Corporate Finance Canadian Edition

✍ Scribed by & 4 more Prof Stephen A. Ross (Author)

• Publisher: McGraw-Hill Ryerson
• Year: 2019
• Tongue: English
• Leaves: 919
• Edition: 8
• Category: Library

✦ Table of Contents

Cover
Title
Copyright
About the Authors
In Memoriam
Brief Contents
Contents
Preface
Part 1 Overview
CHAPTER 1 Introduction to Corporate Finance
Executive Summary
1.1 WHAT IS CORPORATE FINANCE?
The Balance-Sheet Model of the Firm
Capital Structure
The Financial Manager
Identification of Cash Flows
Timing of Cash Flows
Risk of Cash Flows
Concept Questions
1.2 CORPORATE SECURITIES ASCONTINGENT CLAIMS ON TOTAL FIRM VALUE
Concept Questions
1.3 BUSINESS ORGANIZATION FORMS
The Sole Proprietorship
The Partnership
The Corporation
The Income Trust
Concept Questions
1.4 GOALS OF THE CORPORATE FIRM
Agency Costs and the Set-of-Contracts Viewpoint
Managerial Goals
Separation of Ownership and Control
In Their Own Words: B. Espen Eckbo on corporate governance
Concept Questions
1.5 FINANCIAL INSTITUTIONS,FINANCIAL MARKETS, AND THE CORPORATION
Financial Institutions
Money Versus Capital Markets
Primary Versus Secondary Markets
Listing
Foreign Exchange Market
Concept Questions
1.6 TRENDS IN FINANCIAL MARKETS AND MANAGEMENT
In Their Own Words: Maria Strömqviston hedge funds and the financial crisis of 2008
Concept Question
1.7 OUTLINE OF THE TEXT
1.8 SUMMARY AND CONCLUSIONS
Appendix 1A Taxes
CHAPTER 2 Accounting Statements and Cash Flow
Executive Summary
2.1 THE STATEMENT OF FINANCIAL POSITION
Liquidity
Debt Versus Equity
Value Versus Cost
Concept Questions
2.2 STATEMENT OF COMPREHENSIVE INCOME
International Financial Reporting Standards
Non-Cash Items
Time and Costs
Concept Questions
2.3 NET WORKING CAPITAL
Concept Questions
2.4 FINANCIAL CASH FLOW
Concept Questions
2.5 SUMMARY AND CONCLUSIONS
Minicase: Cash Flows at Eshopwise Ltd.
Appendix 2A Financial Statement Analysis
Appendix 2B Statement of Cash Flows
CHAPTER 3 Financial Planning and Growth
Executive Summary
3.1 WHAT IS FINANCIAL PLANNING?
Concept Questions
3.2 A FINANCIAL PLANNING MODEL: THE INGREDIENTS
3.3 THE PERCENTAGE OF SALES METHOD
The Statement of Comprehensive Income
The Statement of Financial Position
Concept Questions
3.4 WHAT DETERMINES GROWTH?
Concept Questions
Some Caveats on Financial Planning Models
In Their Own Words: Robert C. Higgins on sustainable growth
3.5 SUMMARY AND CONCLUSIONS
Minicase: Ratios and Financial Planning at East Coast Yachts
Part 2 Value and Capital Budgeting
CHAPTER 4 Financial Markets and Net Present Value: First Principles of Finance
Executive Summary
4.1 THE FINANCIAL MARKET ECONOMY
The Anonymous Market
Market Clearing
Concept Questions
4.2 MAKING CONSUMPTION CHOICES OVER TIME
Concept Questions
4.3 THE COMPETITIVE MARKET
How Many Interest Rates Are There in a Competitive Market?
Concept Questions
4.4 THE BASIC PRINCIPLE
Concept Question
4.5 PRACTISING THE PRINCIPLE
A Lending Example
A Borrowing Example
Concept Questions
4.6 ILLUSTRATING THE INVESTMENT DECISION
Concept Questions
4.7 CORPORATE INVESTMENT DECISION MAKING
Concept Question
4.8 SUMMARY AND CONCLUSIONS
CHAPTER 5 The Time Value of Money
Executive Summary
5.1 THE ONE- PERIOD CASE
Concept Questions
5.2 THE MULTIPERIOD CASE
Future Value and Compounding
The Power of Compounding: A Digression
Present Value and Discounting
Finding the Number of Periods
The Algebraic Formula
Concept Questions
5.3 COMPOUNDING PERIODS
Compounding Over Many Years
Continuous Compounding (Advanced)
Concept Questions
5.4 SIMPLIFICATIONS
Perpetuity
Growing Perpetuity
Annuity
Mortgages
Using Annuity Formulas
Growing Annuity
Concept Questions
5.5 WHAT IS A FIRM WORTH?
5.6 SUMMARY AND CONCLUSIONS
Minicase: The MBA Decision
CHAPTER 6 How to Value Bonds and Stocks
Executive Summary
6.1 DEFINITION AND EXAMPLE OF A BOND
6.2 HOW TO VALUE BONDS
Pure Discount Bonds
Level-Coupon Bonds
Consols
Concept Questions
6.3 BOND CONCEPTS
Interest Rates and Bond Prices
Yield to Maturity
Current Yield
Holding-Period Return
The Present Value Formulas for Bonds
Concept Questions
6.4 THE PRESENT VALUE OF COMMON STOCKS
Dividends Versus Capital Gains
Valuation of Different Types of Stocks
6.5 ESTIMATES OF PARAMETERS IN THE DIVIDEND DISCOUNT MODEL
Where Does g Come From?
Where Does r Come From?
A Healthy Sense of Skepticism
6.6 GROWTH OPPORTUNITIES
NPVGOs of Real Companies
Growth in Earnings and Dividends Versus Growth Opportunities
Dividends or Earnings: Which to Discount?
The No-Dividend Firm
6.7 THE DIVIDEND GROWTH MODEL AND THE NPVGO MODEL (ADVANCED)
The Dividend Growth Model
The NPVGO Model
Summary
6.8 COMPARABLES
Price–Earnings Ratio
Concept Questions
6.9 VALUING THE ENTIRE FIRM
6.10 STOCK MARKET REPORTING
6.11 SUMMARY AND CONCLUSIONS
Minicase: Stock Valuation at Ragan Engines
Appendix 6A The Term Structure of Interest Rates
Concept Question
CHAPTER 7 Net Present Value and Other Investment Rules
Executive Summary
7.1 WHY USE NET PRESENT VALUE?
Concept Questions
7.2 THE PAYBACK PERIOD RULE
Defining the Rule
Problems With the Payback Method
Managerial Perspective
Summary of Payback
Concept Questions
7.3 THE DISCOUNTED PAYBACK PERIOD RULE
7.4 THE AVERAGE ACCOUNTING RETURN
Defining the Rule
Analyzing the Average Accounting Return Method
Concept Questions
7.5 THE INTERNAL RATE OF RETURN
Concept Question
7.6 PROBLEMS WITH THE INTERNAL RATE OF RETURN APPROACH
Definition of Independent and Mutually Exclusive Projects
Two General Problems Affecting Both Independent and Mutually Exclusive Projects
Problems Specific to Mutually Exclusive Projects
Redeeming Qualities of the Internal Rate of Return
A Test
Concept Questions
7.7 THE PROFITABILITY INDEX
Concept Questions
7.8 THE PRACTICE OF CAPITAL BUDGETING
7.9 SUMMARY AND CONCLUSIONS
Minicase: BC Copper Mining
CHAPTER 8 Net Present Value and Capital Budgeting
Executive Summary
8.1 INCREMENTAL CASH FLOWS
Cash Flows—Not Accounting Income
Sunk Costs
Opportunity Costs
Side Effects
Allocated Costs
Concept Questions
8.2 THE MAJESTIC MULCH ANDCOMPOST COMPANY: AN EXAMPLE
An Analysis of the Project
Which Set of Books?
A Note on Net Working Capital
Interest Expense
Concept Questions
8.3 INFLATION AND CAPITAL BUDGETING
Interest Rates and Inflation
Cash Flow and Inflation
Discounting: Nominal or Real?
Concept Questions
8.4 ALTERNATIVE DEFINITIONS OF OPERATING CASH FLOW
The Bottom-Up Approach
The Top-Down Approach
The Tax Shield Approach
Conclusion
8.5 APPLYING THE TAX SHIELDAPPROACH TO THE MAJESTICMULCH AND COMPOST COMPANY PROJECT
Present Value of the Tax Shield on Capital Cost Allowance
Total Project Cash Flow Versus Tax Shield Approach
Concept Questions
8.6 INVESTMENTS OF UNEQUAL LIVES: THE EQUIVALENT ANNUAL COST METHOD
The General Decision to Replace (Advanced)
Concept Question
8.7 SUMMARY AND CONCLUSIONS
Minicase: Beaver Mining Company
Minicase: Goodweek Tires Inc.
Appendix 8A Capital Cost Allowance
Appendix 8B Derivation of the Present Value of the Capital Cost Allowance Tax Shield Formula
CHAPER 9 Risk Analysis, Real Options, and Capital Budgeting
Executive Summary
9.1 DECISION TREES
Concept Questions
9.2 SENSITIVITY ANALYSIS, SCENARIO ANALYSIS, AND BREAK-EVEN ANALYSIS
Sensitivity Analysis and Scenario Analysis
Break-Even Analysis
Concept Questions
Break-Even Analysis, Equivalent Annual Cost, and Capital Cost Allowance
9.3 MONTE CARLO SIMULATION
Step 1: Specify the Basic Model
Step 2: Specify a Distribution for Each Variable in the Model
Step 3: The Computer Draws One Outcome
Step 4: Repeat the Procedure
Step 5: Calculate Net Present Value
9.4 REAL OPTIONS
The Option to Expand
The Option to Abandon
Timing Options
Real Options in the Real World
Concept Questions
9.5 SUMMARY AND CONCLUSIONS
Minicase: Bunyan Lumber, LLC
Part 3 RISK
CHAPTER 10 Risk and Return: Lessons From Market History
Executive Summary
10.1 RETURNS
Dollar Earnings
Percentage Returns or Rate of Return
Concept Questions
10.2 HOLDING- PERIOD RETURNS
Concept Questions
10.3 RETURN STATISTICS
Concept Question
10.4 AVERAGE STOCK RETURNS AND RISK- FREE RETURNS
Concept Questions
10.5 RISK STATISTICS
Variance and Standard Deviation
Normal Distribution and Its Implications for Standard Deviation
Value at Risk
Further Perspective on Returns and Risk
Concept Questions
10.6 MORE ON AVERAGE RETURNS
Arithmetic Versus Geometric Averages
Calculating Geometric Average Returns
Arithmetic Average Return or Geometric Average Return?
Concept Question
10.7 2008: A YEAR OF FINANCIAL CRISIS
10.8 SUMMARY AND CONCLUSIONS
Minicase: A Job at Deck Out My Yacht Corporation
CHAPTER 11 Risk and Return: The Capital Asset Pricing Model
Executive Summary
11.1 INDIVIDUAL SECURITIES
11.2 EXPECTED RETURN, VARIANCE, AND COVARIANCE
Expected Return and Variance
Covariance and Correlation
Concept Questions
11.3 THE RISK AND RETURN FOR PORTFOLIOS
The Example of Supertech and Slowpoke
The Expected Return on a Portfolio
Variance and Standard Deviation of a Portfolio
Concept Questions
11.4 THE EFFICIENT SET FOR TWO ASSETS
Application to International Diversification
Concept Questions
11.5 THE EFFICIENT SET FOR MANY SECURITIES
Variance and Standard Deviation in a Portfolio of Many Assets
Concept Questions
11.6 DIVERSIFICATION: AN EXAMPLE
Risk and the Sensible Investor
Concept Questions
11.7 RISK- FREE BORROWING AND LENDING
The Optimal Portfolio
Concept Questions
11.8 MARKET EQUILIBRIUM
Definition of the Market Equilibrium Portfolio
Definition of Risk When Investors Hold the Market Portfolio
The Formula for Beta
A Test
Concept Questions
11.9 RELATIONSHIP BETWEENRISK AND EXPECTED RETURN (CAPITAL ASSET PRICING MODEL)
Expected Return on Market
Expected Return on Individual Security
Concept Questions
11.10 SUMMARY AND CONCLUSIONS
Minicase: A Job at Deck Out My Yacht, Part 2
CHAPTER 12 An Alternative View of Risk and Return: The Arbitrage Pricing Theory
Executive Summary
12.1 FACTOR MODELS: ANNOUNCEMENTS, SURPRISES, AND EXPECTED RETURNS
Concept Questions
12.2 RISK: SYSTEMATIC AND UNSYSTEMATIC
Concept Questions
12.3 SYSTEMATIC RISK AND BETAS
Concept Questions
12.4 PORTFOLIOS AND FACTOR MODELS
Portfolios and Diversification
Concept Questions
12.5 BETAS AND EXPECTED RETURNS
The Linear Relationship
The Market Portfolio and the Single Factor
Concept Question
12.6 THE CAPITAL ASSET PRICINGMODEL AND THE ARBITRAGE PRICING THEORY
Differences in Pedagogy
Differences in Application
Concept Questions
12.7 PARAMETRIC APPROACHES TO ASSET PRICING
Empirical Models
Style Portfolios
Concept Questions
12.8 SUMMARY AND CONCLUSIONS
Minicase: The Fama–French Multifactor Model and Mutual Fund Returns
CHAPTER 13 Risk, Return, and Capital Budgeting
Executive Summary
13.1 THE COST OF EQUITY CAPITAL
Concept Questions
13.2 ESTIMATION OF BETA
Concept Question
Beta Estimation in Practice
Stability of Beta
Using an Industry Beta
Concept Questions
13.3 DETERMINANTS OF BETA
Cyclicality of Revenues
Operating Leverage
Financial Leverage and Beta
Concept Questions
13.4 EXTENSIONS OF THE BASIC MODEL
The Firm Versus the Project: Vive la différence
The Cost of Debt
The Cost of Preferred Stock
The Weighted Average Cost of Capital
The Capital Structure Weights
Taxes and the Weighted Average Cost of Capital
Concept Question
13.5 ESTIMATING THE COST OF CAPITAL FOR SUNCOR ENERGY
Concept Question
13.6 FLOTATION COSTS AND THE WEIGHTED AVERAGE COST OF CAPITAL
The Basic Approach
Flotation Costs and Net Present Value
Internal Equity and Flotation Costs
13.7 REDUCING THE COST OF CAPITAL
What Is Liquidity?
Liquidity, Expected Returns, and the Cost of Capital
Liquidity and Adverse Selection
What the Corporation Can Do
Concept Questions
13.8 SUMMARY AND CONCLUSIONS
Minicase: The Cost of Capital for Goff Communications Inc.
Appendix 13A Economic Value Added and the Measurement of Financial Performance
Part 4 Capital Structure and Dividend Policy
CHAPTER 14 Corporate Financing Decisions and Efficient Capital Markets
Executive Summary
14.1 CAN FINANCING DECISIONS CREATE VALUE?
Concept Question
14.2 A DESCRIPTION OF EFFICIENT CAPITAL MARKETS
Foundations of Market Efficiency
Concept Questions
14.3 THE DIFFERENT TYPES OF EFFICIENCY
The Weak Form
The Semistrong and Strong Forms
Some Common Misconceptions About the Efficient Market Hypothesis
Concept Questions
14.4 THE EVIDENCE
The Weak Form
The Semistrong Form
The Strong Form
Concept Questions
14.5 THE BEHAVIOURAL CHALLENGE TO MARKET EFFICIENCY
Concept Question
14.6 EMPIRICAL CHALLENGES TO MARKET EFFICIENCY
Concept Question
14.7 REVIEWING THE DIFFERENCES
In Their Own Words: A random talk with Burton Malkiel
14.8 IMPLICATIONS FOR CORPORATE FINANCE
Accounting and Efficient Markets
The Timing Decision
Speculation and Efficient Markets
Information in Market Prices
Concept Question
14.9 SUMMARY AND CONCLUSIONS
Minicase: Your Retirement Plan at Deck Out My Yacht
CHAPTER 15 Long-Term Financing: An Introduction
Executive Summary
15.1 COMMON STOCK
Authorized Versus Issued Common Stock
Retained Earnings
Market Value, Book Value, and Replacement Value
Shareholders' Rights
Dividends
Classes of Shares
In Their Own Words: Shares climb as Stronach to give up voting control
Concept Questions
15.2 CORPORATE LONG-TERM DEBT: THE BASICS
Interest Versus Dividends
Is It Debt or Equity?
Basic Features of Long-Term Debt
Different Types of Debt
Repayment
Seniority
Security
Indenture
Concept Questions
15.3 PREFERRED SHARES
Stated Value
Cumulative and Non-Cumulative Dividends
Are Preferred Shares Really Debt?
Preferred Shares and Taxes
Beyond Taxes
Concept Questions
15.4 INCOME TRUSTS
Income Trust Income and Taxation
15.5 PATTERNS OF LONG-TERM FINANCING
Concept Questions
15.6 SUMMARY AND CONCLUSIONS
CHAPTER 16 Capital Structure: Basic Concepts
Executive Summary
16.1 THE CAPITAL STRUCTURE QUESTION AND THE PIE MODEL
Concept Question
16.2 MAXIMIZING FIRM VALUEVERSUS MAXIMIZING SHAREHOLDER INTERESTS
Concept Question
16.3 FINANCIAL LEVERAGE AND FIRM VALUE: AN EXAMPLE
Leverage and Returns to Shareholders
The Choice Between Debt and Equity
A Key Assumption
Concept Questions
16.4 MODIGLIANI AND MILLER: PROPOSITION II (NO TAXES)
Risk to Equityholders Rises With Leverage
Proposition II: Required Return to Equityholders Rises With Leverage
Modigliani and Miller: An Interpretation
In Their Own Words: Merton Miller on the MM results
Concept Questions
16.5 TAXES
The Basic Insight
Taxation of Corporate Income
Present Value of the Tax Shield
Value of the Levered Firm
Expected Return and Leverage Under Corporate Taxes
The Weighted Average Cost of Capital and Corporate Taxes
Stock Price and Leverage Under Corporate Taxes
Concept Questions
16.6 SUMMARY AND CONCLUSIONS
Minicase: Stephenson Real Estate Recapitalization
CHAPTER 17 Capital Structure: Limits to the Use of Debt
Executive Summary
17.1 COSTS OF FINANCIAL DISTRESS
Bankruptcy Risk or Bankruptcy Cost?
Concept Questions
17.2 DESCRIPTION OF COSTS
Direct Costs of Financial Distress: Legal and Administrative Costs of Liquidation or Reorganization
Indirect Costs of Financial Distress
Agency Costs
Concept Questions
17.3 CAN DEBT COSTS BE REDUCED?
Protective Covenants
Consolidation of Debt
Concept Question
17.4 INTEGRATION OF TAXEFFECTS AND FINANCIAL DISTRESS COSTS
Pie Again
Concept Questions
17.5 SIGNALLING
Concept Questions
17.6 SHIRKING, PERQUISITES, AND BAD INVESTMENTS: A NOTE ON AGENCY COST OF EQUITY
Effect of Agency Costs of Equity on Debt-to-Equity Financing
Free Cash Flow
Concept Questions
17.7 THE PECKING- ORDER THEORY
Rules of the Pecking Order
Implications
Concept Questions
17.8 GROWTH AND THE DEBT-TO- EQUITY RATIO
No Growth
Growth
Concept Question
17.9 PERSONAL TAXES
The Miller Model
Concept Question
17.10 HOW FIRMS ESTABLISH CAPITAL STRUCTURE
Concept Questions
17.11 SUMMARY AND CONCLUSIONS
Minicase: McKenzie Restaurants Capital Budgeting
CHAPTER 18 Valuation and Capital Budgeting for the Levered Firm
Executive Summary
18.1 ADJUSTED PRESENT VALUE APPROACH
Concept Questions
18.2 FLOW TO EQUITY APPROACH
Step 1: Calculating Levered Cash Flow
Step 2: Calculating r[sup(S)]
Step 3: Valuation
Concept Questions
18.3 WEIGHTED AVERAGE COST OF CAPITAL METHOD
Concept Question
18.4 A COMPARISON OF THE ADJUSTEDPRESENT VALUE, FLOW TO EQUITY, AND WEIGHTED AVERAGE COST OF CAPITAL APPROACHES
Caveat: Adjusted Present Value, Flow to Equity, and Weighted Average Cost of Capital Do Not Always Yield the Same Results
A Guideline
Concept Questions
18.5 ADJUSTED PRESENT VALUE EXAMPLE
Concept Question
18.6 CAPITAL BUDGETING WHENTHE DISCOUNT RATE MUST BE ESTIMATED
Concept Question
18.7 BETA AND LEVERAGE
The Project Is Not Scale Enhancing
Concept Question
18.8 SUMMARY AND CONCLUSIONS
Minicase: The Leveraged Buyout of Cheek Products Ltd.
CHAPTER 19 Dividends and Other Payouts
Executive Summary
19.1 DIFFERENT TYPES OF DIVIDENDS
19.2 STANDARD METHOD OF CASH DIVIDEND PAYMENT
Concept Questions
19.3 THE BENCHMARK CASE: AN ILLUSTRATION OF THE IRRELEVANCE OF DIVIDEND POLICY
Current Policy: Dividends Set Equal to Cash Flow
Alternative Policy: Initial Dividend Is Greater Than Cash Flow
The Indifference Proposition
Homemade Dividends
A Test
Dividends and Investment Policy
Concept Questions
19.4 REPURCHASE OF STOCK
Dividend Versus Repurchase: Conceptual Example
Dividends Versus Repurchases: Real-World Considerations
Concept Questions
19.5 PERSONAL TAXES, ISSUANCE COSTS, AND DIVIDENDS
Firms Without Sufficient Cash to Pay a Dividend
Firms With Sufficient Cash to Pay a Dividend
Summary of Personal Taxes
Concept Questions
19.6 REAL- WORLD FACTORS FAVOURING A HIGH- DIVIDEND POLICY
Desire for Current Income
Behavioural Finance
Agency Costs
Information Content of Dividends and Dividend Signalling
Concept Question
19.7 THE CLIENTELE EFFECT:A RESOLUTION OF REAL- WORLD FACTORS?
Concept Questions
In Their Own Words: Why Amazon.com Inc. pays no dividend
Why Rogers Communications pays dividends
19.8 WHAT WE KNOW AND DO NOT KNOW ABOUT DIVIDEND POLICY
Corporate Dividends Are Substantial
Fewer Companies Pay Dividends
Corporations Smooth Dividends
Some Survey Evidence on Dividends
19.9 PUTTING IT ALL TOGETHER
19.10 STOCK DIVIDENDS AND STOCK SPLITS
Some Details on Stock Splits and Stock Dividends
Value of Stock Splits and Stock Dividends
Reverse Splits
Concept Questions
19.11 SUMMARY AND CONCLUSIONS
Minicase: Electronic Timing Ltd.
Part 5 Long-Term Financing
CHAPTER 20 Issuing Equity Securities to the Public
Executive Summary
20.1 THE PUBLIC ISSUE
20.2 THE BASIC PROCEDURE FOR A NEW ISSUE
The Prompt Offering Prospectus System
Alternative Issue Methods
Concept Questions
20.3 THE CASH OFFER
Types of Underwriting
The Selling Period
The Overallotment Option
Investment Banks
The Offering Price and Underpricing
The Decision to Go Public
Pricing Initial Public Offerings
Underpricing: A Possible Explanation
In Their Own Words: Jay Ritter on IPO underpricing around the world
Concept Questions
20.4 THE ANNOUNCEMENT OF NEWEQUITY AND THE VALUE OF THE FIRM
20.5 THE COST OF ISSUING SECURITIES
The Costs of Going Public: A Case Study
Concept Questions
20.6 RIGHTS
The Mechanics of a Rights Offering
Subscription Price
Number of Rights Needed to Purchase a Share
The Value of a Right
Ex-Rights
Value of Rights After Ex-Rights Date
The Underwriting Arrangements
Effects on Shareholders
Cost of Rights Offerings
Concept Questions
20.7 THE PRIVATE EQUITY MARKET
Private Placement
The Private Equity Firm
Venture Capital
Suppliers of Venture Capital
Stages of Financing
Some Venture Capital Realities
Concept Questions
20.8 SUMMARY AND CONCLUSIONS
Minicase: East Coast Yachts Goes Public
CHAPTER 21 Long-Term Debt
Executive Summary
21.1 LONG-TERM DEBT: A REVIEW
21.2 THE PUBLIC ISSUE OF BONDS
The Basic Terms
Security
Seniority
Protective Covenants
The Sinking Fund
The Call Provision
Concept Questions
21.3 BOND REFUNDING
Should Firms Issue Callable Bonds?
Calling Bonds: When Does It Make Sense?
Concept Questions
21.4 BOND RATINGS
Junk Bonds
Concept Questions
21.5 SOME DIFFERENT TYPES OF BONDS
Zero-Coupon Bonds
Floating-Rate Bonds
Financial Engineering and Bonds
Concept Questions
21.6 DIRECT PLACEMENT COMPARED TO PUBLIC ISSUES
Concept Questions
21.7 LONG-TERM SYNDICATED BANK LOANS
Concept Question
21.8 SUMMARY AND CONCLUSIONS
Minicase: Financing the Expansion of East Coast Yachts With a Bond Issue
CHAPTER 22 Leasing
Executive Summary
22.1 TYPES OF LEASES
The Basics
Operating Leases
Financial Leases
Concept Questions
22.2 ACCOUNTING AND LEASING
Concept Questions
22.3 TAXES AND LEASES
Concept Questions
22.4 THE CASH FLOWS OF FINANCIAL LEASING
The Incremental Cash Flows
Concept Questions
22.5 A DETOUR ON DISCOUNTINGAND DEBT CAPACITY WITH CORPORATE TAXES
Present Value of Risk-Free Cash Flows
Optimal Debt Level and Risk-Free Cash Flows (Advanced)
Concept Question
22.6 NET PRESENT VALUE ANALYSISOF THE LEASE- VERSUS- BUY DECISION
The Discount Rate
Asset Pool and Salvage Value
22.7 DEBT DISPLACEMENT AND LEASE VALUATION
The Basic Concept of Debt Displacement (Advanced)
Optimal Debt Level in the TransCanada Taxis Example (Advanced)
22.8 DOES LEASING EVER PAY? THE BASE CASE
22.9 REASONS FOR LEASING
Good Reasons for Leasing
Bad Reasons for Leasing
Leasing Decisions in Practice
Concept Question
22.10 SOME UNANSWERED QUESTIONS
Are the Uses of Leases and of Debt Complementary?
Why Are Leases Offered by Both Manufacturers and Third-Party Lessors?
Why Are Some Assets Leased More Commonly Than Others?
22.11 SUMMARY AND CONCLUSIONS
Minicase: The Decision to Lease or Buy at Warf Computers Ltd.
Part 6 Options, Futures, and Corporate Finance
CHAPTER 23 Options, Futures, and Corporate Finance
Options and Corporate Finance: Basic Concepts
Executive Summary
23.1 OPTIONS
23.2 CALL OPTIONS
The Value of a Call Option at Expiration
Concept Questions
23.3 PUT OPTIONS
The Value of a Put Option at Expiration
Concept Questions
23.4 SELLING OPTIONS
23.5 STOCK OPTION QUOTATIONS
Long-Term Equity Anticipation Securities
23.6 COMBINATIONS OF OPTIONS
Concept Questions
23.7 VALUING OPTIONS
Bounding the Value of an American Call
The Factors Determining Call Option Values
A Quick Discussion of Factors Determining Put Option Values
Concept Questions
23.8 AN OPTION PRICING FORMULA
A Two-State Option Model
The Black–Scholes Model
Concept Questions
23.9 STOCKS AND BONDS AS OPTIONS
The Firm Expressed in Terms of Call Options
The Firm Expressed in Terms of Put Options
A Resolution of the Two Views
A Note on Loan Guarantees
Concept Questions
23.10 INVESTMENT IN REAL PROJECTS AND OPTIONS
Concept Question
23.11 CONTINGENT VALUE RIGHTS,MERGERS, AND CORPORATE DECISIONS
Concept Question
23.12 SUMMARY AND CONCLUSIONS
Minicase: Clissold Industries Options
CHAPTER 24 Options and Corporate Finance: Extensions and Applications
Executive Summary
24.1 EXECUTIVE STOCK OPTIONS
Why Options?
Executive Compensation: Where Are We Now?
In Their Own Words: Jim Middlemiss on options backdating
Valuing Executive Compensation
Concept Question
24.2 VALUING A START- UP
Concept Questions
24.3 MORE ABOUT THE BINOMIAL MODEL
Heating Oil
24.4 SHUTDOWN AND REOPENING DECISIONS
Valuing a Gold Mine
The Abandonment and Opening Decisions
Valuing the Simple Gold Mine
24.5 SUMMARY AND CONCLUSIONS
Minicase: Exotic Cuisines Employee Stock Options
CHAPTER 25 Warrants and Convertibles
Executive Summary
25.1 WARRANTS
Concept Question
25.2 THE DIFFERENCE BETWEENWARRANTS AND CALL OPTIONS
How the Firm Can Hurt Warrant Holders
Concept Questions
25.3 WARRANT PRICING AND THEBLACK–SCHOLES MODEL (ADVANCED)
Concept Question
25.4 CONVERTIBLE BONDS
Concept Question
25.5 THE VALUE OF CONVERTIBLE BONDS
Straight Bond Value
Conversion Value
Option Value
Concept Questions
25.6 REASONS FOR ISSUINGWARRANTS AND CONVERTIBLES
Convertible Debt Versus Straight Debt
Convertible Debt Versus Common Stock
The "Free Lunch" Story
The "Expensive Lunch" Story
A Reconciliation
Concept Questions
25.7 WHY ARE WARRANTS AND CONVERTIBLES ISSUED?
Matching Cash Flows
Risk Synergy
Agency Costs
Backdoor Equity
Concept Question
25.8 CONVERSION POLICY
Concept Questions
25.9 SUMMARY AND CONCLUSIONS
Minicase: S&S Air's Convertible Bond
CHAPTER 26 Derivatives and Hedging Risk
Executive Summary
26.1 DERIVATIVES, HEDGING, AND RISK
The Impact of Financial Risk: The Credit Crisis of 2007–09
26.2 FORWARD CONTRACTS
Concept Questions
26.3 FUTURES CONTRACTS
Concept Questions
26.4 HEDGING
Hedging With Futures Versus Hedging With Options
Concept Questions
26.5 INTEREST RATE FUTURES CONTRACTS
Pricing of Government of Canada Bonds
Pricing of Forward Contracts
Futures Contracts
Hedging in Interest Rate Futures
Concept Questions
26.6 DURATION HEDGING
The Case of Zero-Coupon Bonds
The Case of Two Bonds With the Same Maturity but With Different Coupons
Duration
Matching Liabilities With Assets
Duration in Practice
Concept Questions
26.7 SWAP CONTRACTS
Interest Rate Swaps
Currency Swaps
Concept Question
Credit Default Swaps
Exotics
Movement Toward Exchange Trading for Swaps
26.8 ACTUAL USE OF DERIVATIVES
26.9 SUMMARY AND CONCLUSIONS
Minicase: Williamson Mortgage Inc.
Part 7 Financial Planning and Short-Term Finance
CHAPTER 27 Short-Term Finance and Planning
Executive Summary
27.1 TRACING CASH AND NET WORKING CAPITAL
27.2 DEFINING CASH IN TERMS OF OTHER ELEMENTS
The Sources and Uses of Cash Statement
Concept Questions
27.3 THE OPERATING CYCLE AND THE CASH CYCLE
Interpreting the Cash Cycle
Concept Questions
27.4 SOME ASPECTS OF SHORT-TERM FINANCIAL POLICY
The Size of the Firm's Investment in Current Assets
Alternative Financing Policies for Current Assets
Current Assets and Liabilities in Practice
Concept Questions
27.5 CASH BUDGETING
Cash Outflow
The Cash Balance
Concept Questions
27.6 THE SHORT-TERM FINANCIAL PLAN
Short-Term Planning and Risk
Short-Term Borrowing
In the Absence of Short-Term Borrowing
Concept Questions
27.7 SUMMARY AND CONCLUSIONS
Minicase: Keafer Manufacturing Working Capital Management
CHAPTER 28 Cash Management
Executive Summary
28.1 REASONS FOR HOLDING CASH
The Speculative and Precautionary Motives
The Transaction Motive
Costs of Holding Cash
Cash Management Versus Liquidity Management
Concept Questions
28.2 MANAGING THE COLLECTION AND DISBURSEMENT OF CASH
Electronic Data Interchange: The End of Float?
Accelerating Collections
Controlling Disbursements
Ethical and Legal Questions
Concept Questions
28.3 INVESTING IDLE CASH
Seasonal or Cyclical Activities
Planned Expenditures
Characteristics of Short-Term Securities
Some Different Types of Money Market Securities
In Their Own Words: Credit crisis made in Canada
Concept Questions
28.4 SUMMARY AND CONCLUSIONS
Minicase: Cash Management at Richmond Ltd.
CHAPTER 29 Credit Management
Executive Summary
29.1 TERMS OF THE SALE
Why Trade Credit Exists
The Basic Form
Credit Period
Cash Discounts
Credit Instruments
Concept Questions
29.2 THE DECISION TO GRANT CREDIT: RISK AND INFORMATION
The Value of New Information About Credit Risk
Future Sales
Concept Question
29.3 OPTIMAL CREDIT POLICY
Credit Insurance
Concept Question
29.4 CREDIT ANALYSIS
Credit Information
Credit Evaluation and Scoring
Concept Questions
29.5 COLLECTION POLICY
Average Collection Period
Aging Schedule
Collection Effort
Concept Question
29.6 OTHER ASPECTS OF CREDIT POLICY
Factoring
How to Finance Trade Credit
Concept Question
29.7 SUMMARY AND CONCLUSIONS
Minicase: Credit Policy at Braam Industries
Part 8 SPECIAL TOPICS
CHAPTER 30 Mergers and Acquisitions
Executive Summary
30.1 THE BASIC FORMS OF ACQUISITIONS
Merger or Consolidation
Acquisition of Stock
Acquisition of Assets
A Classification Scheme
A Note on Takeovers
Concept Questions
30.2 THE TAX FORMS OF ACQUISITIONS
Determinants of Tax Status
Taxable Versus Tax-Free Acquisitions
Concept Questions
30.3 ACCOUNTING FOR ACQUISITIONS
The Acquisition Method
Concept Questions
30.4 DETERMINING THE SYNERGY FROM AN ACQUISITION
30.5 SOURCES OF SYNERGY FROM ACQUISITIONS
Revenue Enhancement
Cost Reduction
Tax Gains
Lower Cost of Capital
Concept Question
30.6 CALCULATING THE VALUE OF THE FIRM AFTER AN ACQUISITION
Avoiding Mistakes
30.7 A COST TO SHAREHOLDERS FROM REDUCTION IN RISK
The Base Case
The Case Where One Firm Has Debt
How Can Shareholders Reduce Their Losses From the Coinsurance Effect?
Concept Question
30.8 TWO "BAD" REASONS FOR MERGERS
Earnings Growth
Diversification
Concept Questions
30.9 THE NET PRESENT VALUE OF A MERGER
Cash
Common Stock
Cash Versus Common Stock
Concept Question
Defensive Tactics
Divestitures
The Control Block and the Corporate Charter
Standstill Agreements
Exclusionary Offers and Non-Voting Stock
Going Private and Leveraged Buyouts
Other Defensive Devices
Concept Question
30.10 SOME EVIDENCE ON ACQUISITIONS
Do Acquisitions Benefit Shareholders?
The Managers Versus the Shareholders
Real Productivity
Concept Questions
30.11 SUMMARY AND CONCLUSIONS
Minicase: The Birdie Golf–Hybrid Golf Merger
CHAPTER 31 Financial Distress
Executive Summary
31.1 WHAT IS FINANCIAL DISTRESS?
Concept Questions
31.2 WHAT HAPPENS IN FINANCIAL DISTRESS?
Concept Questions
31.3 BANKRUPTCY LIQUIDATION AND REORGANIZATION
Bankruptcy Liquidation
Bankruptcy Reorganization
Agreements to Avoid Bankruptcy
Concept Questions
31.4 CURRENT ISSUES IN FINANCIAL DISTRESS
Private Workout or Bankruptcy: Which Is Better?
Holdouts
Complexity
Lack of Information
Prepackaged Bankruptcy
Concept Questions
31.5 THE DECISION TO SEEK COURTPROTECTION: THE CASE OFCANWEST GLOBALCOMMUNICATIONS CORPORATION
Concept Questions
31.6 SUMMARY AND CONCLUSIONS
CHAPTER 32 International Corporate Finance
Executive Summary
32.1 TERMINOLOGY
Concept Question
32.2 FOREIGN EXCHANGE MARKETS AND EXCHANGE RATES
Exchange Rates
Types of Transactions
Concept Questions
32.3 THE LAW OF ONE PRICE AND PURCHASING POWER PARITY
Concept Questions
32.4 INTEREST RATES AND EXCHANGE RATES
The Dollar Investment
The Euro Investment
The Forward Discount and Expected Spot Rates
Exchange Rate Risk
More Advanced Short-Term Hedges
The Hedging Decision in Practice
Concept Questions
32.5 INTERNATIONAL CAPITAL BUDGETING
Foreign Exchange Conversion
Unremitted Cash Flows
The Cost of Capital for International Firms
Concept Questions
32.6 INTERNATIONAL FINANCING DECISIONS
Short-Term and Medium-Term Financing
International Bond Markets
In Their Own Words: Merkel: Europe faces historic test in euro crisis
Concept Questions
32.7 REPORTING FOREIGN OPERATIONS
Concept Question
32.8 POLITICAL RISK
32.9 SUMMARY AND CONCLUSIONS
Minicase: East Coast Yachts Goes International
Glossary
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Index
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