,Table of Contents p p
PART 1 Introduction to Managerial Finance
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1 The Role of Managerial Finance
p p p p 3
2 The Financial Market Environment
p p p 19
PART 2 Financial Tools
p p p 29
3 Financial Statements and Ratio Analysis
p p p p 31
4 Long- and Short-Term Financial Planning
p p p p 55
5 Time Value of Money
p p p 79
PART 3 Valuation of Securities
p p p p 119
6 Interest Rates and Bond Valuation
p p p p 121
7 Stock Valuation
p 149
PART 4 Risk and the Required Rate of Return
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8 Risk and Return
p p 169
9 The Cost of Capital
p p p 205
PART 5 Long-Term Investment Decisions
p p p p 231
10 Capital Budgeting Techniques
p p 233
11 Capital Budgeting Cash Flows
p p p 261
12 Risk Refinements in Capital Budgeting
p p p p 293
PART 6 Long-Term Financial Decisions
p p p p 327
13 Leverage and Capital Structure p p p 329
14 Payout Policy p 349
PART 7 Short-Term Financial Decisions
p p p p 367
15 Working Capital and Current Assets Management
p p p p p 369
16 Current Liabilities Management
p p 383
PART 8 Special Topics in Managerial Finance
p p p p p p 399
17 Hybrid and Derivative Securities
p p p 401
18 Mergers, LBOs, Divestitures, and Business Failure
p p p p p 421
19 International Managerial Finance p p 437
,Part One p
Introduction to Managerial Finance
p p p
Chapters in This Part
p p p
Chapter 1 p The Role of Managerial Finance
p p p p
Chapter 2 p The Financial Market Environment
p p p
Integrative Case 1: Merit Enterprise Corp.
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, iv
Chapter 1 p
The Role of Managerial Finance
p p p p
Instructor’s Resources p
Chapter Overview p
This chapter introduces the field of finance through building-block terms and concepts. The chapter starts by
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explaining what a firm is and discussing the goals that managers of a firm might pursue. The chapter provides a
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justification for focusing on shareholders rather than stakeholders broadly, but it also discusses other goals that
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firms might pursue. The opening section concludes with material on the importance of ethical behavior in
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business.
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The next section discusses the managerial finance function, the key decisions that financial managers make, and the
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principles that guide their decisions. The discussion draws out distinctions among the overlapping disciplines of
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finance, economics, and accounting.
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The third section describes pros and cons of different legal forms for a business. This section places particular
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emphasis on differences in taxation of proprietorships, partnerships, and corporations, and it highlights the
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importance of the marginal tax rate rather than the average tax rate. Next, this section describes the
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classical principal-agent problem and describes both internal and external corporate governance
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mechanisms that help manage that problem.
p p p p p p
This chapter and the ones to follow stress the important role finance vocabulary, concepts, and tools will play in
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the professional and personal lives of students—even those choosing other majors, such as accounting,
p p p p p p p p p p p p p p
economics information systems, management, marketing, or operations. Whenever possible, personal-finance
p p p p p p p p p p
applications are provided to motivate and illustrate topics. This pedagogical approach should inspire students to
p p p p p p p p p p p p p p p
master chapter content quickly and easily.
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Suggested Answer to Opener-in-Review p p p
Students learned the stock price of Brookdale Senior Living lost 80% of its value from 2015 to 2019, prompting
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Land and Buildings (a prominent stockholder) to urge the firm sell its real-estate holdings, distribute the
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anticipated net sales proceeds ($21 cash) to shareholders, and then focus on managing its senior living facilities.
p p p p p p p p p p p p p p p p p
Students were asked whether the proposal would make Brookdale’s shareholders better off if the expected cash
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proceeds were realized, but stock price dipped to $5 per share.
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Before restructuring, an investor with one Brookdale share had $21.35 in total wealth. Afterward, that same
p p p p p p p p p p p p p p p
investor might have a share worth $5 and $21 in cash—total wealth of $26. The hypothetical shareholder reaped
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a gain of $4.65 per share or 21.8%. Before the asset sale, with 185.45 million shares outstanding and a share price
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of
p
$21.35, total shareholder wealth was $3.96 billion. After the sale, with same shares outstanding and wealth per
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share now $26, shareholder wealth rose to $4.82 billion—a net gain of $0.86 billion.
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PART 1 Introduction to Managerial Finance
p p p p p 1
1 The Role of Managerial Finance
p p p p 3
2 The Financial Market Environment
p p p 19
PART 2 Financial Tools
p p p 29
3 Financial Statements and Ratio Analysis
p p p p 31
4 Long- and Short-Term Financial Planning
p p p p 55
5 Time Value of Money
p p p 79
PART 3 Valuation of Securities
p p p p 119
6 Interest Rates and Bond Valuation
p p p p 121
7 Stock Valuation
p 149
PART 4 Risk and the Required Rate of Return
p p p p p p p p 167
8 Risk and Return
p p 169
9 The Cost of Capital
p p p 205
PART 5 Long-Term Investment Decisions
p p p p 231
10 Capital Budgeting Techniques
p p 233
11 Capital Budgeting Cash Flows
p p p 261
12 Risk Refinements in Capital Budgeting
p p p p 293
PART 6 Long-Term Financial Decisions
p p p p 327
13 Leverage and Capital Structure p p p 329
14 Payout Policy p 349
PART 7 Short-Term Financial Decisions
p p p p 367
15 Working Capital and Current Assets Management
p p p p p 369
16 Current Liabilities Management
p p 383
PART 8 Special Topics in Managerial Finance
p p p p p p 399
17 Hybrid and Derivative Securities
p p p 401
18 Mergers, LBOs, Divestitures, and Business Failure
p p p p p 421
19 International Managerial Finance p p 437
,Part One p
Introduction to Managerial Finance
p p p
Chapters in This Part
p p p
Chapter 1 p The Role of Managerial Finance
p p p p
Chapter 2 p The Financial Market Environment
p p p
Integrative Case 1: Merit Enterprise Corp.
p p p p p p
, iv
Chapter 1 p
The Role of Managerial Finance
p p p p
Instructor’s Resources p
Chapter Overview p
This chapter introduces the field of finance through building-block terms and concepts. The chapter starts by
p p p p p p p p p p p p p p p
explaining what a firm is and discussing the goals that managers of a firm might pursue. The chapter provides a
p p p p p p p p p p p p p p p p p p p p
justification for focusing on shareholders rather than stakeholders broadly, but it also discusses other goals that
p p p p p p p p p p p p p p p p
firms might pursue. The opening section concludes with material on the importance of ethical behavior in
p p p p p p p p p p p p p p p p
business.
p
The next section discusses the managerial finance function, the key decisions that financial managers make, and the
p p p p p p p p p p p p p p p p
principles that guide their decisions. The discussion draws out distinctions among the overlapping disciplines of
p p p p p p p p p p p p p p p
finance, economics, and accounting.
p p p p
The third section describes pros and cons of different legal forms for a business. This section places particular
p p p p p p p p p p p p p p p p p
emphasis on differences in taxation of proprietorships, partnerships, and corporations, and it highlights the
p p p p p p p p p p p p p p
importance of the marginal tax rate rather than the average tax rate. Next, this section describes the
p p p p p p p p p p p p p p p p p
classical principal-agent problem and describes both internal and external corporate governance
p p p p p p p p p p p
mechanisms that help manage that problem.
p p p p p p
This chapter and the ones to follow stress the important role finance vocabulary, concepts, and tools will play in
p p p p p p p p p p p p p p p p p p
the professional and personal lives of students—even those choosing other majors, such as accounting,
p p p p p p p p p p p p p p
economics information systems, management, marketing, or operations. Whenever possible, personal-finance
p p p p p p p p p p
applications are provided to motivate and illustrate topics. This pedagogical approach should inspire students to
p p p p p p p p p p p p p p p
master chapter content quickly and easily.
p p p p p p
Suggested Answer to Opener-in-Review p p p
Students learned the stock price of Brookdale Senior Living lost 80% of its value from 2015 to 2019, prompting
p p p p p p p p p p p p p p p p p p
Land and Buildings (a prominent stockholder) to urge the firm sell its real-estate holdings, distribute the
p p p p p p p p p p p p p p p p
anticipated net sales proceeds ($21 cash) to shareholders, and then focus on managing its senior living facilities.
p p p p p p p p p p p p p p p p p
Students were asked whether the proposal would make Brookdale’s shareholders better off if the expected cash
p p p p p p p p p p p p p p p p
proceeds were realized, but stock price dipped to $5 per share.
p p p p p p p p p p p
Before restructuring, an investor with one Brookdale share had $21.35 in total wealth. Afterward, that same
p p p p p p p p p p p p p p p
investor might have a share worth $5 and $21 in cash—total wealth of $26. The hypothetical shareholder reaped
p p p p p p p p p p p p p p p p p p
a gain of $4.65 per share or 21.8%. Before the asset sale, with 185.45 million shares outstanding and a share price
p p p p p p p p p p p p p p p p p p p p p
of
p
$21.35, total shareholder wealth was $3.96 billion. After the sale, with same shares outstanding and wealth per
p p p p p p p p p p p p p p p p
share now $26, shareholder wealth rose to $4.82 billion—a net gain of $0.86 billion.
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