Brief Contents
Part 1 Introduction 1
1 The Scope of Corporate Finance 2
2 Financial Statement and Cash Flow Analysis 34
3 The Time Value of Money 84
Part 2 Valuation, Risk, and Return 149
4 Valuing Bonds 150
5 Valuing Stocks 194
6 The Trade-off Between Risk and Return 243
7 Risk, Return, and the Capital Asset Pricing Model 285
Part 3 Capital Budgeting 325
8 Capital Budgeting Process and Decision Criteria 326
9 Cash Flow and Capital Budgeting 370
10 Risk and Capital Budgeting 413
Part 4 Capital Structure and Dividend Policy 451
11 Raising Long-Term Financing 452
12 Capital Structure 489
13 Long-Term Debt and Leasing 527
14 Dividend Policy 565
Part 5 Financial Planning and Management 605
15 Financial Planning 606
16 Cash Conversion, Inventory, and Receivables Management 647
17 Cash, Payables, and Liquidity Management 696
Part 6 Special Topics 727
18 International Financial Management 728
19 Options
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20 Entrepreneurial Finance and Venture Capital
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21 Mergers, Acquisitions, and Corporate Control
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22 Bankruptcy and Financial Distress
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23 Risk Management
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Appendix A Financial Tables A1
Appendix B Cumulative Probabilities B1
Glossary G1
Name & Company Index I1
Subject Index I5

Part 1 Introduction 1
1 The Scope of Corporate Finance 2
Opening Focus: Apple Succeeds with iTunes Where Others Had Failed 2
1-1 The Role of Corporate Finance in Modern Business 3
1-1a How Finance Interacts with Other Functional Business Areas 4,
1-1b Career Opportunities in Finance 4
1-2 Corporate Finance Essentials 9
1-2a The Five Basic Corporate Finance Functions 10, 1-2b Debt and
Equity: The Two Flavors of Capital 12, 1-2c Financial Intermediation
and Modern Finance 13
1-3 Legal Forms of Business Organization 15
1-3a Business Organizational Forms in the United States 15,
1-3b Forms of Business Organization Used by Non-U.S. Companies 21
Comparative Corporate Finance: The Growth of Stock Market Capitalization 22
1-4 The Corporate Financial Manager’s Goals 23
1-4a What Should a Financial Manager Try to Maximize? 23, 1-4b How
Can Agency Costs Be Controlled in Corporate Finance? 25, 1-4c Why
Are Ethics Important in Corporate Finance? 27, 1-4d How the Sarbanes-
Oxley Act Is Changing How Corporate America Conducts Business 27
Summary 29, Key Terms 29, Questions 30, Problems 30
Minicase: The Scope of Corporate Finance 33
2 Financial Statement and Cash Flow Analysis 34
Opening Focus: Big Oil Profits, Big Investment, and Big Problems 34
2-1 Financial Statements 36
2-1a Balance Sheet 36, 2-1b Income Statement 39
Comparative Corporate Finance: Assessing the Market Values of Global Brands 40
2-1c Statement of Retained Earnings 41, 2-1d Statement of Cash
Flows 42, 2-1e Notes to Financial Statements 42
2-2 Cash Flow Analysis 42
2-2a The Firm’s Cash Flows 42, 2-2b Developing and Interpreting the
Statement of Cash Flows 46
2-3 Analyzing Financial Performance Using Ratio Analysis 48
2-3a Using Financial Ratios 48, 2-3b Liquidity Ratios 49, 2-3c Activity
Ratios 50, 2-3d Debt Ratios 52, 2-3e Profi tability Ratios 54
Finance in Your Life: Analyzing Your Personal Financial Statements 56
2-3f Market Ratios 59
2-4 Corporate Taxes 61
2-4a Ordinary Corporate Income 61, 2-4b Corporate Capital Gains 62
Summary 63, Key Terms 64, Self-Test Problems 64, Questions 67,

Minicase: Financial Statement and Cash Flow Analysis 78
Appendix 80
3 The Time Value of Money 84
Opening Focus: Why Is a “$340 Million Jackpot”
Really Worth Only $164 Million? 84
3-1 Future Value of a Lump Sum 85
3-1a The Concept of Future Value 85, 3-1b The Equation for
Future Value 86, 3-1c A Graphic View of Future Value 88
3-2 Present Value of a Lump Sum 89
Comparative Corporate Finance: Save Money? Not Me; I’m an American 90
3-2a The Concept of Present Value 90, 3-2b The Equation for
Present Value 91, 3-2c A Graphic View of Present Value 92
3-3 Future Value of Cash Flow Streams 93
3-3a Finding the Future Value of a Mixed Stream 93, 3-3b Types of
Annuities 94, 3-3c Finding the Future Value of an Ordinary Annuity 96,
3-3d Finding the Future Value of an Annuity Due 97
3-4 Present Value of Cash Flow Streams 99
3-4a Finding the Present Value of a Mixed Stream 99, 3-4b Finding the
Present Value of an Ordinary Annuity 100, 3-4c Finding the Present
Value of an Annuity Due 103, 3-4d Finding the Present Value of a
Perpetuity 104, 3-4e Finding the Present Value of a Growing
Perpetuity 105
3-5 Special Applications of Time Value 106
3-5a Compounding More Frequently Than Annually 106, 3-5b Stated
Versus Eff ective Annual Interest Rates 109, 3-5c Deposits Needed to
Accumulate a Future Sum 110, 3-5d Loan Amortization 111,
Finance in Your Life: Saving for Your Retirement 112
3-6 Additional Applications of Time-Value Techniques 115
3-6a Implied Interest or Growth Rates 115, 3-6b Number of
Compounding Periods 118
Summary 120, Key Terms 121, Self-Test Problems 121, Questions 123,
Problems 124
Minicase: Present Value 136
Appendix 137
Part 2 Valuation, Risk, and Return 149
4 Valuing Bonds 150
Opening Focus: The Godfather of Soul’s Bowie Bond Lawsuit Still Lives 150
4-1 Valuation Basics 152
4-1a The Fundamental Valuation Model 152
4-2 Bond Prices and Interest Rates 154
4-2a Bond Vocabulary 154, 4-2b The Basic Equation (Assuming Annual
Interest) 155, 4-2c Semiannual Compounding 158
Finance in Your Life: How Expensive a Home Can You Aff ord? 159
4-2d Bond Prices and Interest Rates 160
4-3 Types of Bonds

Part 6 Special Topics 727
18 International Financial Management 728
Opening Focus: Kiwi Dollar Rough on Roughy 728
18-1 Exchange Rate Fundamentals 729
18-1a Fixed Versus Floating Exchange Rates 729, 18-1b Exchange Rate
Quotes 730
Finance in Your Life: Pilgrimage to Mata Mata 732
18-1c The Foreign Exchange Market 735
18-2 The Parity Conditions in International Finance 737
18-2a Forward-Spot Parity 737, 18-2b Purchasing Power Parity 739,
18-2c Interest Rate Parity 742, 18-2d Real Interest Rate Parity (the
Fisher Eff ect) 744
18-3 Managing Financial and Political Risk 746
18-3a Transactions Risk 746, 18-3b Translation and Economic Risk 747,
18-3c Political Risk 748, 18-3d European Monetary Union and the Rise
of Regional Trading Blocks 748
Comparative Corporate Finance: How Risky Are Diff erent
Countries 749
18-4 Long-Term Investment Decisions 750
18-4a Capital Budgeting 750, 18-4b Cost of Capital 752
Summary 753, Key Terms 754, Self-Test Problems 754, Questions 754,
Problems 755
Minicase: International