SOLUTION MANUAL
Essentials of Financial Management, 5th Edition
By Eugene F. Brigham, Joel F. Houston
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, Table of Content
PART I. Introduction to Financial Management.
1 An Overview of Financial Management.
2 Financial Markets and Institutions.
PART II. Fundamental Concepts in Financial Management and Financial Forecasting.
3 Financial Statements, Cash Flow, and Taxes.
4 Analysis of Financial Statements.
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5 Time Value of Money.
6 Financial Planning and Forecasting.
PART III. Financial Assets.
7 Interest Rates.
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8 Risk and Rates of Return.
9 Bonds and Their Valuation.
10 Stocks and Their Valuation.
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PART IV. Investing in Long-Term Assets: Capital Budgeting.
11 The Cost of Capital.
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12 The Basics of Capital Budgeting.
13 Cash Flow Estimation and Risk Analysis.
14 Real Options and Other Topics in Capital Budgeting.
PART V. Capital Structure, Dividend Policy, and Working Capital Management.
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15 Capital Structure and Leverage.
16 Distributions to Shareholders: Dividends and Share Repurchases.
17 Working Capital Management. PART VI Special Topics in Financial Management.
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18 Derivatives and Risk Management.
19 Multinational Financial Management.
20 Hybrid Financing: Preferred Stock, Leasing, Warrants, and Convertibles.
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21 Mergers and Acquisitions.
, Chapter 1
An Overview of Financial Management
Learning Objectives
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After reading this chapter, students should be able to do the following:
◆ Explain the role of finance and the different types of jobs in finance.
◆ Identify the advantages and disadvantages of different forms of business organization.
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◆ Explain the links between stock price, intrinsic value, and executive compensation.
◆ Identify the potential conflicts that arise within the firm between stockholders and managers and
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between stockholders and bondholders, and discuss the techniques that firms can use to mitigate these
potential conflicts.
◆ Discuss the importance of business ethics and the consequences of unethical behavior.
EG
U
ID
ES
, Lecture Suggestions
Chapter 1 covers some important concepts and discussing them in class can be interesting. However,
students can read the chapter on their own, so it can be assigned but not covered in class.
We spend the first day going over the syllabus and discussing grading and other mechanics relating
to the course. To the extent that time permits, we talk about the topics that will be covered in the course
and the structure of the book. We also briefly discuss the fact that it is assumed that managers try to
SC
maximize stock prices, but that they may have other goals, hence that it is useful to tie executive
compensation to stockholder-oriented performance measures. If time permits, we think it’s worthwhile to
spend at least a full day on the chapter. If not, we ask students to read it on their own, and to keep them
honest, we ask one or two questions about the material on the first exam.
One point we emphasize in the first class is that students should print a copy of the PowerPoint
slides for each chapter covered and purchase a financial calculator immediately and bring both to class
regularly. We also put copies of the various versions of our “Brief Calculator Manual,” which in about 12
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pages explains how to use the most popular calculators, in the copy center. Students will need to learn
how to use their calculators before time value of money concepts are covered in Chapter 5. It is important
for students to grasp these concepts early as many of the remaining chapters build on the TVM concepts.
We are often asked what calculator students should buy. If they already have a financial calculator
that can find IRRs, we tell them that it will do, but if they do not have one, we recommend either the
R
HP-10BII+ or 17BII+. Please see the “Lecture Suggestions” for Chapter 5 for more on calculators.
EG
U
ID
ES
Essentials of Financial Management, 5th Edition
By Eugene F. Brigham, Joel F. Houston
SC
O
R
EG
U
ID
ES
, Table of Content
PART I. Introduction to Financial Management.
1 An Overview of Financial Management.
2 Financial Markets and Institutions.
PART II. Fundamental Concepts in Financial Management and Financial Forecasting.
3 Financial Statements, Cash Flow, and Taxes.
4 Analysis of Financial Statements.
SC
5 Time Value of Money.
6 Financial Planning and Forecasting.
PART III. Financial Assets.
7 Interest Rates.
O
8 Risk and Rates of Return.
9 Bonds and Their Valuation.
10 Stocks and Their Valuation.
R
PART IV. Investing in Long-Term Assets: Capital Budgeting.
11 The Cost of Capital.
EG
12 The Basics of Capital Budgeting.
13 Cash Flow Estimation and Risk Analysis.
14 Real Options and Other Topics in Capital Budgeting.
PART V. Capital Structure, Dividend Policy, and Working Capital Management.
U
15 Capital Structure and Leverage.
16 Distributions to Shareholders: Dividends and Share Repurchases.
17 Working Capital Management. PART VI Special Topics in Financial Management.
ID
18 Derivatives and Risk Management.
19 Multinational Financial Management.
20 Hybrid Financing: Preferred Stock, Leasing, Warrants, and Convertibles.
ES
21 Mergers and Acquisitions.
, Chapter 1
An Overview of Financial Management
Learning Objectives
SC
After reading this chapter, students should be able to do the following:
◆ Explain the role of finance and the different types of jobs in finance.
◆ Identify the advantages and disadvantages of different forms of business organization.
O
◆ Explain the links between stock price, intrinsic value, and executive compensation.
◆ Identify the potential conflicts that arise within the firm between stockholders and managers and
R
between stockholders and bondholders, and discuss the techniques that firms can use to mitigate these
potential conflicts.
◆ Discuss the importance of business ethics and the consequences of unethical behavior.
EG
U
ID
ES
, Lecture Suggestions
Chapter 1 covers some important concepts and discussing them in class can be interesting. However,
students can read the chapter on their own, so it can be assigned but not covered in class.
We spend the first day going over the syllabus and discussing grading and other mechanics relating
to the course. To the extent that time permits, we talk about the topics that will be covered in the course
and the structure of the book. We also briefly discuss the fact that it is assumed that managers try to
SC
maximize stock prices, but that they may have other goals, hence that it is useful to tie executive
compensation to stockholder-oriented performance measures. If time permits, we think it’s worthwhile to
spend at least a full day on the chapter. If not, we ask students to read it on their own, and to keep them
honest, we ask one or two questions about the material on the first exam.
One point we emphasize in the first class is that students should print a copy of the PowerPoint
slides for each chapter covered and purchase a financial calculator immediately and bring both to class
regularly. We also put copies of the various versions of our “Brief Calculator Manual,” which in about 12
O
pages explains how to use the most popular calculators, in the copy center. Students will need to learn
how to use their calculators before time value of money concepts are covered in Chapter 5. It is important
for students to grasp these concepts early as many of the remaining chapters build on the TVM concepts.
We are often asked what calculator students should buy. If they already have a financial calculator
that can find IRRs, we tell them that it will do, but if they do not have one, we recommend either the
R
HP-10BII+ or 17BII+. Please see the “Lecture Suggestions” for Chapter 5 for more on calculators.
EG
U
ID
ES
