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 
|
