Return to Brief Table of Contents

DETAILED TABLE OF CONTENTS

PART I - FOUNDATIONS 1

CHAPTER 1 Introduction and Overview 2
     1.1 What is Finance? 3
          Google’s Decision to Go Public 3
     1.2 Ownership, Control, and Risk 8
     1.3 Three Different Views of a Firm 11
     1.4 The Role of the Corporation 14
     1.5 The Evolution of Finance 17
     1.6 A Few Words of Advice 19
Summary 20
Questions 21
Challenging Questions 21
Bibliography 21

CHAPTER 2 The Financial Environment: Concepts and Principles 24
     2.1 The Competitive Economic Environment 25
          The Opportunity Cost of Selling a Used Car 25
          Death of Occidental Petroleum’s Founder 26
          So Who Was Buying? 26
          Tax-Free Municipal Bonds 27
          Hewlett-Packard’s Offer to Take Over Compaq Computer 27
          Actions Versus Words 28
     2.2 Value 30
          Michael Jordan Played Better Basketball 30
          Airline Companies Use Their Option to Default 31
          Creating the Lockheed Tri-Star 32
     2.3 Financial Transactions 33
          Examples of Diversification 33
          Capital Markets React to New Information 34
          Hot Tips and Easy Money 35
          Present and Future Values 37
     2.4 Capital Markets 37
     2.5 The Term Structure of Interest Rates 41
     2.6 Business Ethics 43
Summary 44
Equation Summary 45
Questions 45
Challenging Questions 46
Problems 47
Bibliography 48

CHAPTER 3 Accounting, Cash Flows, and Taxes 52
     3.1 The Layout of Accounting Statements 53
     3.2 Market Values Versus Book Values 58
          Differences in Car Usage 59
          The Sampson Company Waterfront Warehouse 59
          SunTrust’s Shares of Coca-Cola Stock 59
          Developing a New Product at Murray Corporation 60
     3.3 Accounting Net Income Versus Cash Flow 62
Summary 63
Equation Summary 63
Questions 64
Challenging Questions 64
Problems 64
Appendix Analyzing Financial Statements 67
Summary 77
Appendix Review 79
Bibliography 80

PART II - BASIC VALUATION 83

CHAPTER 4 The Time Value of Money 84
     4.1 Rates of Return and Net Present Value 85
          Stock Investment Rates of Return 86
     4.2 Valuing Single Cash Flows 87
          Calculating a Future Value 90
          Grandma’s Savings Bond 92
          Present Value of a Future Cash Flow 92
          The Expected Return for a Bank One Certificate of Deposit 93
          How Long to Double Your Salary 94
     4.3 Valuing Annuities 94
          Saving for Retirement at Citibank 95
          Computing the Present Value of a Car Loan from GMAC 96
          Computing Loan Payments 97
          Saving at the IBM Credit Union for a Down Payment on a House 97
          Amortizing a Loan 98
          Computing the Interest Rate on a Mortgage from Chase Home Mortgage 99
          Computing the Remaining Life of a Car Loan 99
          Computing the Present Value of an Annuity Starting in the Future 99
          Present Value of a Perpetuity 100
          Computing the Future Value and Present Value of an Annuity Due 101
     4.4 Multiple Expected Future Cash Flows 101
          Computing the Present Value of a Set of Unequal Future Cash Flows 102
          Computing Total Value at Other Points in Time 103
     4.5 Compounding Frequency 104
          Computing an APR at Bank of America 104
          Computing the APY from Bank of America’s APR 104
          Computing the APY for a Credit Card 105
          Computing an APY with Continuous Compounding 106
     4.6 Partial Time Periods 107
          Computing the Present Value of a Single Future Cash Flow 107
          Using a Partial Period to Compute an APY 107
          Computing the Present Value of an Annuity with Early Cash Flows 108
          Computing the Future Value of an Annuity After It Has Ended 108
     4.7 Evaluating “Special-Financing” Offers 109
          Cash Back or 0.9% APR from Chevy 109
          Computing the Value of a Special- Financing Offer from Chrysler 110
Summary 110
Equation Summary 111
Questions 111
Problems 112
MINICASE The $125 Billion Swiss
Surprise 120
Bibliography 120

CHAPTER 5 Valuing Bonds and Stocks 121
     5.1 Bonds 122
     5.2 Bond Valuation 125
          Computing the Fair Price of a Ford Credit Bond 126
          Computing the YTM of a Coca-Cola Bond 126
          Computing the YTM of a J.C. Penney Zero-Coupon Bond 127
     5.3 Bond Riskiness 127
          Computing the YTC of an IBM Bond 130
     5.4 Stock Valuation 131
          Valuing New York Edison Preferred Stock 132
          Valuing DuPont Perpetual Preferred Stock 132
          Investing in Pepperidge Farm Common Stock 133
     5.5 Applying the Dividend Valuation Model 135
          Valuing a Constant Growth Stock: Procter & Gamble 136
          Estimating International Paper’s Capitalization Rate 137
          Valuing a Supernormal Growth Stock: Meridian Research 137
          Valuing an Erratic Growth Stock: Novell 138
     5.6 Obtaining Common Stock Information 139
     5.7 The Price/Earnings Ratio 140
          Estimating NPVGO: McHandy 142
Summary 142
Equation Summary 143
Questions 143
Challenging Questions 144
Problems 144
MINICASE Bond Yields for Johnson
& Johnson 150
Bibliography 150

CHAPTER 6 Risk and Return: Stocks 153
     6.1 Historical Security Returns in the United States 154
          Calculating a Realized APY for the Hasbin Corporation 155
          Calculating a Purchase Price from a Realized APY 155
     6.2 Probability and Statistics 158
          IBM’s EPS for Next Year 158
          Calculating the Mean of IBM’s EPS 159
          Computing the Variance and Standard Deviation of IBM’s EPS 160
     6.3 Expected Return and Specific Risk 161
          Calculating IBM’s Expected Return 161
     6.4 Investment Portfolios 162
          Calculating a Portfolio’s Risk and Expected Return 163
     6.5 A Prescription for Investing 168
          Calculating the Slope of the CML 170
          The Market Portfolio’s Composition 170
Summary 171
Equation Summary 172
Questions 173
Challenging Questions 174
Problems 175
Bibliography 178

CHAPTER 7 Risk and Return: Asset Pricing Models 180
     7.1 The Capital Asset Pricing Model (CAPM) 181
          Computing an Expected Return 182
          The Stock Market Risk-Return Trade-Off 183
     7.2 Estimating and Using the CAPM 184
          Computing a Beta 184
          Stock Value and Investor Diversification 189
     7.3 Multifactor Models 189
     7.4 Arbitrage Pricing Theory 190
          Applying the APT 191
          Applying the Fama-French Three-Factor Model 192
     7.5 International Considerations 192
Summary 194
Equation Summary 194
Questions 195
Challenging Questions 195
Problems 195
Bibliography 198

PART III - CAPITAL BUDGETING 203

CHAPTER 8 Cost of Capital 204
     8.1 The Cost of Capital 205
     8.2 Corporate Valuation 205
          Capital Budgeting for Wal-Mart 207
     8.3 Value and the Risk-Return Trade-Off 208
          A Pure Risk-Return Trade-Off 208
     8.4 Leverage 209
          Eastern Mountain Apparel Ski Cap Production 209
     8.5 Leverage and Risk Bearing 212
          Leveraging Per-Pet, Inc. 212
          Leveraging Your Investment Returns 213
     8.6 The Weighted Average Cost of Capital 213
          General Patent’s Cost of Capital 214
     8.7 A Potential Misuse of the Weighted Average Cost of Capital 216
          Capital Budgeting at American Airlines 217
          Using Risk Classes at Burch Trees, Inc. 217
     8.8 Financial Risk 218
          Toshiba’s Leveraged Investment 220
     8.9 A Practical Prescription for Estimating a Cost of Capital 222
          Calculating Officemate’s βA 222
          Expanding Medical-Laser Production at Poly-brands 223
          Estimating the Cost of Capital with a Choice of Operating Leverage 224
Summary 224
Equation Summary 225
Questions 226
Challenging Questions 226
Problems 226
MINICASE Divisional Cost
of Capital 231
Bibliography 232

CHAPTER 9 Business Investment Rules 233
     9.1 The Capital Budgeting Process 234
          Strategic Decisions at Boeing: Will It Fly? 236
     9.2 Net Present Value (NPV) 238
          Discovering a Positive-NPV
          Opportunity 238
          Computing an NPV 239
     9.3 Internal Rate of Return (IRR) 240
          Computing an IRR for Reebok 240
     9.4 Using NPV and IRR 241
          Comparing IRR with NPV at Guess, Inc 243
          Multiple IRRs for Triborg, Inc. 245
     9.5 Other Capital Budgeting Criteria 246
          Computing the MIRR for Reebok’s Project 247
          Computing a Payback 248
          Computing a Discounted Payback 249
     9.6 Business Investment in Practice 250
Summary 251
Equation Summary 252
Questions 252
Challenging Question 253
Problems 253
MINICASE Getting Off the Ground at Boeing 260
Bibliography 260

CHAPTER 10 Capital Budgeting Cash Flows 262
     10.1 An Overview of Estimating Cash Flows 263
     10.2 Calculating Incremental Cash Flows 265
          Capitalizing Versus Expensing at Boeing 267
          Equivalence of Two Methods of Computing CFAT 269
     10.3 An Example of Incremental Cash Flow Analysis 270
          Computing the NPV of Rocky Mountain’s Packaging Machine 272
          New Computer Game Systems at Nintendo 274
     10.4 Inflation 275
          Monogramming at Christian Dior 276
     10.5 A Little More About Taxes 277
          Alternative Depreciation Methods at General Electric 279
     10.6 Evaluating Replacement Cycles 280
          Replacing Production Machines at Hoover 281
          Replacement-Cycle Frequency at Hoover 283
          Computing an Equivalent Annual Annuity (EAA) 284
Summary 284
Equation Summary 285
Questions 285
Challenging Questions 286
Problems 286
MINICASE The Power to Cool Off in Florida 294
Bibliography 294

CHAPTER 11 Capital Budgeting in Practice 296
     11.1 A Proposal for Capacity Expansion: The Price-Setting Option 297
     11.2 Real Options 299
          Future Investment Option for Kosky Financial Advising 300
          To Sell or Not to Sell Joe’s Diner 301
          Entering the NBA Draft Early 303
          Follow-on Markets at Hess, Inc. 303
     11.3 Capital Rationing 304
          Rationing Capital with Artificially High Discount Rates 304
          Capital Rationing with a Budget Constraint 304
     11.4 Managing the Firm’s Capital Budget 307
          Kroger’s New Optical Scanners 309
     11.5 Other Factors That Are Difficult to Quantify 311
     11.6 Some Practical Advice 312
Summary 313
Equation Summary 314
Questions 314
Challenging Questions 314
Problems 315
MINICASE Building the Eurotunnel 321
Appendix Additional Methods of Project Analysis 322
Determining the Financial Indifference Point (Zero-NPV Sales Level) 323
Sensitivity Analysis 324
Scenario Analysis at Kingdom Catheter 324
Summary 326
Appendix Questions 326
Bibliography 327

PART IV - ADVANCED VALUATION 331

CHAPTER 12 Options 332
     12.1 Options 333
          An Option View of a Lottery Ticket 334
     12.2 Buying and Selling Parts of an Asset’s Return Distribution 336
          Computing Outcomes for a Call Option 338
          Computing Outcomes for a Put Option 339
     12.3 Valuing an Option 340
     12.4 Some Important Generalizations about Options 343
     12.5 Places to Look for Options 345
          The Option in Gibson Greetings’s Treasury-Linked Swap 346
     12.6 A Simple Model of Option Valuation 349
          The Value of Carl’s Call Option 350
     12.7 Combining Option Values 350
          The Price-Setting and Production- Quantity Options 351
A Portfolio of Options 352
Summary 353
Questions 354
Challenging Questions 354
Problems 355
MINICASE A McDonald’s Happy Meal 360
Bibliography 360

CHAPTER 13 Derivatives Applications 361
     13.1 Options 362
     13.2 Option Pricing Models 364
          Applying the Black-Scholes OPM to Value a Call Option 367
          What Happens When the Share Price Falls? 368
          Valuing a Put Option 369
     13.3 Warrants 370
          An Issue of Warrants 370
     13.4 Convertible Securities 372
          Time Incorporated’s Forced Conversion 375
     13.5 Swaps 375
          McDonald’s Interest Rate Swap 376
          How Interest Rate Swaps Are Used 377
     13.6 Forwards and Futures 380
          National Refining’s Forward Contract 381
          A Treasury Bond Futures Contract 382
     13.7 Hedging 361
          Hedging Gas Prices 384
          Using Options to Hedge at General Holding 384
          Hedging with Futures at PepsiCo 386
Summary 387
Equation Summary 388
Questions 389
Challenging Questions 389
Problems 390
MINICASE Deriving Pride from Issuing Innovative Securities 395
Bibliography 396

CHAPTER 14 Agency Theory 399
     14.1 Principal–Agent Relationships 400
          A Principal–Agent Conflict 400
     14.2 Agency Costs 402
     14.3 Stockholder–Manager Conflicts 402
          Stockholder–Manager Conflict 404
     14.4 Debtholder–Stockholder Conflicts 405
          The Green Canyon Project 408
          RJR Nabisco’s Leveraged Buyout 412
          The Effect of Asset Uniqueness on Making a Loan 413
     14.5 Consumer-Firm Conflicts 414
          Consumer-Firm Conflicts and Chrysler’s Financial Distress 414
     14.6 Working in Contractual Relationships 415
          Lee Iacocca’s First-Year Compensation Package 419
          Chrysler’s Poison Pill 420
          How Much Is an Executive Worth? 420
          Sallie Mae’s Proxy Fight 421
          Removing a Restrictive Covenant 422
          Choosing the Best Contract 423
     14.7 Monitoring 424
          The Barings Bankruptcy 425
Summary 426
Questions 427
Challenging Questions 428
Problems 429
MINICASE R.J. Reynolds Bond Value Goes Up in Smoke 433
Bibliography 434

CHAPTER 15 Capital Market Efficiency 441
     15.1 Efficiency 442
     15.2 Liquidity and Value 443
          Exchanging Shares of IBM for Wal-Mart Stock 445
          Pricing Intel Stock 445
     15.3 Arbitrage: Striving for Efficiency 446
          Eliminating Arbitrage Opportunities 447
     15.4 Signaling and Information Gathering 450
          Selling a Used Car 450
     15.5 The Collective Wisdom 452
          Stock Market Prediction Experts 454
     15.6 Value Conservation 455
          Dismembering a $10 Bill 456
          The Tax Treatment of Zero-Coupon Bonds 457
          Going Public 458
          Pyramid Schemes 459
     15.7 Perfect Capital Markets 460
     15.8 What Is the Conclusion on Market Efficiency? 462
          Investors Abandon the Stock Market After the Dot-Com Bust 465
          Participation and Investment Allocations in 401(k) Plans 465
Summary 466
Equation Summary 467
Questions 468
Challenging Questions 468
Problems 469
MINICASE Picking Winners and Losers 471
Useful Websites for Part IV 471
Bibliography 472

PART V - LONG-TERM FINANCING 479

CHAPTER 16 Why Capital Structure Matters 480
     16.1 Does Capital Structure Matter? 481
          Arbitraging Leverage-Valuation Differences 483
     16.2 The Role of Income Taxes 484
          Corporate Taxes at Per-Pet, Inc. 484
          The Cost of Capital at Per-Pet, Inc. 486
          Personal Taxes at Per-Pet, Inc. 488
          Neutral Tax Rates 489
     16.3 The Role of Agency Costs and Financial Distress Costs 490
     16.4 External Financing Transaction Costs 493
          Internal Financing Versus Issuing Securities 494
          Debt Versus Equity Financing 494
     16.5 Financial Leverage Clienteles 495
     16.6 The Capital Market Imperfections View of Capital Structure 496
Summary 500
Equation Summary 500
Questions 501
Challenging Questions 501
Problems 501
MINICASE PepsiCo’s Capital Structure Choice 507
Bibliography 507

CHAPTER 17 Managing Capital Structure 510
     17.1 Industry Effects 511
     17.2 Factors Affecting a Firm’s Choice of Capital Structure 516
          Pro Forma Credit Analysis 517
          Leverage and Discovering Oil 518
     17.3 Choosing an Appropriate Capital Structure 519
          Comparative Credit Analysis 520
          Comparative Credit Analysis (continued) 520
     17.4 Adjusting Present Value and Required
          Returns for Capital Structure Effects 526
     17.5 Adjusted Present Value 527
          Calculating an APV at Borden 528
     17.6 Managing Capital Structure and Its Impact on Firm Value 529
          Bausch & Lomb’s WACC 531
          Estimating Conoco’s Unleveraged Required Return 532
     17.7 Estimating the WACC for a Capital Budgeting Project 532
          Estimating a Project’s WACC for PepsiCo 533
Summary 535
Equation Summary 536
Questions 536
Challenging Questions 537
Problems 537
MINICASE Debt-for-Equity Exchange at American Airlines 542
Bibliography 546

CHAPTER 18 Why Dividend Policy Matters 544
     18.1 Dividend Policy in Practice 545
          Initiating a Dividend at FedEx 546
          Alcoa’s Extra Dividends 548
          Dividend-Related Events for GE 549
     18.2 Why Does Dividend Policy Matter? 551
          Illustration of Dividend Irrelevance to Firm Value and Stockholder Wealth 553
     18.3 Asymmetric Information 555
          Microsoft’s Dividend Policy 555
          Adjusting Dividends for EPS Changes at Snapple 556
     18.4 Transaction Costs 557
     18.5 The Role of Income Taxes 558
          The Effect of Personal Taxes on Firm Value 559
     18.6 Dividend Policy Guidelines 560
     18.7 Applying the Dividend Policy Guidelines 561
     18.8 Share Repurchases 563
          Illustration of Equivalence of Dividends and Share Repurchases 563
          Greenmail: Wealth Transfer Through Share Repurchases 564
          Share Buybacks in Japan 565
          Unilever’s $8 Billion Dividend 565
          Holiday Inns, Inc.’s Dutch Auction Tender Offer 566
     18.9 Transferable Put Rights 569
          Gillette’s Transferable Put Rights Offering 569
          Gillette’s Transferable Put Rights Offering (continued) 570
          Gillette’s Transferable Put Rights Offering (continued) 570
          Gillette’s Transferable Put Rights Offering (concluded) 571
     18.10 Stock Dividends and Stock Splits 572
          A 10% Stock Dividend, a 100% Stock Dividend, and a 2-for-1 Stock Split 573
          GE’s Stock Split 573
Summary 576
Equation Summary 577
Questions 578
Challenging Questions 578
Problems 579
MINICASE CBS’s Share Repurchase 584
Bibliography 584

CHAPTER 19 Issuing Securities and the Role of Investment Banking 589
     
19.1 The Long-Term Financing Menu 590
      19.2 Common Stock 592
      19.3 Issuing Securities 594
            GM’s General Cash (Seasoned) Offer of Common Stock 595
            GM Pension Funds’ Secondary Offering 599
      19.4 Investment Banking and the Cost of Issuing Securities 599
      19.5 Private Placements 603
      19.6 Rights Issues 605
            Eurotunnel’s Two Rights Issues 606
            The Long Island Lighting Company Rights Offering 607
       19.7 Dilution 608
            Dilution in Percentage Ownership 609
            Dilution in Value: Market Value Versus Book Value 609
      19.8 Going Public and Going Private 610
      19.9 Preferred Stock 613
Summary 614
Equation Summary 616
Questions 616
Challenging Questions 616
Problems 617
MINICASE Lucent Technologies’ IPO 621
Appendix Evaluating the Merits of Innovative
Financing 627
Questions 625
Bibliography 625

CHAPTER 20 Long-Term Debt 630
     20.1 Types of Long-Term Debt 631
      20.2 Main Features of Long-Term Debt 632
            Debt Covenants 633
      20.3 Designing a Long-Term Debt Issue 634
           Calculating Duration 635
            An Optional Redemption Price Schedule for a Long-Term Bond 637
      20.4 Recent Innovations in the Bond Market 638
            An Oil-Indexed Debt Issue 638
      20.5 International Debt Financing 640
            Comparing Domestic and Eurobond Borrowing Costs 641
      20.6 Bond Refunding 642
            Analyzing a High-Coupon Bond Refunding Opportunity 644
            Refunding a Sinking-Fund Issue 647
Summary 648
Equation Summary 649
Questions 649
Challenging Questions 649
Problems 650
MINICASE Disney’s 100-Year Bonds 654
Bibliography 655

CHAPTER 21 Leasing and Other Asset-Based Financing 658
     21.1 Lease Financing 659
            Synthetic Leases 662
      21.2 Tax and Accounting Treatment of Financial Leases 663
      21.3 Valuing a Financial Lease 664
            Leasing Is an Alternative to Borrowing 665
            A Financial Lease Is Similar to a Secured Loan 666
            NACCO’s Net Advantage to Leasing 669
            Lease Financing Can Affect the Value of an Investment Project 669
      21.4 Project Financing 671
            Project Financing Versus Conventional Financing 671
      21.5 Limited Partnership Financing 673
            The Cinema Group Partners Limited Partnership 674
            Calculating the Cost of Limited Partner Capital 674
Summary 677
Equation Summary 677
Questions 678
Challenging Questions 678
Problems 678
MINICASE Will Leasing Fly at Continental? 683
Useful Web Sites for Part V 684
Bibliography 684

PART VI - WORKING CAPITAL MANAGEMENT 687

CHAPTER 22 Liquidity Management 688
     22.1 Overview of Working Capital Management 689
      22.2 Cash Conversion Cycle 693
            Cash Conversion Cycle for Clark Pharmaceuticals 694
      22.3 Cash Management 694
            Disbursement Float at Huskie Oil 696
            Collection Float at Huskie Oil 697
            Cost of a Wire Transfer 698
            Profitability of a Lockbox System at The Gap 698
      22.4 Short-Term Financing 698
            Cost of Trade Credit for Radio Shack 700
            Loans with Compensating Balance Requirements 704
            Famous Amos’s Cost for a Discounted Loan 704
            Famous Amos’s Cost for a Discounted Installment Loan 705
            GE’s Interest Plus Commercial Paper Substitute 707
            GMAC’s Cost of Commercial Paper 707
Summary 709
Equation Summary 709
Questions 710
Challenging Questions 710
Problems 710
MINICASE Short-Term Financing for Breakfast 715
Bibliography 715

CHAPTER 23 Accounts Receivable and Inventory Management 717
     23.1 Accounts Receivable Management 718
            Simple Credit-Granting Decision 720
      23.2 Credit Standards and Credit Evaluation 722
            Calculating Credit Scores for a Business Customer 724
            Consumer Credit-Scoring Model 725
      23.3 Monitoring Accounts Receivable 726
            Building an Aging Schedule for the Provo Palace 727
            Average Age of Accounts Receivable for Provo Palace 728
            Micro Systems’s Collection Fractions and Receivables Balance Fractions 729
            The NPV of Changing Credit Policy 732
      23.4 Inventory Management 733
            Officemax’s EOQ 735
            The EOQ and Quantity Discounts at Officemax 736
            Order Quantity and Reorder Point at Oxford Arms 737
Summary 740
Equation Summary 741
Questions 741
Challenging Questions 742
Problems 742
MINICASE Musical Chairs at Home Depot 749
Bibliography 750

CHAPTER 24 Financial Planning 751
      24.1 The Financial Planning Process 752
      24.2 Cash Budgeting 756
            Cash Budgeting at the Monet Paint Company 757
      24.3 Pro Forma Financial Statements 759
            Pro Forma Financial Statements for Bluestem Crafts Stores 759
            Forecasting Financing Needs for Cohen 762
            Whittaker Industries’ Long-Term Planning Model 763
      24.4 Automating Financial Forecasting 764
Summary 771
Equation Summary 772
Questions 772
Challenging Questions 773
Problems 773
MINICASE Planning New Magic at Disney 781
Bibliography 782

PART VII - SPECIAL TOPICS 785

CHAPTER 25 Mergers and Acquisitions 786
      25.1 What Is Special About a Merger? 787
            Lockheed’s and Martin Marietta’s “Merger of Equals” 787
      25.2 Why Firms Merge 789
            Calculating the Net Advantage to Merging 789
            The Lockheed/Martin Marietta Horizontal Merger 790
            Potential Economics Are Not Always Realized 791
            Sandoz A.G.’s Acquisition of Genetic Therapy, Inc. 792
            A Conglomerate Merger Might Not Increase Shareholder Wealth 792
            A Conglomerate Merger Can Benefit Bondholders at the Expense of Stockholders 794
      25.3 Technical Issues 795
            Texaco’s Acquisition of Getty Oil 796
            Lockheed/Martin Marietta Tax-Free Combination 797
            Purchase Accounting 798
      25.4 Comparative Analysis of Mergers 799
            Analysis of Premiums Paid 801
            Comparative Analysis 803
      25.5 Discounted-Cash-Flow Analysis 805
            Calculating the NPV of a Potential Acquisition 810
      25.6 The Medium of Payment 811
            Impact on the Net Acquisition Cost in a Stock-for-Stock Acquisition 812
      25.7 Merger Tactics 814
            Brooke Group’s Proxy Battle with RJR Nabisco Management 815
      25.8 Leveraged Buyouts 818
Summary 819
Equation Summary 820
Questions 821
Challenging Questions 822
Problems 822
MINICASE Is the Lockheed/Martin Marietta Merger Defensible? 828
Bibliography 830

CHAPTER 26 Financial Distress and Restructuring 835
      26.1 Corporate Financial Distress and Its Consequences 836
      26.2 A Little History 839
      26.3 Early Detection of Financial Distress 540
            Applying the Z-Score Model 842
      26.4 Reorganization Outside Bankruptcy 843
            RJR Nabisco’s Exchange Offer 844
      26.5 Chapter 11 of the Bankruptcy Code— Reorganization 845
            Reorganization Value Versus Liquidation Value 845
            Cramdown 848
      26.6 Prepackaged Plans of Reorganization 851
            Crystal Oil Company’s Prepackaged Bankruptcy 851
      26.7 Chapter 7 of the Bankruptcy Code— Liquidation 852
      26.8 An International Perspective 853
            Olympia & York’s Bankruptcy 854
Summary 855
Equation Summary 856
Questions 856
Challenging Questions 857
Problems 857
MINICASE Crystal Oil’s Prepackaged Bankruptcy 8632
Bibliography 864

CHAPTER 27 International Corporate Finance 867
      27.1 The Foreign Exchange Market 868
            Using an Exchange Rate to Convert from One Currency to Another 869
            A Riskless Currency Arbitrage Opportunity 870
            A Forward Contract 873
            A Currency Swap 873
      27.2 Hedging Against Foreign Exchange Risks 875
            Hedging Foreign Currency Risk in the Forward Market 875
      27.3 International Interest Rates and Exchange Rates 877
            Relationship Between International Interest Rates and Exchange Rates 877
      27.4 International Inflation Rates and Exchange Rates 879
            Relationship Between International Inflation Rates and Exchange Rates 880
      27.5 Unbiased Forward Rates and the International Fisher Effect 880
            International Fisher Effect 881
      27.6 International Capital Budgeting Decisions 882
      The Incremental After-Tax Cash Flows for AlliedSignal’s Swiss Project 882
            Adjusting for Political Risk 884
            Calculating the NPV for AlliedSignal’s Swiss Investment 884
      27.7 Financing Foreign Investments 885
            GE Capital’s Eurobond Financing 886
            Calculating AlliedSignal’s Cost of Borrowing in a Foreign Currency 887
Summary 889
Equation Summary 890
Questions 890
Challenging Questions 891
Problems 891
MINICASE International Financing at Emerson Electric 896
Useful Websites for Part VII 897
Bibliography 896

APPENDIX A Using a Business Calculator A-1

APPENDIX B Cumulative Distribution Function for the
  Standard Normal Random Variable A-4

GLOSSARY G-1

INDEX I-1
NAME INDEX NI-1

Return to Brief Table of Contents

 


Copyright 2010-17 Wohl Publishing • All rights reserved

Web site design by Valentine-Design.com

Home