book

Financial Management: Core Concepts, Third Edition

by Raymond M. Brooks

January 2015

Beginner

480 pages

31h 42m

English

Pearson

Read now

Unlock full access

Learning Objectives
Profit MaximizationMaximizing Current Stock PriceMaximizing Equity Value
ProprietorshipPartnershipCorporationsHybrid CorporationsNot-for-Profit Corporations
Learning Objectives
The Balance SheetCash account Working capital accounts Long-term capital assets accounts Long-term debt (liabilities) accounts Ownership accounts The Income StatementIssue 1: Generally accepted accounting principles Issue 2: Noncash expense items Issue 3: Classifying interest expense as part of the financing decision Statement of Retained Earnings
The First Component: Cash Flow from AssetsThe Second Component: Cash Flow to CreditorsThe Third Component: Cash Flow to OwnersPutting It All Together: The Cash Flow IdentityThe Statement of Cash FlowsFree Cash Flow
Regulation Fair DisclosureNotes to the Financial Statements
Learning Objectives
The Single-Period ScenarioThe Multiple-Period ScenarioMethods of Solving Future Value ProblemsMethod 1: The equation Method 2: The TVM keys Method 3: The spreadsheet Problem Solution
The Single-Period ScenarioThe Multiple-Period ScenarioProblem Solution The Use of Time Lines
Problem Solution Method 1 Using the equationMethod 2 Using the TVM keysMethod 3 Using a spreadsheetProblem Solution Method 1 Using the equationMethod 2 Using the TVM keys Method 3 Using a spreadsheetProblem Solution Method 1 Using the equationMethod 2 Using the TVM keys Method 3 Using a spreadsheetProblem Solution Method 1 Using the equationMethod 2 Using the TVM keys Method 3 Using a spreadsheet Problem Solution Method 1 Using the equationMethod 2 Using the TVM keysMethod 3 Using a spreadsheet
Learning Objectives
Future Value of an Annuity: An ApplicationProblem Solution Method 1 Using the equationMethod 2 Using the TVM keysMethod 3 Using a spreadsheet
ProblemSolutionMethod 1 Using the equationMethod 2 Using the TVM keysmethod 3 Using a spreadsheet
Perpetuity
Interest and Principal at Maturity of Loan (Discount Loan)Interest as You Go, Principal at Maturity of Loan (Interest-Only Loan)Interest and Principal as You Go (Amortized Loan)
Problem Solution Method 1 Using the equationMethod 2 Using the TVM keysMethod 3 Using a spreadsheetMethod 1 Using the equation
Advanced Problems for Spreadsheet Application
Learning Objectives
Problem SolutionMETHOD 1 Using the equationMETHOD 2 Using a calculatorMETHOD 3 Using a spreadsheetProblem SolutionMETHOD 1 Using the equationMETHOD 2 Using the TVM keysMETHOD 3 Using a spreadsheet
Problem SolutionMETHOD 1 Using the TVM keysMETHOD 2 Using the TVM keysProblem SolutionPayment method 1Payment method 2
Problem Solution
Maturity Premiums
Problem Solution
Learning Objectives
Key Components of a BondPricing a Bond in StepsMethod 1: Using the equation Method 2: Using the TVM keysMethod 3: Using a spreadsheet
Pricing Bonds after Original IssueMethod 1: Using the equation Method 2: Using the TVM keys Method 3: Using a spreadsheet Zero-Coupon BondsProblem Solution Method 1 Using the equation method 2 Using the TVM keys Method 3 Using a spreadsheet Amortization of a Zero-Coupon Bond
The First Interest Rate: Yield to MaturityMethod 1: Using the equation Method 2: Using the TVM keys Method 3: Using a spreadsheet The “Other” Interest Rate: Coupon RateRelationship of Yield to Maturity and Coupon Rate
Pricing a U.S. Government Note or BondPricing a Treasury Bill
Bond prices. For Problems 1 through 4, use the information in the following table.Yield to maturity. For Problems 5 through 8, use the information in the following table.Treasury notes and bonds. For Problems 19 through 23, use the information in the following table.Treasury bills. For Problems 24 through 28, use the information in the following table. A face value of $10,000 is assumed for these Treasury bills.
Learning Objectives
OwnershipClaim on Assets and Cash Flow (Residual Claim)Vote (Voice in Management)No Maturity DateDividends and Their Tax EffectAuthorized, Issued, and Outstanding SharesTreasury StockPreemptive Rights
Primary MarketsSecondary Markets: How Stocks TradeBull Markets and Bear Markets
ProblemSolutionmethod 1method 2The Constant Dividend Model with an Infinite HorizonProblemSolutionThe Constant Dividend Model with a Finite HorizonMethod 1: Using the equation Method 2: Using the TVM keysThe Constant Growth Dividend Model with an Infinite HorizonProblemSolutionThe Constant Growth Dividend Model with a Finite HorizonNonconstant Growth DividendsProblemSolution
ProblemSolution
Operational EfficiencyInformational Efficiency
Learning Objectives
Dollar Profits and Percentage ReturnsProblem Solution Converting Holding Period Returns to Annual ReturnsMethod 1: Using equations Method 2: Using the TVM keys Extrapolating Holding Period Returns
Problem Solution Normal Distributions
Determining the Probabilities of All Potential OutcomesProblem Solution
Investment Rules
When Diversification WorksAdding More Stocks to the Portfolio: Systematic and Unsystematic Risk
Problem Solution
The Capital Asset Pricing ModelProblem Solution Application of the SML
Learning Objectives
Problem Solution Discounted Payback Period
Mutually Exclusive versus Independent ProjectsProblem Solution Unequal Lives of ProjectsNet Present Value Example: Equation and Calculator Function
Problem Solution Input and Results of NPV and IRR Calculations on CalculatorAppropriate Discount Rate or Hurdle RateProblems with the Internal Rate of ReturnMultiple Internal Rates of ReturnProblem Solution Reinvestment and Crossover RatesProblem Solution Modified Internal Rate of Return
Problem Solution
Capital Budgeting Using a Spreadsheet
Learning Objectives
Sunk CostsOpportunity CostsErosion CostsProblem Solution Synergy GainsWorking CapitalProblem Solution
Straight-Line DepreciationModified Accelerated Cost Recovery System
Problem Solution
Learning Objectives
Problem Solution
Debt ComponentProblem Solution Problem Solution Preferred Stock ComponentProblem Solution Equity ComponentThe security market line approach to Re Problem Solution The dividend growth model approach to Re Problem Solution Retained EarningsThe Debt Component and Taxes
Book ValueAdjusted Weighted Average Cost of CapitalMarket ValueProblem Solution
The Weighted Average Cost of Capital for Individual Projects
Problem Solution
Problem Solution
Learning Objectives
Cash Inflow from SalesOther Cash Receipts
Problem Solution
Funding Cash DeficitsInvesting Cash Surpluses
Pro Forma Income StatementPro Forma Balance SheetProblem Solution
Learning Objectives
Average Production CycleAverage Collection CycleAverage Payment CyclePutting It All Together: The Cash Conversion Cycle
Collecting Accounts ReceivableProblem Solution Credit: A Two-Sided CoinQualifying for CreditProblem Solution Setting Payment PolicyCollecting Overdue Debt
Speeding Up the Collection Float (Shortening the Lag Time)Extending Disbursement Float (Lengthening the Lag Time)
ABC Inventory ManagementRedundant Inventory ItemsEconomic Order QuantityThe Trade-off between Ordering Costs and Carrying Costs Measuring Ordering Costs Problem Solution Measuring Carrying Costs Problem Solution Reorder Point and Safety Stock Just in Time
Inventories and Daily OperationsProblem Solution
Learning Objectives
Benchmarking
Short-Term Solvency: Liquidity RatiosLong-Term Solvency: Solvency or Financial Leverage RatiosAsset Management RatiosProfitability RatiosMarket Value RatiosDuPont Analysis
Cola WarsIndustry Ratios
Learning Objectives
Personal Funds and Family LoansCommercial Bank LoansCommercial Bank Loans through the Small Business AdministrationAngel Financing and Venture Capital Financial Strength Contacts Exit Strategy Problem Solution
Straight LoansProblem Solution Discount LoansProblem Solution Letters of Credit or Lines of CreditCompensating Balance Loans
Problem Solution
Initial Public Offerings and UnderwritingProblemSolutionRegistration, Prospectus, and TombstoneThe Marketing Process: Road ShowThe AuctionThe Aftermarket: Dealer in the SharesProblem Solution
Problem Solution
Straight Liquidation: Chapter 7Reorganization: Chapter 11
Learning Objectives
Problem Solution
Earnings per Share as a Measure of the Benefits of Borrowing
Problem (A) Solution Problem (B) Solution
Firms Prefer Internal Financing FirstFirms Choose to Issue the Cheapest Security First and Use Equity as a Last ResortProblem Solution
Capital Structure in a World of No Taxes and No BankruptcyM&M Proposition I M&M Proposition II Problem Solution Capital Structure in a World of Corporate Taxes and No BankruptcyDebt and the Tax ShieldProblem Solution
BankruptcyStatic Theory of Capital Structure
Learning Objectives
Buying and Selling StockDeclaring and Paying a Cash Dividend: A ChronologyDifferent Types of DividendsRegular cash dividends Special or extra cash dividends Stock dividends Liquidating dividends
Dividend ClientelesDividend Policy IrrelevanceDividend Policy in a World of No Taxes and No Transaction CostsProblem SolutionProblem SolutionDividends in a world of taxes Problem SolutionProblem Solution Reasons Favoring a Low- or No-Dividend-Payout PolicyTax Advantages Higher potential returns from positive net present value projects Less need for outside funding Reasons Favoring a High-Dividend-Payout PolicyFreedom from transaction costs Certainty versus uncertainty Optimal Dividend Policy
Problem Solution Some Further Considerations in the Selection of a Dividend PolicyRestrictions on legal capital Restrictive bond covenants Cash availability
Reasons for Stock SplitsPreferred trading range Signaling hypothesis Increased liquidity Reverse Splits
Stock RepurchaseProblem SolutionScenario 1 Stock repurchaseScenario 2 Cash dividend payoutDividend Reinvestment PlansProblem Solution
Learning Objectives
Cultural RiskDifferences in ownership structure Differences in human resource norms Religious heritage of the host country Nepotism and corrupt practices in the host country Intellectual property rights Business RiskPolitical Risk
Purchasing Power ParityCurrency Exchange RatesCross RatesArbitrage OpportunitiesProblem Solution Forward RatesUsing Forward RatesProblem Solution Changing Spot Rates
Transaction ExposureOperating ExposureTranslation Exposure
Problem Solution Domestic Currency ApproachForeign Currency Approach

Content preview from Financial Management: Core Concepts, Third Edition

8.8 Beta: The Measure of Risk in a Well-Diversified Portfolio

A graph showing portfolio diversification and the elimination of unsystematic risk. — Figure 8.11

Portfolio diversification and the elimination of unsystematic risk.

Description

The horizontal axis of the graph is labeled *Number of stocks in portfolio*; the vertical axis is labeled *Total risk*. The numbers 0, 5, 10, 15, 20, and 25 are indicated along the horizontal axis at regular intervals.

A blue line (labeled *Risk of the portfolio*) is drawn from near the top of the Total risk axis and slopes down and to the right to approximately 28 on the Number of stocks in portfolio axis. At this point, the risk is fairly low.

The line indicates that the total risk of the portfolio ...

Become an O’Reilly member and get unlimited access to this title plus top books and audiobooks from O’Reilly and nearly 200 top publishers, thousands of courses curated by job role, 150+ live events each month,
and much more.

Start your free trial

Key Financial Market Concepts, 2nd Edition

Bob Steiner

Financial Management: Principles and Applications, 13/e

Sheridan Titman, Arthur J. Keown, John D. Martin

Fundamentals of Financial Management, Third Edition

Vyuptakesh Sharan

Principles of Managerial Finance, 15th Edition

Scott B. Smart, Chad J. Zutter, Lawrence J. Gitman

Publisher Resources

ISBN: 9780133866698