEPTS: LEARNSMART

Students want to make the best use of
their study time. The LearnSmart adaptive
self-study technology within Connect Finance provides students with a seamless combi-
nation of practice, assessment, and remediation for every concept in the textbook.
LearnSmart’s intelligent software adapts to every student response and automatically
delivers concepts that advance students’ understanding while reducing time devoted to
Another random document with
no related content on Scribd:
Fea, James, of Clesterton, Jacobite leader in Orkney, 71 n.
Fergus, Mr., cipher name of the duke of Perth, q.v.
Ferguson, John, captain of the Furness, 87 n, 90 n, 228 n, 230 n,
244 and n, 248 n, 373 n.
Ferrindonall, 90.
Fielding, Henry, 173 n.
Findlater, James Ogilvie, earl of, 123 and n, 286, 307;
his house of Cullen plundered by rebels, 157, 208;
letter to, from his chamberlain, on the recruiting demands of lord
Lewis Gordon, 287 n;
appoints Grant sheriff-depute of Banffshire, 289 n.
Fisher, Mr., cipher name of prince Charles. See Stuart.
Fitzjames, the comte de, taken prisoner by the English, 151 n.
Fitzjames’s regiment, 151 and n, 152 and n, 178 n, 206, 227, 417.
Fleming’s regiment, 161-3 n, 417.
Fletcher, Andrew, lord justice-clerk, 50 and n, 340-1, 344-5 and n,
346-7, 349, 352-3, 358-9, 362-9, 370-1, 373-6;
issues warrant for the apprehension of the duke of Perth, 393;
letter from, to the commissioners of customs, 381;
letter from, to captain Coren, 394;
letters from, to Grossett, 385, 390, 392-6, 399;
letter to, from Grossett, 397.
Fleury, André Hercule de, cardinal, 4 and n, 14 n;
his death, 8, 9, 11, 12 and n, 21-3, 57.
Foothy (Foot O’ Dee), 115 and n.
Fochabers, 155, 207, 288.
Forbes of Blackford, 124.
—— of Brucehill, 121.
—— of Echt, 138;
taken prisoner by the rebels, 145.
—— of Inverernan, 114.
—— of New, 114.
—— of Scheves, 124, 138.
—— Alexander, lord Forbes of Pitsligo, 119 and n, 122, 151 n,
410.
—— sir Arthur, 124.
—— Duncan, of Culloden, 99 n, 104, 107 n, 109, 205, 227 n, 270,
280 and n, 283;
attempts to dissuade Lochiel from joining the rebellion, 95 and
n;
his offer of only one company to the Grants resented, 275;
his explanation satisfactory, 276;
described by captain Daniel, 206-7 and n.
—— George, of Skeleter, 113 and n, 152, 307.
—— James, lord, 123 and n.
—— Robert, printer, son of Forbes of New, 114 n.
Formartine, 124 and n, 131.
Fort Augustus, 206;
siege of, 182 n;
taken by the rebels, 313.
Fort George, taken by the rebels, 306 n.
Fortrose, Kenneth, lord, 75, 77, 91, 104 and n-5, 110, 205.
Fort William, siege of, 183 n.
Fouay. See Fuyia.
Foudline hill, 154.
Fowke, Thomas, brigadier-general, 340 and n, 341.
Fraser, brother to Inverallochy, 121.
—— Archibald Campbell, son of lord Lovat, 44 and n.
—— Charles, 4th lord, 98 n.
—— —— of Castle Fraser, 98 n.
—— —— of Inverallochy, 98 and n, 99 n.
—— James, of Foyers, 99 and n.
—— Simon. See Lovat, lord.
—— —— master of Lovat, 98 and n, 281 n, 282, 320-1.
—— Thomas, moderator of Abertarf presbytery, 316.
—— —— of Gortuleg, entertains prince Charles, 228 and n.
—— William, of Inverallochy, 98 n.
Frasers of Aird, 76 n.
—— of Lovat, at the battle of Falkirk, 409;
at Culloden, 417.
Frederick, king of Sweden, 22 n.
—— landgrave of Hesse, 22 n.
Freebairn, Robert, bishop of Edinburgh, 18 and n.
Fuyia, 245 and n, 253.

Garden, of Troup, 124.

Gardiner, colonel, 340.
Garrioch, 131.
Garstang, 168-9.
Garviemore, 216.
Geanies, 107 n.
—— lairds of. See Macleod.
Geohagan. See Gorogan.
Gibson, Herbert Mends, attorney, 166.
Gilchrist, James, minister at Thurso, 72 and n.
Glascoe, major Nicolas, 155 n, 208.
Glasgow, fined by the rebels, 191 and n.
—— regiment, 345 n, 350 and n, 351, 359 n;
at the battle of Falkirk, 372 n, 411, 413.
Glasterum. See Gordon.
Glenbucket, garrisoned, 161.
—— estate, 116.
—— laird of. See Gordon, John.
Glencoe, 86.
—— laird of. See Macdonald, Alexander.
Glenelg, 80.
Glengarry people are papists and notorious thieves, 88.
—— laird of. See Macdonald.
Glenkindy, laird of. See Leith.
Glenlivat, 91, 92, 274.
Glenmoriston, 89.
—— lairds of. See Grant.
Glennevis, 86.
Glen Quoich (Glenkuaak), 240.
Glenshiel or Muick, 76 and n, 77.
Gordon, major, 140.
—— of Aberlour, 136.
—— yr. of Ardoch, 107.
—— of Ardvach, 145.
—— of Avochy, 114, 128, 130, 136, 141, 143, 287.
—— of Birkenbush, 144, 288 n.
—— of Carnusy, 121.
—— of Cupbairdy, 121.
—— Mrs., of Cupbairdy, 157 and n.
—— of Glasterum, 121.
—— of Hallhead, 121.
—— of Mill of Kincardine, 121.
—— yr. of Logie, 121.
—— lady, of Park, 157.
—— Alexander, minister of Kintore, 141.
—— —— of Auchintoul, 25 and n.
—— lady Anne, 123 n.
—— Barbara, wife of Mackenzie of Fairburn, 100 n.
—— Catherine, duchess of, 209 and n.
—— Charles, of Blelack, 118, 129.
—— Christiana, wife of Gordon of Glenbucket, 113 n.
—— Cosmo, duke of, 86-7, 92, 123, 128 n, 131, 274 n, 284 n.
—— Henrietta, duchess of, 128 and n, 342.
—— Isabella, wife of George, earl of Cromartie, 95 n.
—— James, roman catholic bishop, 17 n.
—— John, of Glenbucket, 25 n, 103-4, 113 and n-116, 149, 152,
161, 274 and n, 307, 410.
—— lord Lewis, 92, 150;
joins the rebels, 102, 127 and n-128;
lord lieut. of Aberdeenshire, 128;
obtains recruits by threats, 129;
interview with lord John Drummond, 132;
issues his burning order, 134-5 and n;
at the battle of Inverury, 107, 140, 143-6, 178 and n;
letter from, to the laird of Grant on recruiting for prince Charles,
283-4;
 his arbitrary conduct and insolence, 148;
letter from, to Grant of Achoynanie, making a demand for men
with accoutrements, 287 n;
letter from, to Grant, demanding to know what his intentions are,
291 n;
at the battle of Falkirk, 410.
—— Mirabel de, 182 n, 192 and n.
—— Patrick, of Achleuris, 25 n.
—— Theodore, moderator, 152.
—— Thomas, professor in King’s College, Aberdeen, 138.
—— sir Thomas, of Earlston, 43 and n.
—— sir William, of Invergordon, 95 n.
—— —— of Park, 121.
—— castle, 205, 290 n.
Gorogan, or Geohagan, captain, 171 and n.
Gortuleg, laird of. See Fraser, Thomas.
Grant, governor of Fort George, 273-4.
—— lieut., a prisoner with the rebels, 299 n.
—— Mrs., of Ballindalloch, 274.
—— of Daldeagan, 324.
—— of Glenmoriston, 322.
—— of Knockando, 103 n.
—— of Rothiemurchus, 276 n, 280 n.
—— Alex., of Corriemony, 299 n.
—— —— of Sheuglie, 279 n;
denies having had any correspondence with the Pretender’s
son, 323;
induces Grants of Glenmoriston to surrender, 324;
treacherously made prisoner at Inverness, 315, 325, 328;
 admits that some of his children joined the Pretender against his
advice;
dies a prisoner, 326 n;
his petition to the duke of Newcastle, 329 and n.
—— —— of Tochineal, Findlater’s chamberlain, 289 n;
letter from, to lord Findlater on the demands on the estate by
lord Lewis Gordon, 287.
—— Allan, of Innerwick, 89 n.
—— sir Archibald, of Monymusk, 124, 138 and n.
—— George, of Culbin, governor of Inverness castle, 108 n, 109.
—— James, of Dell, 283.
—— —— of Sheugly, 315, 323;
after assisting Grant of Grant in obtaining surrenders he is made
prisoner by his orders, 325-30;
examination of, in London, 326;
denies any participation in the rising, 327-8;
his petition to the duke of Newcastle, 329;
to be admitted to bail and tried in Edinburgh, 331.
—— —— chamberlain of Strathspey, 299 and n, 302 and n.
—— sir James, of Grant, 108 n, 269, 306.
—— colonel James Alexander, master of ordnance to prince
Charles, 182 and n, 206.
—— Jean, wife of Forbes of Skeleter, 113 n.
—— John, chamberlain of Urquhart, 299 n, 319, 323;
threatening letter to, from Angus Macdonald, ordering him to
send men to join the rebel standard, 278;
letter to, from Grant of Grant, requiring the gentlemen of
Urquhart to remain peaceably at home, 278 n;
writes to Grant giving an account of his difficult position, 278 n;
letters from, to Grant, on the threat of the Macdonalds and on
the refusal of the Urquhart men to join the rebels, 281 n,
282.
—— —— minister at Urquhart, hardships endured because of his
loyalty, 313, 318;
his house attacked by Macdonalds;
mobbed for praying for king George, 314;
persecuted by the laird of Grant, 315-16, 330;
imprisoned in Inverness, 316, 328;
exonerated by Abertarf presbytery, 316;
removed to London, 317;
Abernethy presbytery bear witness to his loyalty, 317;
examined in London, 319;
declares that the laird of Grant had no objection to some of his
clan joining the rebels;
refuses offer of chaplaincy to the rebels, 320;
his life threatened, 321;
denies having ever aided the rebels, 322;
his petition to the duke of Newcastle, 329.
—— Ludovick, of Grant, 91-2, 153-4;
receives intelligence of the rising of the clans, 269-70;
informs Cope of his efforts against the rebels, 270-1;
sends men to guide Cope through the passes, 272;
Brodie of Brodie sends him a letter of remonstrance for not
assisting Cope, 272 and n, 274;
his conditional offer to help Cope;
sends men to drive Glenbucket from Strathaven, 274;
interview with Forbes of Culloden, 274-5;
accepts the lord president’s offer of a company, 275-6;
writes to the gentlemen of Urquhart, ordering them to remain
peaceably at home, 278 n;
the chamberlain of Urquhart gives him an account of his difficult
position, 279;
letter of instructions to the chamberlain, 279 n;
requested by the lord president to hold his men in readiness;
informs Loudoun of his anxiety to do all in his power for the
king’s service, 280 and n;
letters to, from his chamberlain on the Macdonalds threatening
to ravage the country in case of men not joining the rebels,
281 and n;
his tenants in Urquhart refuse to join the rebels, 281 n, 282;
marches with 600 men for Inverness, 282;
dismisses them on learning that no preparations had been
made, 283;
letter to, from lord Lewis Gordon, asking permission to recruit
among his people for prince Charles, 283 n;
frustrates lord Lewis’s schemes for raising men, 284;
appointed sheriff-depute of Banffshire, 289 n;
sends men to secure the Boat o’ Bridge, 289;
assists Macleod at Cullen, 291;
lord Lewis Gordon writes demanding to know what his intentions
are, 291;
his reply, 292-3 and n;
marches to Strathbogie, and issues his Declaration as to men
forced to join the rebels, 293 and n;
Loudoun and Deskford suggest that as he had no orders for
such an expedition, he should return to Strathspey, 294 and
n;
garrisons his house of Mulben, 295, 297 n;
letter to Elgin magistrates explaining why he cannot march to
their assistance, 296 n, 297;
letters to, from sir Harry Innes, on the need for protecting Elgin,
298 n;
writes to lord Loudoun expressing his desire to do everything
possible for the service of the government, 299 n, 300;
Loudoun’s reply, 301 and n;
on learning of the arrival of the rebels at Blair he again calls out
his men, 301-2 and n;
watches the movements of the rebels, and renews request for
arms, 304-5 n;
Loudoun is unable to comply, 305 n;
reproached by Murray of Broughton for aiding the rebels, 306;
joins the duke of Cumberland in Aberdeen, 307;
forms an advance guard to Strathspey, 308;
returns to Castle Grant;
his persecution of John Grant, minister of Urquhart, 315;
said to be playing double, 319-20, 327;
 might have been of great service to the government if so
disposed, 322, 328;
after Culloden he obtains the surrender of the Grants of
Glenmoriston and Urquhart, 324;
his treachery towards the Grants of Sheugly, 325, 330-2;
his possible indiscretions the result of zeal for the weal of the
country, 309.
—— Patrick, moderator of Abernethy presbytery, 319.
—— Robert, adjutant in Loudoun’s regiment, 271.
—— —— son of Easter Duthill, 276.
—— Thomas, of Achoynanie, 286 and n;
letter to, from lord Lewis Gordon, demanding able-bodied men
for the rebels, 287 n.
—— William, yr. of Dellachapple, 276 n.
Grants surrender at Inverness, 322, 324, 328.
—— of Glenmoriston, 89 and n;
at Prestonpans, 407.
Grossett, Alexander, captain in Price’s regiment, killed at Culloden,
336 and n, 343, 401.
—— Walter, of Logie, collector of customs at Alloa, his narrative of
services performed, with an account of money disposed in the
service of the government during the rebellion, 333-76;
letters and orders from his correspondence, 377-99;
rebels plunder his house in Alloa, and drive off his cattle, 375-6,
402;
his narrative certified by the lord justice-clerk, etc., 375-6;
letter of instructions to masters of transports;
list of transports, 398;
report on his services by sir Everard Falconer and John Sharpe,
solicitor to the treasury, 400-2;
letter from, to the commissioners of customs, 383;
letter from, to the lord justice-clerk, 397;
letter to, from the commissioners of customs, 381;
 letter to, from Robert Craigie, advocate general, 379;
letter to, from lieut.-general Handasyde, 379-80;
letter to, from captain Knight of the Happy Janet, 387;
letters to, from the lord justice-clerk, 385, 390, 392-3, 394-6,
399;
letters to, from general Guest, 383, 386, 388-9, 391;
letters to, from the earl of Home, 388, 391, 398.
Guest, Joshua, commander-in-chief in Scotland, 51 and n, 340,
345 n, 347-9, 352, 376;
letter from, to the commissioners of customs, 381;
letters from, to Walter Grossett, 383, 385-6, 388-9, 391;
letter from, to captain Knight of the Happy Janet, 389.

Halket, colonel, a prisoner with the rebels, 364.

—— John, schoolmaster in Prestonpans, 44 n.
Hallhead. See Gordon.
Halyburton, John, 132-3 and n.
Hamilton, bailie, in Kinghorn, 399.
—— duke of, 56.
—— governor of Carlisle, 193.
—— John, factor to the duke of Gordon, his insolent conduct in
Aberdeen, 118-19 and n.
Handasyde, lieut.-general Roger, 343, 345 and n, 346, 376;
letters from, to Walter Grossett, 379, 380.
Hanway, captain, of the Milford, captures the Louis XV. transport,
352 and n.
Harper, William, of Edinburgh, 11 n.
Harris, island of, 78.
Harrison, William, catholic priest, 221 and n.
Hartree, Peeblesshire, 52 and n.
Hawley, general Henry C., 99 n, 345 n, 353 and n, 358, 361-6,
394-5;
succeeds Cope, 409;
defeated at Falkirk, 194-6, 410-13;
letter from, to general Blakeney, 393.
Hay, yr. of Ranas, 121.
—— Alexander, of Drumelzier, 19 and n, 26.
—— John, of Restalrig, W.S., 49 n, 219, 223 and n.
—— Thomas, of Huntington, keeper of the signet, 49 and n.
—— William, brother of Drumelzier, 19 and n, 26.
—— —— captain, 25 n.
Henry, Mr., 368 and n.
Hessians, 184 and n, 206;
land at Leith, 305 n, 366, 395.
Higgins Nook, near Alloa, 383-4, 348-9, 354, 387, 389, 394.
Highland soldiers shot in the Tower for desertion, 42 and n.
Highlands, their deplorable condition previous to the rising, 38.
Home, John, author of Douglas, 198 n.
—— William, earl of, 345 n, 350 n, 351, 372 and n, 376;
letters from, to Grossett, 388, 391, 398.
Honeywood, general, defeated by the rebels at Clifton, 185-6 and
n.
Horn, of Westhall, 124, 132, 139, 146.
How, captain Thomas, of the Baltimore, 236.
Howard’s regiment, 418.
‘Humlys,’ 145 and n.
Hunter, of Polmood, death of, 51 and n.
—— Robert, of Burnside, 155 and n.
Huntly Lodge [formerly Sanstoun], 118 n.
Huske, John, major-general, 353-4, 359 and n, 361;
at Culloden, 417;
letter from, to Walter Grossett, 392.

Inglis, sir John, of Cramond, 50 and n.

Innes, sir Harry, of Innes, 290 and n, 295;
letter to Grant on the need for protecting Elgin, 298 n.
Inverallochy, 98 n, 99 n.
—— lairds of. See Fraser.
Inverernan, laird of. See Forbes.
Invergarry castle, 228.
Inverlaidnan, 305 and n.
Inverness pays indemnity to Keppoch, 88;
taken by the rebels, 306 and n.
—— castle, 105 n, 108;
besieged and taken by the rebels, 109.
Invershin pass, 110.
Inverurie, skirmish at, 142-6, 295, 298 n.
Irving, of Drum, 122.

James Francis Stuart. See Stuart.

Johnshaven, 115 and n.

Keith, 207-8, 287-8;

rebels surprise a party of Campbells at, 155-6.
—— George. See Marischal, earl.
—— James, field-marshal, 7 and n, 26, 31, 36.
—— Robert, bishop of Caithness and the Isles, 17 n, 20 and n, 39.
Kelly’s regiment, 149 and n.
Kendal, 184-5.
Kenmure, John, viscount, 25 n, 43, 52.
—— Robert, viscount, 25 n.
—— William, viscount, 25 n.
Ker, Henry, of Graden, 405;
at the battle of Culloden, 213 n.
—— lord Mark, killed at Culloden, 152 n, 161.
—— lord Robert, killed at Culloden, 336 n.
Kessock ferry, 108 and n.
Kilmarnock, earl of, at the battle of Culloden, 214.
Kilmarnock’s Horse, 151 n.
Kincraig. See Culcairn.
Kingairloch, 84-5.
Kingsburgh. See Macdonald, Alexander.
Kinloch Moidart, laird of. See Macdonald, Donald.
Kintail parish, 76 and n.
Kintore, John Keith, earl of, 120, 123 and n, 145-6.
Knight, John, captain of the Happy Janet, letter from, to Grossett,
387;
letter to, from general Guest, 389.
Knoydart people ‘all papists and mostly thieves,’ 81.

Larrey, captain, 171.

Lascelles, colonel Peregrine, 340 n.
Laurence, Robt., of the Speedwell, 398.
Law, George, nonjurant minister, 127 and n.
Lead mines of Strontian, 83 and n.
Legrand, Mr., collector of the customs at Leith, 346.
Leighton (Layton), colonel, 354 and n, 358.
Leith, of Freefield, 124, 147.
—— of Glenkindy, 114, 124.
Levy or militia money, 133-4.
Lewis, island of, acquired by the Mackenzies, 78.
Leys. See Burnett, sir Alex.
Liddel, John, in Haugh of Dalderse, 388.
Ligonier, Francis, colonel, 177 n.
—— sir John, 177 and n.
Ligonier’s regiment, 345 n, 349, 359 n, 410, 417.
Lining, Thomas, minister of Lesmahagow, 83 n.
Linlithgow, 359-60.
Lismore, 84.
Lochaber, 217, 396.
Loch Alsh, battle at, between Mackenzies and Macdonalds, 75
and n.
Locharkaig, 86.
Lochaskivay, 246.
Loch Boisdale, 248-9 n.
Loch Broom, 75, 96.
Loch Carron, 75, 77.
Loch Eynort (Lochynort), 250.
Loch Hourn or Hell Loch, 80.
Lochiel, 84, 86.
See Cameron, Donald.
Loch Maddy, 233.
Lochskiport, 253.
Loch Uskavagh (Lochisguiway), 260.
Lochynort, South Uist, 246.
Lockhart, major, taken prisoner at Falkirk, 199 and n.
Logie, merchant in Aberdeen, 138.
Long Island, 78 and n.
Lonmay. See Moir, William.
Loudoun, John Campbell, earl of, 104, 106-7, 109, 110, 134 and n,
162 n, 206, 271 n, 280 and n, 282-284, 298;
at the Rout of Moy, 101 n, 108 and n;
defeated by lord Lewis Gordon at Inverury, 143-6, 178 and n;
prevails upon Lovat to prevent his clan from rising, 289 n;
censures the laird of Grant for acting without orders, 294 and n;
letter to, from Grant, expressing his anxiety to do everything
possible for the government, 299 n-300;
Loudoun’s reply, 301 and n;
writes to Grant regretting he is unable to supply his men with
arms, 305 and n, 306.
Lovat, Simon Fraser, lord, 26, 41-2, 44 n, 45-6, 48, 82 n, 90 and n,
96, 106, 228 and n, 244 n, 279 n, 289 n.
Lumly, Mr., cipher name of lord Semple, q.v.
Lumsden, James, minister of Towey, 114.
Lundie house, Fife, 393.

Macaulay, Aulay, minister of Harris, 232 and n.

—— John, minister of South Uist, 232 and n, 234.
MacAulays of Kintail, 76 n.
Macbain, Alexander, minister of Inverness, his Memorial
concerning the Highlands, 69-92.
—— Gillise, of Dalmagarrie, major in lady Mackintosh’s regiment,
killed at Culloden, 101 and n.
Macbains join the rebels, 101.
M‘Cay. See Mackay.
MacCrimmon, Donald Ban, piper of Macleod, taken prisoner by
the rebels at Inverurie, 145 and n;
killed at the Rout of Moy, 108 n, 145 n.
M‘Culloch, Roderick, of Glastulich, 98 and n.
Macdonald, Mrs., suspected of being the prince in disguise, 263.
—— of the Isles, earl of Ross, 79.
—— of Moidart, 79.
—— of Morar, 81 and n.
—— Æneas, banker in Paris, 8 and n;
accompanies prince Charles to Scotland, 82 n;
note on, 83 n.
—— Alexander, of Boisdale, 242;
refuses to join the rebels, 83 n;
taken prisoner, 245 and n;
his house plundered, 249.
—— —— of Glencoe, 86 and n.
—— —— yr. of Glengarry, 66 n, 67, 132 n.
—— —— of Keppoch, 88 n.
—— —— of Kingsburgh, 263 and n;
his interview with the prince near Monkstat house, 264.
—— sir Alexander, of Sleat, 25 n, 35 and n, 38, 39 n, 45, 63 n, 79,
83 n, 104, 207, 227 n, 243 n, 250 n, 262 and n, 263, 324.
—— Allan, of Morar, 81 and n, 82 n.
—— —— son of Scotus, 81 n.
—— —— [MacDowell], chaplain with the rebel army, 228 and n,
230, 231 n, 233.
—— Angus, of Borradale, 229 and n, 231.
—— —— yr. of Glengarry, killed at the battle of Sgeir-na-Caillich
[1603], 75.
—— —— son of Glengarry, 97 n;
letter from, to the bailie of Urquhart, threatening to ravage the
country if men do not join his standard, 277-8;
accidentally killed at Falkirk, 277 and n, 302 n.
—— —— of Milltown, 259-60.
—— —— of Scotus, 81 and n.
—— —— [MacEachain], surgeon in Glengarry’s regiment, 229
and n.
—— Angusia, 279 n.
—— Archibald, of Barisdale [d. 1752], 96 and n.
—— —— [d. 1787], son of Coll, of Barisdale, 97 n.
—— Catherine, wife of Macleod of Bernera, 242 n.
—— Coll, of Barisdale, 74, 96 n, 100 n, 230, 240, 279 n, 281 n,
282, 320-1, 415;
sketch of his career, 96 and n.
—— —— [‘Coll of the Cows’], of Keppoch, defeats M‘Intosh at the
battle of Mulroy, 87 and n;
his people papists and thieves, 88.
—— Donald, 231-2.
—— —— son of Clanranald, 242 and n.
—— —— brother of Glencoe, 86 n.
—— —— brother of Keppoch, 278 and n.
—— —— of Kinloch Moidart, 82 and n;
hanged in Carlisle, 83 n.
—— —— of Scotus, at Culloden, 81 n.
—— —— of Tiendrish, 278 and n.
—— —— Roy, 233 n.
—— Dougall, of Clanranald, 81 n.
—— Flora, 229 n, 230 n, 233 n, 250, 256, 266;
her first meeting with prince Charles, 251;
dresses the prince to pass as her maid, 260;
accompanies him to Trotternish, 262;
informs lady Macdonald of the prince’s whereabouts, 263;
a prisoner in London, 373 n.
—— Hugh, of Armadale, 244, 249 and n.
—— —— of Baleshare, 233 n, 243 and n.
—— —— vicar-apostolic of the Highlands, 82 n, 90 n.
—— James, brother of Glencoe, 86 n.
—— —— brother of Kinloch-Moidart, 83 n.
—— John, boatman, 259, 260.
—— —— doctor, 83 n.
—— —— of Glengarry, 25 n, 38.
—— —— of Guidale, 82 n.
—— —— son of Morar, 82 n.
—— —— son of Scotus, 81 n.
—— colonel John Andrew, of Glenaladale, 229 n.
—— lady Margaret, of Sleat, 243 n, 250 and n.
—— [MacEachain], Neil, his narrative of the wanderings of prince
Charles in the Hebrides, 225-66.
—— Ranald, of Clanranald, 38, 79, 232, 237, 241.
—— lady, of Clanranald, 17 n, 20, 243 n, 246, 259, 260.
—— Ranald, yr. of Clanranald, 82 n, 230.
—— —— brother of Neil Maceachain, 238 and n.
—— —— of Kinloch-Moidart, 82 n.
—— —— brother of Kinloch-Moidart, 83 n.
—— —— son of Donald of Scotus, 81 n.
—— —— ‘Walpole,’ 253.
—— Rory, 231, 248, 259, 260.
Macdonalds lacking in loyalty to the throne, 79, 314;
defeated by Mackenzies at Sgeir-na-Caillich [1603], 75 and n;
at the battle of Prestonpans, 407;
many desertions during the retreat to the north, 302 n-304 n;
at the battle of Falkirk, 195, 409, 411;
at Culloden, 213, 239, 417.
—— of Barisdale, 81 and n.
—— of Kinloch Moidart, 81.
M‘Dougall, William, merchant in Edinburgh, 51 and n.
MacDowell, Allan. See Macdonald.
M‘Eachan, Alexander, of Domondrack, 229.
—— or Macdonald, Neil. See Macdonald.
MacEachan-Macdonald of Drimindarach, 229 n.
MacEachans of Howbeg, 229 n.
M‘Gill, commander, 369.
M‘Gillivray (M‘Ilivrae), Alexander, of Dunmaglas, 101 and n, 147.
MacGillivrays join the rebels, 101.
Macgregor, Gregor, of Glengyle, 415.
—— or Drummond, William, of Balhaldy, 3-6, 8, 9, 12, 14 and n,
15 and n, 17, 19, 22, 28-30 and n, 32 n, 33 n, 39, 45-8, 54,
57, 58, 60, 66.
Macgregors, 92;
at the battle of Prestonpans, 407;
at the battle of Falkirk, 409, 411;
ill-treat and plunder citizens of Aberdeen, 148.
Machany, Perthshire, 271 n.