Keown et. al, Foundations of Finance, 4/e
Detailed Table of Contents
About the Authors
Preface
PART ONE The Scope and Environment of Financial Management 1
Chapter 1 An Introduction to the Foundations of Financial Management—
The Ties That Bind 3
Goal of the Firm 4
Legal Forms of Business Organization 5
Federal Income Taxation 9
Impact of the Tragedies of September 11th on Corporate
Finance 14
Ten Principles That Form the Foundations if Financial
Management 15
Finance and the Multinational Firm: The New Role 24
Chapter 2 The Financial Markets and Interest Rates 31
The Financial Manager, Internal and External Funds, and
Flexibility 34
The Mix of Corporate Securities Sold in the Capital Market 36
Why Financial Markets Exist 37
Financing of Business: The Movement of Funds Through
the Economy 39
Components of the U.S. Financial Market System 41
The Investment Banker 45
Private Placements 48
Flotation Costs 50
Rates of Return in the Financial Markets 53
Interest Rate Levels over Recent Periods 55
Interest Rate Determinants in a Nutshell 57
The Term Structure of Interest Rates 61
Finance and the Multinational Firm: Efficient Financial
Markets and Intercountry Risk 65
Chapter 3 Understanding Financial Statements and Cast Flows 71
Income Statement 73
Balance Sheet 76
Measuring Cash Flows 82
Finance and the Multinational Firm: Financial Statements and
International Finance 88
Chapter 4 Evaluating a Firm’s Financial Performance 103
Financial Ratio Anaylsis 104
The DuPont Analysis: An Integrative Approach to Ratio Analysis 117
Limitations of Ratio Analysis 120
Firm Performance and Shareholder Value 121
PART TWO Valuation of Financial Assets 133
Chapter 5 The Time Value of Money 135
Compound Interest and Future Value 136
Present Value 143
Annuities 146
Annuities Due 151
Compound Interest with Nonannual Periods 154
Present Value of an Uneven Stream 156
The Multinational Firm: The Time Value of Money 158
Chapter 6 The Meaning and Measurement of Risk and Return 167
Expected Return Defined and Measured 168
Risk Defined and Measured 170
Rates of Return: The Investor’s Experience 173
Risk and Diversification 174
The Investor’s Required Rate of Return 185
Chapter 7 Valuation and Characteristics of Bonds 199
Types of Bonds 200
Terminology and Characteristics of Bonds 203
Definitions of Value 205
Determinants of Value 208
Valuation: The Basic Process 209
Bond Valuation 209
The Bondholder’s Expected Rate of Return (Yield to Maturity) 213
Bond Valuation: Three Important Relationships 214
Chapter 8 Valuation and Characteristics of Stock 223
Features of Preferred Stock 224
Valuing Preferred Stock 226
Features or Characteristics of Common Stock 228
Valuing Common Stock 231
The Stockholder’s Expected Rate of Return 238
PART THREE Investment in Long-Term Assets 247
Chapter 9 Capital-Budgeting Techniques and Practice 249
Finding Profitable Projects 250
Capital-Budgeting Decision Criteria 251
Capital Rationing 261
Problems in Project Ranking: Capital Rationing, Mutually Exclusive
Projects, and Problems with the IRR 263
Ethics in Capital Budgeting 268
A Glance at Actual Capital-Budgeting Practices 268
Finance and the Multinational Firm: Capital Budgeting 269
Chapter 10 Cash Flows and Other Topics in Capital Budgeting 279
Guidelines for Capital Budgeting 280
An Overview of the Calculations of a Project’s Free Cash Flows 283
Options in Capital Budgeting 292
Risk and the Investment Decision 294
Incorporating Risk into Capital Budgeting 296
Examining a Project’s Risk Through Simulation 300
Finance and the Multinational Firm: Calculating Cash Flows and
the International Dimension of Risk 303
Chapter 11 Cost of Capital 311
The Cost of Capital: Key Definitions and Concepts Investor
Opportunity Costs, Required Rate of Return, and the Cost of Capital 312
Determining Individual Costs of Capital 313
The Weighted Average Cost of Capital 321
Calculating Divisional Costs of Capital: Pepsico, Inc. 324
Using a Firm’s Cost of Capital to Evaluate New Capital Investments 327
Shareholder Value-Based Management 328
Finance and the Multinational Firm: Why Do Interest Rates Differ
Between Countries 333
PART FOUR Capital Structure and Dividend Policy 345
Chapter 12 Determining the Financing Mix 347
Business and Financial Risk 348
Break-Even Analysis 350
Operating Leverage 356
Financial Leverage 359
Combination of Operating and Financial Leverage 362
Planning the Financing Mix 365
A Quick Look at Capital Structure Theory 367
Moderate View: Saucer-Shaped Cost of Capital Curve 371
Firm Value and Agency Costs 372
Basic Tools of Capital Structure Management 376
A Glance at Actual Capital Structure Management 382
Finance and the Multinational Firm: Business Risk and Global
Sales 384
Chapter 13 Dividend Policy and Internal Financing 393
Key Terms 394
Does Dividend Policy Affect Stock Price? 395
The Dividend Decision in Practice 404
Alternative Dividend Policies 406
Dividend Payment Procedures 408
Stock Dividends and Stock Splits 408
Stock Repurchases 411
Finance and the Multinational Firm: The Case of Low Dividend
Payments; So Where Do We Invest? 414
PART FIVE Working Capital Management and International Business Finance 423
Chapter 14 Short-Term Financial Planning 425
Financing Forecasting 426
The Sustainable Rate of Growth 431
Limitations of the Percent of Sales Forecast Method 432
The Cash Budget 435
Chapter 15 Working-Capital Management 447
Managing Current Assets and Liabilities 448
Appropriate Level of Working Capital 450
Estimation of the Cost of Short-Term Credit Approximate
Cost-of-Credit Formula 452
Sources of Short-Term Credit 453
Multinational Working-Capital Management 461
Chapter 16 Current Asset Management 469
Why a Company Holds Cash 470
Cash Management Objectives and Decisions Risk-Return Trade-off 472
Collection and Disbursement Procedures 473
Evaluation of Costs of Cash Management Services 479
Composition of Marketable-Securities Portfolio 480
Accounts-Receivable Management 486
Inventory Management 489
Chapter 17 International Business Finance 503
The Globalization of Product and Financial Markets 504
Exchange Rates 505
Interest-Rate Parity Theory 512
Purchasing-Power Parity Theory 513
Exposure to Exchange Rate Risk 515
Multinational Working-Capital Management 518
International Financing and Capital Structure Decisions 519
Direct Foreign Investment 521
Appendixes
Appendix A: Using a Calculator
Appendix B: Compound Sum of $1
Appendix C: Present Value of $1
Appendix D: Sum of an Annuity of $1 for n Periods
Appendix E: Present Value of an Annuity of $1 for n Periods
Appendix F: Check Figures for Selected End-of-Chapter
Glossary
Index