Escolar Documentos
Profissional Documentos
Cultura Documentos
Randolph W.Westerfield
Marshall School of Business University of Southern California
Jeffrey R Jaffe
Wharton School of Business University of Pennsylvania
Bradford D.Jordan
Gatton College of Business and Economics University of Kentucky
McGraw-Hill Irwin
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PART ONE
OVERVIEW
CHAPTER TWO Financial Statements and Cash Flow 35 2.1 The Balance Sheet 54 54
CHAPTER ONE Introduction to Corporate Finance 1.1 What Is Corporate Finance? 35 The Balance Sheet Model of the Firm 36 The Financial Manager 1.2 The Corporate Firm 38 The Sole Proprietorship The Partnership * 38 38 37
Accounting Liquidity 55 Debt versus Equity 56 Value versus Cost 56 2.2 The Income Statement 57
Generally Accepted Accounting Principles 58 Noncash Items 58 Time and Costs 59 2.3 Taxes 59
The Corporation 39 A Corporation by Another Name... 41 1.3 The Importance of Cash Flows 41 44 2.4 2.5 45 2.6
Corporate Tax Rates 60 Average versus Marginal Tax Rates 60 Networking Capital 62
i .:
'.
r
1.4
The Goal of Financial Management Possible Goals 44 The Goal of Financial Management A More General Goal 46
Financial Cash Flow 62 The Accounting Statement of Cash Flows 65 Cash Flow from Operating Activities 65 Cash Flow from Investing Activities 66 Cash Flow from Financing Activities 67
1.5
The Agency Problem and Control of the Corporation 46 Agency Relationships 47 Management Goals 47
I
1.6
68
The Securities Act of 1933 and the Securities Exchange Act of 1934 50 Summary and Conclusions 51
CONTENTS
79 80
4.4
137
138
142 -^
Asset Management or Turnover Measures Profitability Measures Market Value Measures 3.3 The Du Pont Identity A Closer Look at ROE 91 91 87 88
144
Trick 4: Equating Present Value of Two Annuities 144 Growing Annuity 4.5 93 145 147
Loan Types and Loan Amortization Pure Discount Loans 147 Interest-Only Loans 147
A Simple Financial Planning Model The Percentage of Sales Approach 3.5 External Financing and Growth EFN and Growth 101 Financial Policy and Growth 103 100
Closing Case: The MBA Decision 165 CHAPTER FIVE Interest Rates and Bond Valuation 167
5.1 Bonds and Bond Valuation Bond Features and Prices 167 168
A Note about Sustainable Growth Rate Calculations 106 3.6 Some Caveats Regarding Financial Planning Models 107 108
Bond Values and Yields 168 Interest Rate Risk 171 Finding the Yield to Maturity: More Trial and Error 173
Closing Case: Ratios and Financial Planning at East Coast Yachts 115
PART TWO VALUATION AND CAPITAL BUDGETING CHAPTER FOUR Discounted Cash Flow Valuation 118
4.1 4.2 Valuation: The One-Period Case The Multiperiod Case 122 118
5.2
175 177
Terms of a Bond Security Seniority Repayment 125 5.3 179 179 179
Future Value and Compounding 122 The Power of Compounding: A Digression Present Value and Discounting The Algebraic Formula 130 5.4 4.3 Compounding Periods 131 Distinction between Stated Annual Interest Rate and Effective Annual Rate 133 Compounding over Many Years 135 Continuous Compounding 135 126
180 180
Some Different Types of Bonds Government Bonds Zero Coupon Bonds Floating-Rate Bonds Other Types of Bonds 182 183 184 185
182
CONTENTS
5.5
Bond Markets 185 How Bonds Are Bought and Sold 186 Bond Price Reporting 186 A Note on Bond Price Quotes. 189
Other Rights 218 Dividends 218 Preferred Stock Features 219 Stated Value 219 Cumulative and Noncumulative Dividends 219 Is Preferred Stock Really Debt? 219 6.6 The Stock Markets 220 Dealers and Brokers 220 Organization of the NYSE 220 Members 220 Operations 221 Floor Activity 221 NASDAQ Operations 222 ECNs 223 Stock Market Reporting 223 Summary and Conclusions 226 Closing Case: Stock Valuation at Ragan Engines 231
5.6
Inflation and Interest Rates 189 Real versus Nominal Rates 189 The Fisher Effect 190
5.7
Determinants of Bond Yields 191 The Term Structure of Interest Rates 191 Bond Yields and the Yield Curve: Putting It All Together 193 Conclusion 195
Summary and Conclusions 195 Closing Case: Financing East Coast Yachts' Expansion Plans with a Bond Issue 200 CHAPTER SIX Stock Valuation 6.1
202
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CHAPTER SEVEN
The Present Value of Common Stocks 202 Dividends versus Capital Gains 202 Valuation of Different Types of Stocks 204 Case 1 (Zero Growth) 204 Case 2 (Constant Growth) 204 Case 3 (Differential Growth) 205
233
Why Use Net Present Value? 233 The Payback Period Method 236 Defining the Rule 236 Problems with the Payback Method 237 Problem 1: Timing of Cash Flows within the Payback Period 237 Problem 2: Payments after the Payback Period 237 Problem 3: Arbitrary Standard for Payback Period 238 Managerial Perspective, 238 Summary of Payback 238
6.2
Estimates of Parameters in the Dividend Discount Model 207 Where Does g Come From? 207 Where Does R Come From? 208 A Healthy Sense of Skepticism 210 Total Payout 211
6.3
Growth Opportunities 211 Growth in Earnings and Dividends versus Growth Opportunities 213 The No-Payout Firm 213 7.3 7.4
The Discounted Payback Period Method 239 The Average Accounting Return Method 239 Defining the Rule 239 Step 1: Determining Average Net Income 240 Step 2: Determining Average Investment 241 Step 3: Determining AAR 241 Analyzing the Average Accounting Return Method 241
6.4 6.5
Price-Earnings Ratio 214 Some Features of Common and Preferred Stocks 216 Common Stock Features 216 Shareholder Rights 216 Proxy Voting 217 Classes of Stock 217 7.5 7.6
The Internal Rate of Return 241 Problems with the IRR Approach 244
CONTENTS
Definition of Independent and Mutually Exclusive Projects 244 Two General Problems Affecting Both Independent and Mutually Exclusive Projects 245 Problem 1: Investing or Financing? Problem 2: Multiple Rates of Return NPV Rule 247 247 248 246 246
8.3
279
Discounting: Nominal or Real? 280 8.4 -' Alternative Definitions of Operating Cash Flow 282 283 283 283
The Bottom-Up Approach The Top-Down Approach The Tax Shield Approach
Modified IRR
Problems Specific to Mutually Exclusive Projects The Scale Problem The Timing Problem
Conclusion 284 Investments of Unequal Lives: The Equivalent Annual Cost Method 284 The General Decision to Replace 286
288 299
Redeeming Qualities of IRR 253 A Test 253 7.7 The Profitability Index 254 254 254
Closing Cases: Expansion at East Coast Yachts Bethesda Mining Company CHAPTER NINE 299
Application of the Profitability Index 7.8 The Practice of Capital Budgeting 258 256
303
269
9.2
Sensitivity Analysis, Scenario Analysis, and Break-Even Analysis 303 Sensitivity Analysis and Scenario Analysis 304
270
304
Cash FlowsNot Accounting Income Sunk Costs 271 Opportunity Costs 271 Side Effects 272
270
307 307
310 310
Allocated Costs 272 8.2 The Baldwin Company: An Example An Analysis of the Project Investments 274 275 274 273
Step 2: Specify a Distribution for Each Variable in the Model 310 Step 3: The Computer Draws One Outcome 312 Step 4: Repeat the Procedure Step 5: Calculate NPV 9.4 Real Options 313 312 312
277
The Option to Expand 313 The Option to Abandon Timing Options 316 Summary and Conclusions 317 314
Which Set of Books? 277 A Note on Net Working Capital 277 A Note on Depreciation Interest Expense 279 278
325
CONTENTS
PART THREE RISK AND RETURN CHAPTER TEN Risk and Return Lessons from Market History 327
10.1 Returns 327 327 329 331 Dollar Returns
11.4
The Efficient Set for Many Securities 11.5 Riskless Borrowing and Lending The Optimal Portfolio 11.6 370 368
Announcements, Surprises, and Expected Returns Expected and Unexpected Returns Announcements and News 373 374 374 372
372
11.7
10.4 Average Stock Returns and Risk-Free Returns 338 10.5 Risk Statistics Variance 340 340 11.8
Systematic and Unsystematic Components of Return 374 Diversification and Portfolio Risk 375
Normal Distribution and Its Implications for Standard Deviation 341 10.6 The U.S. Equity Risk Premium: Historical and International Perspectives 342 10.7 10.8 2008: A Year of Financial Crisis More on Average Returns 346 346 347 11.9 345
The Effect of Diversification: Another Lesson ' from Market History 375 The Principle of Diversification 375 377
Diversification and Unsystematic Risk Diversification and Systematic Risk Market Equilibrium 378
377
Arithmetic versus Geometric Averages Calculating Geometric Average Returns Arithmetic Average Return or Geometric Average Return? 348 Summary and Conclusions 349
Definition of the Market Equilibrium Portfolio Definition of Risk When Investors Hold the Market Portfolio 379 The Formula for Beta A Test 383 11.10 Relationship between Risk and Expected Return (CAPM) 383 Expected Return on Market 383 384 381
378
Closing Case: A Job at East Coast Yachts, Parti 353 CHAPTER ELEVEN Return and Risk: The Capital Asset Pricing Model (CAPM) 355
11.1 11.2 Individual Securities 355 356 Expected Return, Variance, and Covariance Expected Return and Variance Covariance and Correlation 356
Closing Case: A Job at East Coast Yachts, Part 2 395 CHAPTER TWELVE Risk, Cost of Capital, and Capital Budgeting 397
12.1 12.2 361 The Cost of Equity Capital 397 398 360 Estimating the Cost of Equity Capital with the CAPM The Risk-Free Rate 401
357 360
11.3 The Return and Risk for Portfolios The Expected Return on a Portfolio
401
363
CONTENTS
12:3
433
The Semistrong and Strong Forms 435 Some Common Misconceptions about the Efficient Market Hypothesis 436 The Efficacy of Dart Throwing Price Fluctuations 407 13.4 The Evidence 437 The Weak Form 438 The Semistrong Form 439 Event Studies 440 441 437 437 437
Cyclicality of Revenues 407 Operating Leverage 407 Financial Leverage and Beta 12.6 Dividend Discount Model
Comparison of DDM and CAPM 409 Can a Low-Dividend or a No-Dividend Stock Have a High Cost of Capital? 410 12.7 12.8 Cost of Capital for Divisions and Projects Cost of Fixed Income Securities Cost of Debt 412 Cost of Preferred Stock 12.9 413 414 417 412 13.5 411
12.10 Estimating Eastman Chemical's Cost of Capital Eastman's Cost of Equity Eastman's Cost of Debt Eastman's WACC 419 417 418
Independent Deviations from Rationality 443 Arbitrage 13.6 13.7 444 444
Empirical Challenges to Market Efficiency Reviewing the Differences Representativeness Conservatism 450 450 450
12.11 Flotation Costs and the Weighted Average Cost of Capital 419 The Basic Approach 419 13.8 Flotation Costs and NPV 420 Internal Equity and Flotation Costs 421 Summary and Conclusions 421
451
/. Accounting Choices, Financial Choices, and Market Efficiency 451 2. The Timing Decision 451 454
Closing Case: The Cost of Capital for Goff Computer, Inc. 428 I PART FOUR CAPITAL STRUCTURE AND DIVIDEND POLICY
3. Speculation and Efficient Markets 4. Information in Market Prices Summary and Conclusions 456 454
Closing Case: Your 401 (k) Account at East Coast Yachts 462
464
The Capital Structure Question and the Pie Theory 464 Maximizing Firm Value versus Maximizing Stockholder Interests 465
14.2
CONTENTS
14.3 Financial Leverage and Firm Value: An Example 467 Leverage and Returns to Shareholders 467
The Choice between Debt and Equity 469 A Key Assumption 471 14.4 Modigliani and Miller: Proposition II (No Taxes) 471 Risk to Equityholders Rises with Leverage 471 Proposition II: Required Return to Equityholders Rises with Leverage 472 MM: An Interpretation 14.5 Taxes 478 The Basic Insight 478 Present Value of the Tax Shield 480 Value of the Levered Firm 480 Expected Return and Leverage under Corporate Taxes 482 The Weighted Average Cost of Capital RWACC and Corporate Taxes 483 Stock Price and Leverage under Corporate Taxes 483 Summary and Conclusions 485
Closing Case: Stephenson Real Estate Recapitalization 492 CHAPTER FIFTEEN Capital Structure: Limits to the Use of Debt 493 15.7
477
15.8 15.9
How Firms Establish Capital Structure A Quick Look at the Bankruptcy Process Liquidation and Reorganization Bankruptcy Liquidation 516 517 516
Bankruptcy Reorganization
Financial Management and the Bankruptcy Process 517 Agreements to Avoid Bankruptcy Summary and Conclusions 518 518
Closing Case: McKenzie Corporation's Capital Budgeting 523 CHAPTER SIXTEEN Dividends and Other Payouts 16.1 16.2 Different Types of Dividends 524 524
493
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16.3
Standard Method of Cash Dividend Payment 525 The Benchmark Case: An Illustration of the Irrelevance of Dividend Policy 527 Current Policy: Dividends Set Equal to Cash Flow 527 Alternative Policy: Initial Dividend Is Greater than Cash Flow 528 The Indifference Proposition Homemade Dividends A Test 530 Dividends and Investment Policy 531 528 528
Direct Bankruptcy Costs 494 Indirect Bankruptcy Costs 494 Agency Costs 495 Summary of Selfish Strategies 497 15.2 Can Costs of Debt Be Reduced? 498 Protective Covenants 498 Consolidation of Debt 499 15.3 Integration of Tax Effects and Financial Distress Costs 499 Pie Again 499 15.4 Signaling 502 15.5 Shirking, Perquisites, and Bad Investments: A Note on Agency Cost of Equity 503 Effect of Agency Costs of Equity on Debt-Equity Financing 505 Free Cash Flow 505
16.4
Repurchase of Stock
531
Dividend versus Repurchase: Conceptual Example 532 Dividends versus Repurchases: Real-World Considerations 533 1. Flexibility 533 533
2. Executive Compensation
CONTENTS
3. Offset to Dilution
534 534
17.3
Put Options
563 563
The Value of a Put Option at Expiration 17.4 534 535 17.6 Combinations of Options Valuing Options 570 567 17.7 17.5 Selling Options Option Quotes 565 566
Personal Taxes, Issuance Costs, and Dividends Firms without Sufficient Cash to Pay a Dividend Firms with Sufficient Cash to Pay a Dividend Summary on Personal Taxes 537
536 Bounding the Value of a Call 570 Lower Bound Upper Bound 570 570
16.6
Real-World Factors Favoring a High-Dividend Policy 537 Desire for Current Income Behavioral Finance 538 Agency Costs 539 Information Content of Dividends and Dividend Signaling 540 537
The Factors Determining Call Option Values 570 Exercise Price Expiration Date Stock Price 571 570 571
16.7 16.8
The Clientele Effect: a Resolution of Real-World Factors? 541 What We Know and Do Not Know about Dividend Policy 542 Dividends and Dividend Payers 542 17.8 Corporations Smooth Dividends 544 545 Payouts Provide Information to the Market Putting It All Together 545 Some Survey Evidence on Dividends 548
The Key Factor: The Variability of the Underlying Asset 572 The Interest Rate 573
A Quick Discussion of Factors Determining Put Option Values 573 An Option Pricing Formula A Two-State Option Model Determining the Delta 574 575 575 576
Determining the Amount of Borrowing Risk-Neutral Valuation The Black-Scholes Model 549 17.9 576 577 581
16.9
549
Some Details on Stock Splits and Stock Dividends Example of a Small Stock Dividend Example of a Stock Split 550 550 550 549
The Firm Expressed in Terms of Call Options 582 The Stockholders The Bondholders 582 583
The Firm Expressed in Terms of Put Options 584 The Stockholders The Bondholders 584 584
550 551
559
17.10 Options and Corporate Decisions: Some Applications 586 Mergers and Diversification 587 588 590
561
17.11 Investment in Real Projects and Options Summary and Conclusions 592
Call Options
CONTENTS
The Operating Cycle and the Firm's Organization Chart 607 Calculating the Operating and Cash Cycles 608 The Operating Cycle The Cash Cycle 609 608
Interpreting the Cash Cycle 610 18.3 Some Aspects of Short-Term Financial Policy The Size of the Firm's Investment in Current Assets 611 Alternative Financing Policies for Current Assets An Ideal Case 612 Different Policies for Financing Current Assets Which Financing Policy Is Best? 616 614 612
Firm Commitment Underwriting Best Efforts Underwriting .,641 Dutch Auction Underwriting The Green Shoe Provision The Aftermarket 643 643 642
642
Lockup Agreements Current Assets and Liabilities in Practice 18.4 The Cash Budget 617 617 19.5 617
The Quiet Period 643 Sales and Cash Collections Cash Outflows 618 The Cash Balance 619 619 19.6 What CFOs Say aboutthe IPO Process 620 620 19.7 CEOs and the Value of the Firm 651 652 650 IPOs and Underpricing 643 644 645
Evidence on Underpricing
IPO Underpricing: The 1999-2000 Experience Why Does Underpricing Exist? 648
The Mechanics of a Rights Offering 656 621 Subscription Price 657 Number of Rights Needed to Purchase a Share 657 Effect of Rights Offering on Price of Stock 657 622 Effects on Shareholders 659 659 622
Commercial Paper 622 Trade Credit 622 Understanding Trade Credit Terms Cash Discounts 623 624
The Underwriting Arrangements The Rights Puzzle 660 19.10 Dilution 660
660
CONTENTS
5)
Dilution of Value: Book versus Market Values 660 A Misconception 661 The Correct Arguments 662 19.11 Issuing Long-Term Debt 662 19.12 Shelf Registration 663 Summary and Conclusions 664 Closing Case: East Coast Yachts Goes Public 668
20.7
Summary and Conclusions 691 Closing Case: East Coast Yachts Goes International 696 CHAPTER TWENTY-ONE
697
CHAPTER TWENTY
670
Acquisition of Assets 699 Acquisition Classifications 699 A Note on Takeovers 700 Alternatives to Merger 700 21.2 Taxes and Acquisitions 701 21.3 Accounting for Acquisitions 701 777e Purchase Method 701 Pooling of Interests 702 More on Goodwill 703 21.4 Gains from Acquisition 703 Synergy 703 Revenue Enhancement 704 Marketing Gains 704 Strategic Benefits 704 Market Power 705 Cost Reductions 705 Economies of Scale 705 Economies of Vertical Integration 706 Complementary Resources 706 Lower Taxes 706 Net Operating Losses 706 Unused Debt Capacity 706 Surplus Funds 706 Reductions in Capital Needs 707 Avoiding Mistakes 707 A Note on Inefficient Management 708 21.5 Some Financial Side Effects of Acquisitions 708 EPS Growth 708 Diversification 709 21.6 The Cost of an Acquisition 710
20.2 Foreign Exchange Markets and Exchange Rates 672 Exchange Rates 673 Exchange Rate Quotations 673 Cross-Rates and Triangle Arbitrage 675 Types of Transactions 676 20.3 Purchasing Power Parity 677 Absolute Purchasing Power Parity 677 Relative Purchasing Power Parity 679 The Basic Idea 679 The Result 679 Currency Appreciation and Depreciation 681 20.4 Interest Rate Parity, Unbiased Forward Rates, and the International Fisher Effect 681 Covered Interest Arbitrage 681 Interest Rate Parity 682 Forward Rates and Future Spot Rates 683
f
Putting It All Together 684 Uncovered Interest Parity 684 The International Fisher Effect 684 I
20.5
International Capital Budgeting 685 Method 1: The Home Currency Approach 686 Method 2: The Foreign Currency Approach 686 Unremitted Cash Flows 687
20.6
Exchange Rate Risk 687 Short-Run Exposure 687 Long-Run Exposure 688 Translation Exposure 689 Managing Exchange Rate Risk 690
S3
CONTENTS
APPENDIX A Mathematical Tables APPENDIX B Using the HP 10B and Tl BA II Plus Financial 725
The Corporate Charter 712 Repurchase and Standstill Agreements Poison Pills and Share Rights Plans 712
Calculators
734
712
Going Private and Leveraged Buyouts 714 Other Devices and Jargon of Corporate Takeovers 714 21.8 Some Evidence on Acquisitions: Does M&A Pay? 715 21.9 Divestitures and Restructurings 716 Summary and Conclusions 716
Closing Case: The East Coast Yachts-West Coast Sailboats Merger 723
CONTENTS