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• Cover
• Half Title
• Title
• Copyright
• Dedication
• About the Authors
• Preface
• Guided Tour
• Supplements
• Connect
• Brief Contents
• Contents
• Part One: Value
  • 1 Introduction to Corporate Finance
    • 1-1 Corporate Investment and Financing Decisions
      • Investment Decisions
      • Financing Decisions
      • What Is a Corporation?
      • The Role of the Financial Manager
    • 1-2 The Financial Goal of the Corporation
      • Shareholders Want Managers to Maximize Market Value
      • A Fundamental Result: Why Maximizing Shareholder Wealth Makes Sense
      • Should Managers Maximize Shareholder Wealth?
      • The Investment Trade-Off
      • Agency Problems and Corporate Governance
    • 1-3 Key Questions in Corporate Finance
    • Key Takeaways
    • Problem Sets
    • Solutions to Self-Test Questions
    • Appendix: Why Maximizing Shareholder Value Makes Sense
  • 2 How to Calculate Present Values
    • 2-1 How to Calculate Future and Present Values
      • Calculating Future Values
      • Calculating Present Values
      • Valuing an Investment Opportunity
      • Net Present Value
      • Risk and Present Value
      • Present Values and Rates of Return
      • Calculating Present Values When There Are Multiple Cash Flows
      • The Opportunity Cost of Capital
    • 2-2 How to Value Perpetuities and Annuities
      • How to Value Perpetuities
      • How to Value Annuities
      • Valuing Annuities Due
      • Calculating Annual Payments
      • Future Value of an Annuity
    • 2-3 How to Value Growing Perpetuities and Annuities
      • Growing Perpetuities
      • Growing Annuities
    • 2-4 How Interest Is Paid and Quoted
      • Continuous Compounding
    • Key Takeaways
    • Problem Sets
    • Solutions to Self-Test Questions
    • Finance on the Web
  • 3 Valuing Bonds
    • 3-1 Using the Present Value Formula to Value Bonds
      • A Short Trip to Paris to Value a Government Bond
      • Back to the United States: Semiannual Coupons and Bond Prices
    • 3-2 How Bond Prices Vary with Yields
      • Duration and Interest-Rate Sensitivity
    • 3-3 The Term Structure of Interest Rates
      • Spot Rates, Bond Prices, and the Law of One Price
      • Measuring the Term Structure
      • Why the Discount Factor Declines as Futurity Increases
    • 3-4 Explaining the Term Structure
      • Expectations Theory of the Term Structure
      • Interest Rate Risk
      • Inflation Risk
    • 3-5 Real and Nominal Interest Rates
      • Indexed Bonds and the Real Rate of Interest
      • What Determines the Real Rate of Interest?
      • Inflation and Nominal Interest Rates
    • 3-6 The Risk of Default
      • Corporate Bonds and Default Risk
      • Sovereign Bonds and Default Risk
    • Key Takeaways
    • Further Reading
    • Problem Sets
    • Solutions to Self-Test Questions
    • Finance on the Web
  • 4 Valuing Stocks
    • 4-1 How Stocks Are Traded
      • Trading Results for Cummins
      • Market Price vs. Book Value
    • 4-2 Valuation by Comparables
    • 4-3 Dividends and Stock Prices
      • Dividends and Capital Gains
      • Two Versions of the Dividend Discount Model
    • 4-4 Dividend Discount Model Applications
      • Using the Constant-Growth DCF Model to Set Water, Gas, and Electricity Prices
      • DCF Models with Two or More Stages of Growth
    • 4-5 Income Stocks and Growth Stocks
      • Calculating the Present Value of Growth Opportunities for Establishment Electronics
    • 4-6 Valuation Based on Free Cash Flow
      • Valuing the Concatenator Business
      • Valuation Format
      • Estimating Horizon Value
    • Key Takeaways
    • Problem Sets
    • Solutions to Self-Test Questions
    • Finance on the Web
    • Mini-Case: Reeby Sports
  • 5 Net Present Value and Other Investment Criteria
    • 5-1 A Review of the Net Present Value Rule
      • Net Present Value’s Competitors
      • Five Points to Remember about NPV
    • 5-2 The Payback and Accounting Rate of Return Rules
      • The Payback Rule
      • Accounting Rate of Return
    • 5-3 The Internal Rate of Return Rule
      • Calculating the IRR
      • The IRR Rule
      • Pitfall 1—Lending or Borrowing?
      • Pitfall 2—Multiple Rates of Return
      • Pitfall 3—Mutually Exclusive Projects
      • Pitfall 4—What Happens When There Is More Than One Opportunity Cost of Capital
      • The Verdict on IRR
    • 5-4 Choosing Capital Investments When Resources Are Limited
      • How Important Is Capital Rationing in Practice?
    • Key Takeaways
    • Further Reading
    • Problem Sets
    • Solutions to Self-Test Questions
    • Mini-Case: Vegetron’s CFO Calls Again
  • 6 Making Investment Decisions with the Net Present Value Rule
    • 6-1 Forecasting a Project’s Cash Flows
      • Rule 1: Discount Cash Flows, Not Profits
      • Rule 2: Discount Incremental Cash Flows and Ignore Non-Incremental Cash Flows
      • Rule 3: Treat Inflation Consistently
      • Rule 4: Separate Investment and Financing Decisions
      • Rule 5: Forecast Cash Flows after Taxes
    • 6-2 Corporate Income Taxes
      • Depreciation Deductions
      • Tax on Salvage Value
      • Tax Loss Carry-Forwards
    • 6-3 A Worked Example of a Project Analysis
      • The Three Components of Project Cash Flows
      • Cash Flow from Capital Investment
      • Operating Cash Flow
      • Investment in Working Capital
      • How to Construct a Set of Cash Flow Forecasts: An Example
      • Capital Investment
      • Operating Cash Flow
      • Investment in Working Capital
      • Accelerated Depreciation and First-Year Expensing
      • Project Analysis
    • 6-4 How to Choose between Competing Projects
      • Problem 1: The Investment Timing Decision
      • Problem 2: The Choice between Long- and Short-Lived Equipment
      • Problem 3: When to Replace an Old Machine
      • Problem 4: Cost of Excess Capacity
    • Key Takeaways
    • Further Reading
    • Problem Sets
    • Solutions to Self-Test Questions
    • Mini-Case: New Economy Transport (A)
    • New Economy Transport (B)
• Part Two: Risk
  • 7 Introduction to Risk, Diversification, and Portfolio Selection
    • 7-1 The Relationship between Risk and Return
      • Over a Century of Capital Market History
      • Using Historical Evidence to Evaluate Today’s Cost of Capital
    • 7-2 How to Measure Risk
      • Variance and Standard Deviation
      • Calculating Risk
      • Estimating Future Risk
    • 7-3 How Diversification Reduces Risk
      • Specific and Systematic Risk
      • Diversification with Many Stocks
    • 7-4 Systematic Risk Is Market Risk
      • Portfolio Choice with Borrowing and Lending
      • Market Risk
    • 7-5 Should Companies Diversify?
    • Key Takeaways
    • Further Reading
    • Problem Sets
    • Solutions to Self-Test Questions
    • Finance on the Web
  • 8 The Capital Asset Pricing Model
    • 8-1 Market Risk Is Measured by Beta
      • The Market Portfolio
      • Why Betas Determine Portfolio Risk
    • 8-2 The Relationship between Risk and Return
      • What If a Stock Did Not Lie on the Security Market Line?
      • The Capital Market Line and the Security Market Line
      • The Logic behind the Capital Asset Pricing Model
      • Intuition: Why Do High Beta and High Returns Go Together?
      • Applying the Capital Asset Pricing Model
    • 8-3 Does the CAPM Hold in the Real World?
      • How Large Is the Return for Risk?
      • Are Returns Unrelated to All Other Characteristics?
    • 8-4 Some Alternative Theories
      • Arbitrage Pricing Theory
      • A Comparison of the Capital Asset Pricing Model and Arbitrage Pricing Theory
      • The Three-Factor Model
    • Key Takeaways
    • Further Reading
    • Problem Sets
    • Solutions to Self-Test Questions
    • Finance on the Web
  • 9 Risk and the Cost of Capital
    • 9-1 Company and Project Costs of Capital
      • Company Cost of Capital for CSX
      • Three Warnings
      • What about Investments That Are Not Average Risk?
      • Perfect Pitch and the Cost of Capital
    • 9-2 Estimating Beta and the Company Cost of Capital
      • Estimating Beta
      • Portfolio Betas
    • 9-3 Analyzing Project Risk
      • 1. The Determinants of Asset Betas
      • 2. Don’t Be Fooled by Diversifiable Risk
      • 3. Avoid Fudge Factors in Discount Rates
      • Discount Rates for International Projects
    • 9-4 Certainty Equivalents
    • Key Takeaways
    • Further Reading
    • Problem Sets
    • Solutions to Self-Test Questions
    • Finance on the Web
    • Mini-Case: The Jones Family Incorporated
• Part Three: Best Practices in Capital Budgeting
  • 10 Project Analysis
    • 10-1 Sensitivity and Scenario Analysis
      • Value of Information
      • Limits to Sensitivity Analysis
      • Stress Tests and Scenario Analysis
    • 10-2 Break-Even Analysis and Operating Leverage
      • Break-Even Analysis
      • Operating Leverage
    • 10-3 Real Options and the Value of Flexibility
      • The Option to Expand
      • The Option to Abandon
      • Production Options
      • Timing Options
      • More on Decision Trees
      • Pro and Con Decision Trees
    • Key Takeaways
    • Further Reading
    • Problem Sets
    • Solutions to Self-Test Questions
    • Mini-Case: Waldo County
  • 11 How to Ensure That Projects Truly Have Positive NPVs
    • 11-1 Behavioral Biases in Investment Decisions
    • 11-2 Avoiding Forecast Errors
    • 11-3 How Competitive Advantage Translates into Positive NPVs
    • 11-4 Marvin Enterprises Decides to Exploit a New Technology—An Example
      • Forecasting Prices of Gargle Blasters
      • The Value of Marvin’s New Expansion
      • Alternative Expansion Plans
      • The Value of Marvin Stock
      • The Lessons of Marvin Enterprises
    • Key Takeaways
    • Further Reading
    • Problem Sets
    • Solutions to Self-Test Questions
    • Mini-Case: Ecsy-Cola
• Part Four: Financing Decisions and Market Efficiency
  • 12 Efficient Markets and Behavioral Finance
    • 12-1 Differences between Investment and Financing Decisions
      • NPV Matters for Both Investment and Financing Decisions
      • The NPV of Financing Decisions Is Zero in Efficient Markets
      • The NPV of Financing Decisions in Inefficient Markets
    • 12-2 The Efficient Market Hypothesis
      • Forms of Market Efficiency
      • Why Do We Expect Markets to Be Efficient?
    • 12-3 Implications of Market Efficiency
      • What Market Efficiency Does Not Imply
      • What if Markets Are Not Efficient? Implications for the Financial Manager
    • 12-4 Are Markets Efficient? The Evidence
      • Weak-Form Efficiency
      • Semistrong-Form Efficiency
      • Strong-Form Efficiency
    • 12-5 Behavioral Finance
      • Sentiment
      • Limits to Arbitrage
      • Agency and Incentive Problems
    • Key Takeaways
    • Further Reading
    • Problem Sets
    • Solutions to Self-Test Questions
    • Finance on the Web
  • 13 An Overview of Corporate Financing
    • 13-1 Patterns of Corporate Financing
      • How Much Do Firms Borrow?
    • 13-2 Equity
      • Ownership of the Corporation
      • Preferred Stock
    • 13-3 Debt
      • The Different Kinds of Debt
      • A Debt by Any Other Name
    • 13-4 The Role of the Financial System
      • The Payment Mechanism
      • Borrowing and Lending
      • Pooling Risk
      • Information Provided by Financial Markets
    • 13-5 Financial Markets and Intermediaries
      • Financial Intermediaries
      • Investment Funds
      • Financial Institutions
    • 13-6 Financial Markets and Intermediaries around the World
      • Conglomerates and Internal Capital Markets
    • 13-7 The Fintech Revolution
      • Payment Systems
      • Person-to-Person Lending
      • Crowdfunding
      • AI/ML Credit Scoring
      • Distributed Ledgers and Blockchains
      • Cryptocurrencies
      • Initial Coin Offerings
    • Key Takeaways
    • Further Reading
    • Problem Sets
    • Solutions to Self-Test Questions
    • Finance on the Web
  • 14 How Corporations Issue Securities
    • 14-1 Venture Capital
      • The Venture Capital Market
    • 14-2 The Initial Public Offering
      • The Public-Private Choice
      • Arranging an Initial Public Offering
      • The Sale of Marvin Stock
      • The Underwriters
      • Costs of a New Issue
      • Underpricing of IPOs
      • Hot New-Issue Periods
      • The Long-Run Performance of IPO Stocks
      • Alternative Issue Procedures
      • Types of Auction: A Digression
    • 14-3 Security Sales by Public Companies
      • Public Offers
      • The Costs of a Public Offer
      • Rights Issues
      • Market Reaction to Stock Issues
    • 14-4 Private Placements
    • Key Takeaways
    • Further Reading
    • Problem Sets
    • Solutions to Self-Test Questions
    • Finance on the Web
    • Appendix: Marvin’s New-Issue Prospectus
• Part Five: Payout Policy and Capital Structure
  • 15 Payout Policy
    • 15-1 Facts about Payout
      • How Firms Pay Dividends
      • How Firms Repurchase Stock
      • The Information Content of Dividends
      • The Information Content of Share Repurchases
    • 15-2 Dividends or Repurchases? Does the Choice Affect Shareholder Value?
      • Dividends or Repurchases? An Example
      • Stock Repurchases and DCF Valuation Models
      • Dividends and Share Issues
    • 15-3 Dividend Clienteles
    • 15-4 Taxes and Payout Policy
      • Empirical Evidence on Payout Policies and Taxes
      • Alternatives to the U.S. Tax System
    • 15-5 Payout Policy and the Life Cycle of the Firm
      • The Agency Costs of Idle Cash
      • Payout and Corporate Governance
    • Key Takeaways
    • Further Reading
    • Problem Sets
    • Solutions to Self-Test Questions
    • Finance on the Web
  • 16 Does Debt Policy Matter?
    • 16-1 Financial Leverage and Shareholder Value
    • 16-2 Modigliani and Miller’s Proposition 1
      • The Law of the Conservation of Value
      • An Example of Proposition 1
    • 16-3 Leverage and Expected Returns: MM’s Proposition 2
      • Proposition 2
      • Leverage and the Cost of Equity
      • How Changing Capital Structure Affects the Equity Beta
      • Watch Out for Hidden Leverage
    • 16-4 No Magic in Financial Leverage
      • Today’s Unsatisfied Clienteles Are Probably Interested in Financial Innovation
      • Imperfections and Opportunities
    • 16-5 A Final Word on the Cost of Capital
    • Key Takeaways
    • Further Reading
    • Problem Sets
    • Solutions to Self-Test Questions
    • Mini-Case: Claxton Drywall Comes to the Rescue
  • 17 How Much Should a Corporation Borrow?
    • 17-1 Debt and Taxes
      • How Do Interest Tax Shields Contribute to the Value of Stockholders’ Equity?
      • Recasting Johnson & Johnson’s Capital Structure
      • MM and Corporate Tax
      • Corporate and Personal Taxes
    • 17-2 Costs of Financial Distress
      • Bankruptcy Costs
      • Evidence on Bankruptcy Costs
      • Direct versus Indirect Costs of Bankruptcy
      • Financial Distress without Bankruptcy
      • Agency Costs of Financial Distress
      • Risk Shifting: The First Game
      • Refusing to Contribute Equity Capital: The Second Game
      • And Three More Games, Briefly
      • What the Games Cost
      • Costs of Distress Vary with Type of Asset
    • 17-3 The Trade-Off Theory of Capital Structure
    • 17-4 The Pecking Order of Financing Choices
      • Debt and Equity Issues with Asymmetric Information
      • Implications of the Pecking Order
      • The Bright Side and the Dark Side of Financial Slack
    • 17-5 The Capital Structure Decision
      • The Evidence
      • Is There a Theory of Optimal Capital Structure?
    • Key Takeaways
    • Further Reading
    • Problem Sets
    • Solutions to Self-Test Questions
    • Finance on the Web
  • 18 Financing and Valuation
    • 18-1 The After-Tax Weighted-Average Cost of Capital
      • Review of Assumptions
      • Mistakes People Make in Using the Weighted-Average Formula
    • 18-2 Valuing Businesses
      • Valuing Rio Corporation
      • Estimating Horizon Value
      • Valuation by Comparables
      • Liquidation Value
      • WACC vs. the Flow-to-Equity Method
    • 18-3 Using WACC in Practice
      • Some Tricks of the Trade
      • Adjusting WACC when Debt Ratios and Business Risks Differ
      • Three-Step Procedure for Finding WACCs at Different Debt Ratios
      • Unlevering and Relevering Betas
      • Calculating Divisional WACCs
      • The Assumption of a Constant Debt Ratio in the After-Tax WACC
      • The Modigliani–Miller Formula
    • 18-4 Adjusted Present Value
      • APV for the Perpetual Crusher
      • Other Financing Side Effects
      • APV for Entire Businesses
      • APV and Limits on Interest Deductions
      • APV for International Investments
    • 18-5 Your Questions Answered
    • Key Takeaways
    • Further Reading
    • Problem Sets
    • Solutions to Self-Test Questions
    • Finance on the Web
    • Appendix: Discounting Safe, Nominal Cash Flows
      • A Consistency Check
• Part Six: Corporate Objectives and Governance
  • 19 Agency Problems and Corporate Governance
    • 19-1 What Agency Problems Should You Watch Out For?
      • Reduced Effort
      • Private Benefits
      • Overinvestment
      • Risk Taking
      • Short-Termism
    • 19-2 Monitoring by the Board of Directors
      • U.S. and U.K. Boards of Directors
      • European Boards of Directors
    • 19-3 Monitoring by Shareholders
      • Voting
      • Engagement
      • Exit
    • 19-4 Monitoring by Auditors, Lenders, and Potential Acquirers
      • Auditors
      • Lenders
      • Takeovers
    • 19-5 Management Compensation
      • Compensation Facts and Controversies
      • The Structure of CEO Pay
    • 19-6 Government Regimes around the World
      • Ownership and Control in Japan
      • Ownership and Control in Germany
      • Ownership and Control in Other Countries
    • 19-7 Do These Differences Matter?
      • Public Market Myopia
      • Growth Industries and Declining Industries
    • Key Takeaways
    • Further Reading
    • Problem Sets
    • Solutions to Self-Test Questions
    • Finance on the Web
  • 20 Stakeholder Capitalism and Responsible Business
    • 20-1 Who Are the Stakeholders?
      • Employees
      • Customers
      • Suppliers
      • Local and Regional Communities
      • The Environment
      • The Government
    • 20-2 The Case for Shareholder Capitalism
      • Government Policy Ensures Companies Will Engage in Socially Responsible Behavior
      • Maximizing Shareholder Value Allows Investors to Pursue Social Objectives
      • Maximizing Shareholder Value Requires a Company to Invest in Stakeholders
      • Enlightened Shareholder Value
      • Decision Making under Enlightened Shareholder Value
    • 20-3 The Case for Stakeholder Capitalism
      • Well-Functioning Governments
      • No Comparative Advantage in Serving Society
      • Instrumental Decision Making Is Effective
      • The Challenge of Stakeholder Capitalism
      • Summary
    • 20-4 Responsible Business
      • Defining Responsible Business
      • Decision Making in Responsible Businesses
      • Summary
    • 20-5 Responsible Business in Practice
      • Shareholder Primacy in the United States and United Kingdom
      • Benefit Corporations
      • B Corps
      • Purpose
      • Reporting
    • Key Takeaways
    • Further Reading
    • Problem Sets
    • Solutions to Self-Test Questions
    • Finance on the Web
• Part Seven: Options
  • 21 Understanding Options
    • 21-1 Calls, Puts, and Shares
      • Call Options and Payoff Diagrams
      • Put Options
      • Selling Calls and Puts
      • Payoff Diagrams Are Not Profit Diagrams
    • 21-2 Financial Alchemy with Options
      • Spotting the Option
    • 21-3 What Determines the Value of a Call Option?
      • Risk and Option Values
    • Key Takeaways
    • Further Reading
    • Problem Sets
    • Solutions to Self-Test Questions
    • Finance on the Web
  • 22 Valuing Options
    • 22-1 A Simple Option-Valuation Model
      • Why Discounted Cash Flow Won’t Work for Options
      • Constructing Option Equivalents from Common Stocks and Borrowing
      • Risk-Neutral Valuation
      • Valuing the Amazon Put Option
      • Valuing the Put Option by the Risk-Neutral Method
      • The Relationship between Call and Put Prices
    • 22-2 The Binomial Method for Valuing Options
      • Example: The Two-Step Binomial Method
      • The General Binomial Method
      • The Binomial Method and Decision Trees
    • 22-3 The Black–Scholes Formula
      • Using the Black–Scholes Formula
      • How Black-Scholes Values Vary with the Stock Price
      • The Risk of an Option
      • The Black–Scholes Formula and the Binomial Method
      • Some Practical Examples
    • 22-4 Early Exercise and Dividend Payments
    • Key Takeaways
    • Further Reading
    • Problem Sets
    • Solutions to Self-Test Questions
    • Finance on the Web
    • Mini-Case: Bruce Honiball’s Invention
  • 23 Real Options
    • 23-1 The Option to Expand
      • Questions and Answers about Blitzen’s Mark II
      • Other Expansion Options
    • 23-2 Options in R&D
    • 23-3 The Timing Option
      • Valuing the Malted Herring Option
      • Optimal Timing for Real Estate Development
    • 23-4 The Abandonment Option
      • Bad News for the Perpetual Crusher
      • Abandonment Value and Project Life
      • Temporary Abandonment
    • 23-5 Flexible Production and Procurement
      • Aircraft Purchase Options
    • 23-6 Valuing Real Options
      • A Conceptual Problem?
      • What about Taxes?
      • Practical Challenges
    • Key Takeaways
    • Further Reading
    • Problem Sets
    • Solutions to Self-Test Questions
• Part Eight: Debt Financing
  • 24 Credit Risk and the Value of Corporate Debt
    • 24-1 Yields on Corporate Debt
      • Distinguishing Promised and Expected Yields
      • What Determines the Yield Spread?
    • 24-2 Valuing the Option to Default
      • Finding Bond Values
      • The Value of Corporate Equity
    • 24-3 Predicting the Probability of Default
      • Statistical Models of Default
      • Structural Models of Default
    • Key Takeaways
    • Further Reading
    • Problem Sets
    • Solutions to Self-Test Questions
    • Finance on the Web
  • 25 The Many Different Kinds of Debt
    • 25-1 Long-Term Corporate Bonds
      • Bond Terms
      • Security and Seniority
      • Asset-Backed Securities
      • Call Provisions
      • Sinking Funds
      • Bond Covenants
      • Privately Placed Bonds
      • Foreign Bonds and Eurobonds
    • 25-2 Convertible Securities and Some Unusual Bonds
      • The Value of a Convertible at Maturity
      • Forcing Conversion
      • Why Do Companies Issue Convertibles?
      • Valuing Convertible Bonds
      • A Variation on Convertible Bonds: The Bond–Warrant Package
      • Innovation in the Bond Market
    • 25-3 Bank Loans
      • Commitment
      • Maturity
      • Rate of Interest
      • Syndicated Loans
      • Security
      • Loan Covenants
    • 25-4 Commercial Paper and Medium-Term Notes
      • Commercial Paper
      • Medium-Term Notes
    • Key Takeaways
    • Further Reading
    • Problem Sets
    • Solutions to Self-Test Questions
    • Mini-Case: The Shocking Demise of Mr. Thorndike
    • Appendix: Project Finance
      • Appendix Further Reading
  • 26 Leasing
    • 26-1 What Is a Lease?
    • 26-2 Why Lease?
      • Sensible Reasons for Leasing
      • A Dubious Reason for Leasing
    • 26-3 Rentals on an Operating Lease
      • Example of an Operating Lease
      • Lease or Buy?
    • 26-4 Valuing Financial Leases
      • Example of a Financial Lease
      • Valuing the Lease Contract
      • Comparing the Lease with an Equivalent Loan
      • Financial Leases When There Are Limits on the Interest Tax Shield
      • Leasing and the Internal Revenue Service
    • 26-5 When Do Financial Leases Pay?
      • Leasing around the World
    • 26-6 Setting Up a Leveraged Lease
    • Key Takeaways
    • Further Reading
    • Problem Sets
    • Solutions to Self-Test Questions
• Part Nine: Risk Management
  • 27 Managing Risk
    • 27-1 Why Manage Risk?
      • Reducing the Risk of Cash Shortfalls or Financial Distress
      • Agency Costs May Be Mitigated by Risk Management
      • The Evidence on Risk Management
    • 27-2 Insurance
    • 27-3 Reducing Risk with Financial Options
    • 27-4 Forward and Futures Contracts
      • A Simple Forward Contract
      • Futures Exchanges
      • The Mechanics of Futures Trading
      • Trading and Pricing Financial Futures Contracts
      • Spot and Futures Prices—Commodities
      • More about Forwards and Futures
    • 27-5 Interest Rate Risk
      • Forward Rates of Interest and the Term Structure
      • Borrowing and Lending at Forward Interest Rates
      • Forward Rate Agreements
      • Interest Rate Futures
    • 27-6 Swaps
      • Interest Rate Swaps
      • Currency Swaps
      • Some Other Swaps
    • 27-7 How to Set Up a Hedge
      • Hedging Interest Rate Risk
      • Hedge Ratios and Basis Risk
    • 27-8 Is “Derivative” a Four-Letter Word?
    • Key Takeaways
    • Further Reading
    • Problem Sets
    • Solutions to Self-Test Questions
    • Finance on the Web
    • Mini-Case: Rensselaer Advisers
  • 28 International Financial Management
    • 28-1 The Foreign Exchange Market
    • 28-2 Some Basic Relationships
      • Interest Rates and Exchange Rates
      • The Forward Premium and Changes in Spot Rates
      • Changes in the Exchange Rate and Inflation Rates
      • Interest Rates and Inflation Rates
      • Is Life Really That Simple?
    • 28-3 Hedging Currency Risk
      • Transaction Exposure and Economic Exposure
    • 28-4 International Investment Decisions
      • The Cost of Capital for International Investments
    • 28-5 Political Risk
    • Key Takeaways
    • Further Reading
    • Problem Sets
    • Solutions to Self-Test
    • Finance on the Web
    • Mini-Case: Exacta, s.a.
• Part Ten: Financial Planning and Working Capital Management
  • 29 Financial Analysis
    • 29-1 Understanding Financial Statements
      • The Balance Sheet
      • The Income Statement
    • 29-2 Measuring Company Performance
      • Economic Value Added
      • Accounting Rates of Return
      • Problems with EVA and Accounting Rates of Return
    • 29-3 Measuring Efficiency
      • The DuPont Formula
      • Other Efficiency Measures
    • 29-4 Measuring Leverage
      • Leverage and the Return on Equity
    • 29-5 Measuring Liquidity
    • 29-6 Interpreting Financial Ratios
    • Key Takeaways
    • Further Reading
    • Problem Sets
    • Solutions to Self-Test Questions
    • Finance on the Web
  • 30 Financial Planning
    • 30-1 What Are the Links between Short-Term and Long-Term Financing Decisions?
    • 30-2 Tracing and Forecasting Changes in Cash
      • Tracing Changes in Cash
      • Forecasting Dynamic’s Cash Needs
    • 30-3 Developing a Short-Term Financial Plan
      • Dynamic Mattress’s Financing Plan
      • Evaluating the Plan
      • Short-Term Financial Planning Models
    • 30-4 Using Long-Term Financial Planning Models
      • Why Build Financial Plans?
      • A Long-Term Financial Planning Model for Dynamic Mattress
      • Pitfalls in Model Design
      • Choosing a Plan
    • 30-5 Long-Term Planning Models and Company Valuation
    • 30-6 The Relationship between Growth and External Financing
    • Key Takeaways
    • Further Reading
    • Problem Sets
    • Solutions to Self-Test Questions
    • Finance on the Web
  • 31 Working Capital Management
    • 31-1 The Working Capital Requirement
      • The Cash Cycle
    • 31-2 Managing Inventories
    • 31-3 Accounts Receivable Management
      • Terms of Sale
      • Credit Analysis
      • The Credit Decision
      • Collection Policy
    • 31-4 Cash Management
      • How Purchases Are Paid For
      • Changes in Check Usage
      • Speeding Up Check Collections
      • Electronic Payment Systems
      • International Cash Management
      • Paying for Bank Services
    • 31-5 Investing Surplus Cash
      • Investment Choices
      • Calculating the Yield on Money Market Investments
      • Returns on Money Market Investments
      • The International Money Market
      • Money Market Instruments
    • Key Takeaways
    • Further Reading
    • Problem Sets
    • Solutions to Self-Test Questions
    • Finance on the Web
• Part Eleven: Mergers, Corporate Control, and Governance
  • 32 Mergers
    • 32-1 Types of Merger
    • 32-2 Some Sensible Motives for Mergers
      • Economies of Scale and Scope
      • Economies of Vertical Integration
      • Complementary Resources
      • Changes in Corporate Control
      • Industry Consolidation
      • Logic Does Not Guarantee Success
    • 32-3 Some Dubious Motives for Mergers
      • Diversification
      • Increasing Earnings per Share: The Bootstrap Game
      • Lower Borrowing Costs
      • Management Motives
    • 32-4 Estimating Merger Gains and Costs
      • Estimating NPV When the Merger Is Financed by Cash
      • Estimating NPV When the Merger Is Financed by Stock
      • Asymmetric Information
      • More on Estimating Costs—What If the Target’s Stock Price Anticipates the Merger?
      • Right and Wrong Ways to Estimate the Benefits of Mergers
    • 32-5 The Mechanics of a Merger
      • Mergers, Antitrust Law, and Popular Opposition
      • The Form of Acquisition
      • Merger Accounting
      • Some Tax Considerations
    • 32-6 Takeovers and the Market for Corporate Control
    • 32-7 Merger Waves and Merger Profitability
      • Merger Waves
      • Who Gains and Loses from Mergers?
      • Buyers vs. Sellers
      • Mergers and Society
    • Key Takeaways
    • Further Reading
    • Problem Sets
    • Solutions to Self-Test Questions
    • Finance on the Web
    • Appendix: Conglomerate Mergers and Value Additivity
  • 33 Corporate Restructuring
    • 33-1 Leveraged Buyouts
      • The RJR Nabisco LBO
      • Barbarians at the Gate?
      • Leveraged Restructurings
    • 33-2 The Private-Equity Market
      • Private-Equity Partnerships
      • Are Private-Equity Funds Today’s Conglomerates?
    • 33-3 Fusion and Fission in Corporate Finance
      • Spin-Offs
      • Carve-Outs
      • Asset Sales
      • Privatization and Nationalization
    • 33-4 Bankruptcy
      • Is Chapter 11 Efficient?
      • Workouts
      • Alternative Bankruptcy Procedures
    • Key Takeaways
    • Further Reading
    • Problem Sets
    • Solutions to Self-Test Questions
• Part Twelve: Conclusion
  • 34 Conclusion: What We Do and Do Not Know about Finance
    • 34-1 What We Do Know: The Seven Most Important Ideas in Finance
      • 1. Net Present Value
      • 2. The Capital Asset Pricing Model
      • 3. Efficient Capital Markets
      • 4. Value Additivity and the Law of Conservation of Value
      • 5. Capital Structure Theory
      • 6. Option Theory
      • 7. Agency Theory
    • 34-2 What We Do Not Know: 10 Unsolved Problems in Finance
      • 1. What Determines Project Risk and Present Value?
      • 2. Risk and Return—What Have We Missed?
      • 3. How Important Are the Exceptions to the Efficient-Market Theory?
      • 4. Is Management an Off-Balance-Sheet Liability?
      • 5. How Can We Explain the Success of New Securities and New Markets?
      • 6. How Can We Resolve the Payout Controversy?
      • 7. What Risks Should a Firm Take?
      • 8. What Is the Value of Liquidity?
      • 9. How Can We Explain Merger Waves?
      • 10. Why Are Financial Systems So Prone to Crisis?
    • 34-3 A Final Word
• Glossary
• Index

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