Giáo trình Principles of managerial financial 15th global edition by zutter

New to This Global Edition • Tax Cuts and Jobs Act of 2017, which made sweeping changes to the American corporate and personal tax codes, has been included • Highlights on how tax changes may alter firms’ incentives in a variety of ways • Content and feature updates throughout the text and inclusion of global examples in the end-of-chapter homework assignments—from Britain, Scotland, Thailand, and Singapore—reflect global application in managerial finance • MyLab Finance now includes the following features ° New chapter introduction videos and animations that explain the importance of the chapter content within the context of managerial finance ° New and updated solution videos of the author discussing or solving in-chapter examples Principles of Managerial Finance FIFTEENTH EDITION Chad J Zutter • Scott B Smart FIFTEENTH EDITION This is a special edition of an established title widely used by colleges and universities throughout the world Pearson published this exclusive edition for the benefit of students outside the United States and Canada If you purchased this book within the United States or Canada, you should be aware that it has been imported without the approval of the Publisher or Author Principles of Managerial Finance Now in its fifteenth edition, Principles of Managerial Finance continues to help students develop a variety of skills—Excel modeling, ethical reasoning, and critical thinking—to succeed in a rapidly changing financial and managerial environment A strong pedagogy and generous use of examples, including personal finance examples, make this text an easily accessible resource for in- and out-of-class learning GLOBAL EDITION G LO B A L EDITION GLOBAL EDITION Pearson Global Edition Zutter Smart Zutter_15_129226151X_Final.indd 14/08/18 8:28 PM Prepare, Apply, Confirm and Develop Employability Skills with MyLab Finance 86% of students said it helped them earn higher grades on homework, exams, or the course *Source: 2016 Student Survey, n 1317 MyLabTM Finance is an online homework, tutorial, and assessment program constructed to work with this text to engage students and improve results It was designed to help students develop and assess the skills and applicable knowledge that they will need to succeed in their courses and their future careers See what more than 25,000 students had to say about MyLab Finance: “MyLab Finance offers assistance WHILE doing homework rather than relying on information from class to execute later.” — Anthony Wilent, Stockton University Question Help MyLab homework and practice questions are correlated to the textbook, and generate algorithmically to give students unlimited opportunity for mastery of concepts If students get stuck, Learning Aids including Help Me Solve This, View an Example, eText Pages, and a Financial Calculator walk them through the problem and identify helpful info in the text, giving them assistance when they need it most “MyLab Finance’s primary benefit was that it helped me gain a better understanding of the subject matter More than just doing calculations but true understanding.” — Robert Irish, Southern New Hampshire University A01_ZUTT1515_15_GE_FM.indd 23/08/18 4:47 PM Using proven, field-tested technology, auto-graded Excel Projects allow instructors to seamlessly integrate Microsoft Excel® content into their course without having to manually grade spreadsheets Students have the opportunity to practice important finance skills in Excel, helping them to master key concepts and gain proficiency with the program 93% 91% 93% Dynamic Study Modules help students study chapter topics effectively on their own by continuously assessing their knowledge application and performance in real time These are available as graded assignments prior to class, and accessible on smartphones, tablets, and computers eText Study Plan Dynamic Study Modules % of students who found learning tool helpful Pearson eText enhances student learning—both in and outside the classroom Take notes, highlight, and bookmark important content, or engage with interactive lecture and example videos that bring learning to life (available with select titles) Accessible anytime, anywhere via MyLab or the app The MyLab Gradebook offers an easy way for students and instructors to view course performance Item Analysis allows instructors to quickly see trends by analyzing details like the number of students who answered correctly/incorrectly, time on task, and median time spend on a question by question basis And because it’s correlated with the AACSB Standards, instructors can track students’ progress toward outcomes that the organization has deemed important in preparing students to be leaders 88% of students would tell their instructor to keep using MyLab Finance For additional details visit: www.pearson.com/mylab/finance A01_ZUTT1515_15_GE_FM.indd 23/08/18 4:47 PM www.ebookslides.com Principles of Managerial Finance A01_ZUTT1515_15_GE_FM.indd 23/08/18 4:47 PM www.ebookslides.com The Pearson Series in Finance Berk/DeMarzo Corporate Finance*† Corporate Finance: The Core*† Holden Excel Modeling in Corporate Finance Excel Modeling in Investments Rejda/McNamara Principles of Risk Management and Insurance† Berk/DeMarzo/Harford Fundamentals of Corporate Finance*† Hughes/MacDonald International Banking: Text and Cases Smart/Gitman/Joehnk Fundamentals of Investing*† Brooks Financial Management: Core Concepts*† Hull Fundamentals of Futures and Options Markets† Options, Futures, and Other Derivatives† Solnik/McLeavey Global Investments Copeland/Weston/Shastri Financial Theory and Corporate Policy Dorfman/Cather Introduction to Risk Management and Insurance Eakins/McNally Corporate Finance Online Eiteman/Stonehill/Moffett Multinational Business Finance*† Fabozzi Bond Markets: Analysis and Strategies Foerster Financial Management: Concepts and Applications*† Frasca Personal Finance Haugen The Inefficient Stock Market: What Pays Off and Why Modern Investment Theory Keown Personal Finance: Turning Money into Wealth* Keown/Martin/Petty Foundations of Finance: The Logic and Practice of Financial Management*† Madura Personal Finance* McDonald Derivatives Markets Fundamentals of Derivatives Markets Titman/Keown/Martin Financial Management: Principles and Applications*† Titman/Martin Valuation: The Art and Science of Corporate Investment Decisions Weston/Mitchell/Mulherin Takeovers, Restructuring, and Corporate Governance Zutter/Smart Principles of Managerial Finance*† Principles of Managerial Finance— Brief Edition*† Mishkin/Eakins Financial Markets and Institutions† Moffett/Stonehill/Eiteman Fundamentals of Multinational Finance*† Pennacchi Theory of Asset Pricing * denotes titles with MyLab Finance:       Log onto www.pearson.com/mylab/finance to learn more † denotes Global Edition titles A01_ZUTT1515_15_GE_FM.indd 23/08/18 4:47 PM www.ebookslides.com FIFTEENTH EDITION GLOBAL EDITION Principles of Managerial Finance Chad J Zutter University of Pittsburgh Scott B Smart Indiana University Harlow, England • London • New York • Boston • San Francisco • Toronto • Sydney • Dubai • Singapore • Hong Kong Tokyo • Seoul • Taipei • New Delhi • Cape Town • Sao Paulo • Mexico City • Madrid • Amsterdam • Munich • Paris • Milan A01_ZUTT1515_15_GE_FM.indd 23/08/18 4:48 PM www.ebookslides.com Vice President, Business, Economics, and UK Courseware: Donna Battista Director of Portfolio Management: Adrienne D’Ambrosio Senior Portfolio Manager: Kate Fernandes Editorial Assistant: Caroline Fenn Associate Acquisitions Editor, Global Edition: Ananya Srivastava Editor, Global Edition: Paromita Banerjee Assistant Project Editor, Global Edition: Jyotis Elizabeth Jacob Vice President, Product Marketing: Roxanne McCarley Product Marketer: Kaylee Carlson Product Marketing Assistant: Marianela Silvestri Manager of Field Marketing, Business Publishing: Adam Goldstein Executive Field Marketing Manager: Thomas Hayward Vice President, Production 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Smart, to be identified as the author of this work, have been asserted by them in accordance with the Copyright, Designs and Patents Act 1988 Authorized adaptation from the United States edition, entitled Principles of Managerial Finance, 15th Edition, ISBN 978-0-13-447631-5 by Chad J Zutter and Scott B Smart, published by Pearson Education © 2019 All rights reserved No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without either the prior written permission of the publisher or a license permitting restricted copying in the United Kingdom issued by the Copyright Licensing Agency Ltd, Saffron House, 6–10 Kirby Street, London EC1N 8TS All trademarks used herein are the property of their respective owners The use of any trademark in this text does not vest in the author or publisher any trademark ownership rights in such trademarks, nor does the use of such trademarks imply any affiliation with or endorsement of this book by such owners For information regarding permissions, request forms, and the appropriate contacts within the Pearson Education Global Rights and Permissions department, please visit www.pearsoned.com/permissions/ ISBN 10: 1-292-26151-X ISBN 13: 978-1-292-26151-5 British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library 10 Typeset in Times NR MT Pro by Cenveo® Publisher Services Printed and bound by Vivar in Malaysia A01_ZUTT1515_15_GE_FM.indd 23/08/18 4:48 PM www.ebookslides.com Dedicated to our good friend and mentor, Dr Lawrence J Gitman, who trusted us as coauthors and successors of Principles of Managerial Finance CJZ SBS A01_ZUTT1515_15_GE_FM.indd 23/08/18 4:48 PM www.ebookslides.com This page intentionally left blank A01_MISH4182_11_GE_FM.indd 10/06/15 11:46 am Brief Contents Contents  9 About the Authors  29 Preface  31 Acknowledgments  44 PART Introduction to Managerial Finance  47 The Role of Managerial Finance  48 The Financial Market Environment  87 PART Financial Tools  121 Financial Statements and Ratio Analysis  122 4 Long- and Short-Term Financial Planning  188 Time Value of Money  235 PART Valuation of Securities  301 Interest Rates and Bond Valuation  302 Stock Valuation  351 PART Risk and the Required Rate of Return  391 PART Long-Term Financial Decisions  597 13 Leverage and Capital Structure  598 14 Payout Policy  652 PART Short-Term Financial Decisions  691 15 Working Capital and Current Assets Management  692 16 Current Liabilities Management  735 PART Special Topics in Managerial Finance  771 17 Hybrid and Derivative Securities  772 18 Mergers, LBOs, Divestitures, and Business Failure  811 19 International Managerial Finance  855 Risk and Return  392 The Cost of Capital  442 PART Long-Term Investment Decisions  475 10 Capital Budgeting Techniques  476 11 Capital Budgeting Cash Flows  517 12 Risk and Refinements in Capital Budgeting  555 Appendix  895 Glossary  927 Index  955 A01_ZUTT1515_15_GE_FM.indd 23/08/18 4:48 PM www.ebookslides.com Index 969 graphical view of optimal structure, 628–629 Option premium, 795 Options, 794–799, 801 See also specific options ethics, 798 exercise (or option) price, 790 in fund raising, 797 hedging foreign-currency exposures with, 797 markets, 795, 801 premium, 795 real options, 575–577, 581 trading, 795–797 Options markets, 795, 801 Options trading, 795–797 Order costs, 704 Ordinary stock dividend, 673 Organic Solutions (OS), 893–894 Organization, 62–64, 67–74, 859–860 See also Corporations bankruptcy, reorganization in, 839–844, 845 Organizational structure, 62–64, 67–74, 859–860 See also Corporations Originating investment bank, 107 OS (Organic Solutions), 893–894 OTC (over-the-counter) market, 97 Outflows of cash, 528 Outstanding shares, 356 Overhanging issue, 787 Overseas assignments, 877 Over-the-counter (OTC) market, 97 P Pacific Rim nations, capital structure in, 617–618 Paid-in capital in excess of par, 129 Panama, 886 Partnerships, 68, 69, 74 articles of, 68 general (regular), 68 limited, 74, 103–104 limited liability, 74 Par value, 129 bonds, 316, 320 paid-in capital in excess of, 129 stocks, 355, 358–359 Patient Protection and Affordable Care Act (Obamacare), 663 Payables See Accounts payable management Payback analysis for investment decisions, 475 limits on, 484 pros and cons of, 482–485 Z03_ZUTT1515_15_GE_IDX.indd 969 Payback period, 481–485, 502 Payment date, 660 Payout policy, 597, 599, 654–658 See also Dividends dividend irrelevance theory, 666–667 dividend relevance theory, 667–668 dividends, 673–676 factors affecting, 668–671 mechanics, 658–665 relevance of, 665–668 residual theory of dividends, 665–666 share repurchase procedures, 661–662 stock price reactions to corporate, 664–665 tax treatment of dividends and repurchases, 662–664 types of, 671–673 Payout ratios constant-payout-ratio dividend policy, 671–672, 678 dividend payout ratio, 671 target dividend-payout ratio, 672 PCAOB (Public Company Accounting Oversight Board), 124 P/E See Price/earnings ratio Pecking Order Theory, 626–627 Percentage advance, 754 Percent-of-sales method, 213–214 Perfectly negatively correlated, 409 Perfectly positively correlated, 408 Permanent funding requirements, 699–701 Perpetuity, 256–257 Philadelphia Stock Exchange (PHLX), 797 PI (profitability index), 488–489 Piëch, Ferdinand, 501 Pledge of accounts receivable, 754–755 “Plug” figure, 216 Poison pill, 831 Political risk, 413, 563, 871–873 Ponzi, Charles, 395 Porsche, Ferdinand, 501 Portfolio, 394, 406–414 correlation, 406–414 diversification, 409–414 diversified, 570 efficient, 406 international diversification, 412–414 return, 406–414 risk, 406–414 standard deviation, 406–408 Positively correlated, 408 Positive signal, 626–627, 668 Powerball payouts, 236 Preemptive rights, 355 Preferred stock, 93, 354, 358–360 callable, 359 conversion feature, 359, 360 convertible, 359–360 convertible preferred stock, 359–360, 784 cost of, 452–453 cumulative, 359 dividends, 93, 358–359, 453 features, 359–360 noncumulative, 359 no-par, 359 par-value, 358–359 restrictive covenants, 359 stockholders’ rights, 359 straight preferred stock, 784 valuation, 364 Premium, 332–334 call, 319 Present value, 245 See also Net present value; Time value of annuity due, 254–256 calculator for, 247, 252, 255, 260 equation for, 246 vs future value, 237–238 graphical view of, 247–248 of mixed stream, 260–261 of ordinary annuity, 251–252, 256 of perpetuity, 256–257 of single amount, 245–248 special applications of, 268–276 spreadsheets for, 247, 252, 255, 260–261, 573, 575 President, 70 Price(s) ask, 94 bid, 94 bond, 320–321, 332–334 call, 319, 335 market, 108–110 offer, 107 stock prices, 52–58, 664–665, 677 Price/earnings multiple approach for stock valuation, 371–374 Price/earnings (P/E) ratio, 157–159 multiple approach, 371–374 problems with, 374 Price per unit (p), 603 Primary market, 91 Prime rate of interest, 744 Principal, 241 bond, 93 Principal-agent problem, 62, 74 Private equity, 103–104 Privately owned (stock), 355 Private placement, 91, 105 27/07/18 4:54 PM www.ebookslides.com 970 Index Probability, 399 Probability distributions, 399–401 continuous, 401 normal, 404 Proceeds from the sale of the old asset, 525 Processing float, 720 Procter & Gamble, 656 Professors, investing behavior of, 50 Profit See also Operating profits; Profitability cash flow and, 54–55, 61 earnings per share and, 53–54 gross, 126 maximizing, 53–55 net profit, 126, 152, 164 operating, 126 pure economic profit, 489 stock price and, 53–56 Profitability index (PI), 488–489 Profitability ratios, 149–156, 161, 163 common-size income statements, 149–150 earnings per share, 153 gross profit margin, 123, 150–151 net profit margin, 152, 164 operating profit margin, 152 return on equity, 154–156, 166, 167 return on total assets, 154, 164, 166 Profitability, tradeoff between risk and, 695–697 Profit margin gross, 123, 150–151 net profit, 152, 164 operating, 152 Profit planning, 190, 202, 211–218 See also Pro forma statements sales forecast and, 212–213 Pro forma statements, 211–218 balance sheet, 215–217 evaluating, 217–218 external financing required, 216–217 income statement, 213–215 judgmental approach, 215–216 percent-of-sales method, 213–214 “plug” figure, 216 preceding year’s financial statements, 212 preparing, 213–215 sales forecast, 212 types of costs and expenses, 214–215 Project cash flows, 519–524 international capital budgeting and long-term investments, 523–524 replacement vs expansion decisions, 520–521, 540 Z03_ZUTT1515_15_GE_IDX.indd 970 sunk costs vs opportunity costs, 521–523 Promissory notes See Commercial paper Prospect theory, 363 Prospectus, 105, 106 Proxy battle, 357 Proxy statement, 356–357 Public Company Accounting Oversight Board (PCAOB), 124 Publicly owned (stock), 355 Public offering, 91, 105 See also Initial public offering (IPO) Purchase options, 776 Pure economic loss, 489 Pure economic profit, 489 Putable bonds, 322, 324 Put option, 795, 801 fundraising and role of, 797 Pyramiding, 833 Q Qualcomm Inc., 607 Quarterly compounding, 262 Quasi-debt, 359 Quasi factoring, 755 Quick (acid-test) ratio, 140–141 Quiet period, 105 R Radio frequency identification (RFID), 708 RADR See Risk-adjusted discount rates Range, 398 Ranking approach, 479–480 Rates of interest See Interest rates Rating agencies, 321, 323 Ratio(s), 123 See also Payout ratios activity, 141–145, 160–161, 162, 164 analysis See Ratio analysis application of, 160–167 cautions about, 136 coverage, 147–149 current, 138–140 debt, 145–149, 161, 162 debt-to-equity, 147–148 exchange, ratio of, 825, 829 fixed-payment coverage, 149 industry average ratios, 133, 134 liquidity, 138–141, 160, 162 market, 156–160, 161, 163 market/book (M/B) ratio, 159–160 price/earnings, 157–159 profitability, 149–156, 161, 163 quick (acid-test) ratio, 140–141 target dividend-payout ratio, 672 times interest earned, 148 Ratio analysis, 133–138 benchmarking, 133 case example, 136–163 cautions about, 136–137 combined, 135–136 comparison types, 133–135 complete analysis, 160–163 cross-sectional, 133–135 DuPont system, 164–167 interested parties, 133 summary, 160–163 time-series, 135 types of, 136–137 Ratio of exchange, 825 Ratio of exchange in market price, 829 Real interest rate, 306–307 See also Interest rates Realized returns, 396 Real options, 575–577, 581 Recapitalization, 831, 841 Recaptured depreciation, 527 Receipt management, 698, 719–724 Receivables See Accounts receivable Recession See also Financial crisis of 2008 yield curve and, 311 Red herring, 105 Regret theory, 363 Regular dividend policy, 672 Regular partnership, 68 REL 2015 Working Capital Survey, 528 Renewal options, 776 Reorder point, 706 Reorganization in bankruptcy, 839–844, 845 Replacement decisions, 520–521, 540 Repo 105, 614 Representative office (RO), 524 Repurchases See Share repurchase Required returns, 246, 304–309 bond values and, 332–335 changing, 332–333 constant, 334 expected return and, 362 risk and, 375–376 valuation and, 326 Required total financing, 207 Residual claimants, 69 Residual owners, 355 Residual theory of dividends, 665–666, 677 Restricted stock, 75 Restrictive covenants, 317, 359 Retained earnings, 129–131 cost of, 457–458 statement of, 130–131 27/07/18 4:54 PM www.ebookslides.com Index 971 Return, 391–474 See also Internal rate of return (IRR); Required returns; Return on equity (ROE) abnormal returns, 361 actual returns, 304 ethics and, 395 expected return, 304, 362, 396 See also Required return fundamentals, 394–398 historical, 396, 403–404 from international diversification, 413 management decisions and, 61 market return, 416 measurements of, 401–406 multiple internal rates of return, 500 portfolio, 406–414 rate See Internal rate of return realized returns, 396 required See Required return return on total assets, 154, 164, 166 risk and, 54–55, 61, 392–441, 633 risk-free rate of return, 419 stock price and, 55 total rate of return, 394 Return on equity (ROE), 154–156 DuPont system and, 166, 167 Return on total assets (ROA), 154, 164, 166 Revenue stability, 620, 636 Reverse stock split, 676 Revolving credit agreements, 749 RFID (radio frequency identification), 708 Rights, 355, 356–357 Rights offering, 355 Risk, 54, 391–474, 394, 558 See also specific risks assessment, 398–401 behavioral approaches to, 557–562 breakeven analysis, 558–559 business, 619–620, 636 business risk, 619–620, 636 capital asset pricing model and, 414–424 in capital budgeting, 555, 557–572, 580 changes in, common stock and, 375–376 classes, 571 default, 318 diversifiable, 415 dividends and, 375–376 in EBIT-EPS approach, 632 ethics and, 395 Z03_ZUTT1515_15_GE_IDX.indd 971 exchange rate risk, 563, 866–871, 882 financial, 620 fundamentals, 394–398 historical, 403, 419–420 interest rate, 335 international, 562–563, 866–873 of international diversification, 413–414 management decisions and, 61 maximizing profit and, 54–55 measurement, 401–406 nondiversifiable, 415 options to hedge, 797 political risk, 413, 563, 871–873 portfolio, 406–414 preferences, 397 probability distributions, 399–401 profitability, tradeoff between, 695–697 reduction, 413, 415 required return, 375–376 vs return, 54–55, 61 return and, 392–441 scenario analysis, 559–560 simulation, 560–562 of single asset, 398–406 stock price and, 54–55 total, 415, 621–625 valuation and, 326 Risk-adjusted discount rates (RADR), 564–572, 580, 581 applying, 567–571 capital asset pricing model to find, 566–567 diversified portfolios, 570 spreadsheets, 569 Risk and required return, 633 Risk averse, 54, 397 Risk aversion, 397, 403 security market line and, 422–423 Risk-free rate of return (RF), 419 Risk neutral, 397 Risk premium (RP), 307–309, 319 debt and, 315–316 issue and issuer characteristics, 315–316 Risk seeking, 397 RMA Annual Statement Studies, 133 RO (representative office), 524 ROA (return on total assets), 154, 164, 166 Roadshow, 105 ROE See Return on equity Rothschild, Nathan Meyer, 567 RP See Risk premium Ruby Newco, 835 S Safety stock, 707 Salaries of senior management, 75–76 Sale-leaseback arrangement, 775 Sales forecast, 203–204 Sales revenue, 126 Salvage value, 535 Samurai bond, 324 Sarbanes-Oxley Act (SOX), 57, 78, 124 Scenario analysis, 398, 559–560, 580 cash budgets, 210–211 range, 398–399 S corporation, 74 Sears, 776 Seasonal funding requirements, 699–702 Seasonality, ratio analysis and, 136 SEC (Securities and Exchange Commission), 76, 100, 102, 105, 124, 125 Secondary market, 91, 93 Secured bond, 318, 322 Secured creditors, 353, 842 Secured short-term financing, 753–758 accounts receivable as collateral for, 754–756 characteristics of, 753–754 collateral, 753 factoring accounts receivable, 755–756 inventory as collateral for, 756–758 non-notification basis pledging, 754 nonrecourse basis, 755–756 notification basis pledging, 754–755 percentage advance, 754 pledge of accounts receivable, 754–755 security agreements, 753 terms, 753 Secured short-term loans See Secured short-term financing Securities See also specific types marketable, 129 Securities Act of 1933, 102 Securities Act of 1934, 102 Securities and Exchange Commission (SEC), 76, 100, 102, 105, 124, 125 Securities exchanges, 96 Securitization, 111 Security agreements, 753 Security market line (SML), 420, 566 inflation and, 421–422 risk aversion and, 422–423 shifts in, 421–422 Self-tender offer, 661 Selling concession, 107 Selling group, 107 27/07/18 4:54 PM www.ebookslides.com 972 Index Semiannual bonds, spreadsheet for, 332 Semiannual compounding, 261–262 Semiannual interest, bond values and, 330–331 Semifixed relationship, 867 Senior debt, 317 Seritage Growth Properties, 776 Servicing debt, 147 Settlements, voluntary, 837–838, 845 Shadow banking system, 90 Share(s) See Stock(s) Shareholders See Stockholders Share price See Stock price Share repurchase Dutch auction share repurchase, 661 global popularity of, 657 open-market share repurchase, 661 procedures, 661–662 tax treatment of dividends and, 662–664 tender offer share repurchase, 661 trends in dividends and, 656–658 U.S publicly listed companies, 657 Shark repellents, 831 Short-term financial management, 691–770, 694 unsecured short-term financing, 737 working capital management, 693, 694 Short-term (operating) financial plans, 191 Short-term loans See Secured shortterm financing Short-term self-liquidating loans, 743 Signal, 626–627, 668 Signaling theory, 626–627 Silver Lake Partners, 812 Simple interest, 244–245 Simulation, 560–562, 580 cash budgets, 211 Monte Carlo method, 562 net present value, 561 Singer, Paul, 820 Single amounts (cash flow), 240, 241–248 future value of, 241–245 present value of, 245–248 Single-payment notes, 745–746 Sinking-fund requirement, 318 Small (ordinary) stock dividend, 673 SML See Security market line Snap, Inc., 105–111 Sole proprietorships, 67–68, 69 SOX (Sarbanes-Oxley Act), 57, 78, 124 S&P 500 Index, 654–655 Spin-off, 821 Spontaneous liabilities, 737–742 Spot exchange rate, 867 Z03_ZUTT1515_15_GE_IDX.indd 972 Spreadsheets for annual bonds, 332, 334 annual rates of interest, 266 before-tax cost of debt, 449, 450 for bond values, 329–334, 336 breakeven cash inflow, 559 for compounding, 263, 264, 265 for determining deposits needed for future sum, 269, 275 entering cash flow, 239 financial modeling, 79 future sum, accumulation of, 269, 275 for future value, 243–244, 251, 254, 259 for growth rate, 272, 273, 274 for interest rates, 272–274 for internal rate of return, 493 learning to use, 79 for loan amortization, 270 for net present value, 489, 573, 575 for number of periods needed, 274 for present value, 247, 252, 255, 260–261, 573, 575 risk-adjusted discount rates, 569 for semiannual bonds, 332 for time value, 239, 244, 247, 251–252, 254–255, 259, 261, 264–266, 269–270, 273–275 unknown years of investment, 275 for yield to maturity, 336–337 Stakeholders, 55 See also Stockholders maximizing welfare of, 55–56 Standard debt provisions, 317 Standard deviation, 401–404 portfolio return, 406–408 Standard & Poor’s, 112, 113, 114, 321, 323 Starbucks, 873 Startups, venture capital for, 88 Stated (nominal) annual rate, 265–266 Stated interest rate, 93 Statement of cash flows, 131 Statement of retained earnings, 130–131 Statement of stockholders’ equity, 130–131 Stimulus package, 114 Stock(s), 69 See also Common stock; Dividends; Preferred stock; Share repurchase; Stockholders American depositary shares, 358 authorized shares, 356 dividends, 673–675, 678 See also Dividends dividend valuation models, 362–367 issuance, 88, 91, 103–111, 356 See also Initial public offering (IPO) outstanding shares, 356 prices, 52–58, 664–665, 677 restricted, 75 split, 675–676, 678 straight preferred stock, 784 supervoting shares, 357 swap transactions, 824–830, 825 Stock dividends See Dividends Stockholders, 69 activist investors, 77 basic rights, 355–357, 359 claims on income and assets, 353–354 in corporate governance, 76–77 earnings available for, 126 equity statement, 130–131 individual investors, 76–77 institutional investors, 77 letter to, 124 maximizing wealth of, 51–53, 55–56 maximizing welfare of, 55–56 report, 124–132 rights, 355–356 stock dividends and, 674, 678 voice in management, 353 Stockholders’ equity statement, 130–131 Stockholders’ report, 124–132 Stock issuance, 88, 91, 103–111, 356 See also Initial public offering (IPO) Stock options, 75 Stock prices, 664–665 determinants of, 53–55 ethics and, 57, 58 maximizing, 52–53, 677 profits and, 53–56 Stock purchase warrants, 319, 790–794, 800 exercise prices, 790 implied price of, 791–792 values of, 792–794 Stock split, 675–676 motivation for, 678 reverse stock split, 676 Stock swap transactions, 824–830, 825 Stock valuation common stock valuation, 360–376 conversion value, 785, 788, 800 debt vs equity, 353–360 dividend valuation models, 362–367 par value, 355, 358–359 preferred stock, 364 straight bond value, 787–788, 800 Straight bankruptcy, 841 Straight bond, 784 Straight bond value, 787–788, 800 Straight preferred stock, 784 Strategic (long-term) financial plans, 190 Strategic merger, 814–815 27/07/18 4:54 PM www.ebookslides.com Index 973 Strategic options, 575 Stretching accounts payable, 741–742 Strike price, 794–795 Students, career development skills for, 78–79 Stumpf, John, 444 Subordinated debentures, 322 Subordination, 317 Subprime mortgages, 112–113, 271 Subsidiaries, 813 international transactions between, 752 multinational companies, characterization of, 864 Sunk costs, 521–523, 540 Supersonic Transport Aircraft, 522 Supervoting shares, 357 Supply and demand, interest rates and, 304 Sutton, Willie, 798 Synergy as merger motive, 815 T Takeover defenses, 818, 831 Takeover threats, 815, 818 defenses, 818, 831 fighting hostile, 813, 831 hostile, 77, 357, 813, 831 mergers and, 833 of U.S companies, 834 Taleb, Nassim Nicholas, 399 Target capital structure, 461, 629 Target company, 813, 844 valuing, 822–824 Target Corporation, 520 Target dividend-payout ratio, 672 Taxes See also specific taxes and tax laws after-tax cost of debt, 451–452 average tax rate, 71–72 before-tax cost of debt, 449–451 book value, 526 buyback efficiency, 658 capital gains, 73 capital structure and, 619 corporations, 72–74 cuts in, dividends and, 358 debt and, 354 deductions, 73–74 depreciation methods for, 193 dividends, 53, 72–74, 662–664, 670 double taxation, 72–73 foreign taxes, 860–861 interest, 53, 73, 74 marginal tax rate, 70–72 as market imperfection, 666 mergers and, 816–817 Z03_ZUTT1515_15_GE_IDX.indd 973 multinational companies and, 860–862 net operating profits after, 199–200 net profit before and after, 126 ordinary income, 72–73 repurchases, 662–664 sale of old asset, 526, 540 Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA), 663 Tax loss carryforward, 816–817 Tax on the sale of the old asset, 526, 540 Tax Relief, Unemployment Insurance Reauthorization, 663 Tax shield, 637 T-bills See Treasury bills Technology as merger motive, 815–816 Technology startups, venture capital for, 88 Teclar Paper, 816 Temporal method, 865 10-K form, 102 10-Q form, 102 Tender offers, 830 Tender offer share repurchase, 661 Terminal cash flows, 519, 520, 535–537, 540 Terms of credit See Credit terms Term structure of interest rates, 309–316 Tesla Motors, 352 Thaler, Richard, 361 Thomson Reuters, 361 Thomson, Robert James, 835 Time See also Time value buybacks and market, 658 capital structure and, 636 collection period, average, 698, 717–718 collections, 720–721 credit period, 717 early payment discount, 715–717 inventory, average age of, 698, 703 payment period, average, 698, 719 Time deposits, 92 Timeline, 237–238 cash conversion cycle, 699 dividend payment, 660 Time-series analysis, 135 Times interest earned ratio, 148, 616 Time value, 235–300 See also Future value; Present value annuities, 249–258 cash flow patterns, 240 See also Cash flow compounding, 261–268 computational tools, 238–239 See also Calculators; Spreadsheets defined, 237 determining deposits needed for future sum, 268–269 finding interest or growth rates, 271–274 finding unknown number of periods, 274–275 future vs present value, 237–238 See also Future value; Present value loan amortization, 269–271 management decisions and, 61 mixed streams, 258–261 role in finance, 237 semiannual compounding, 261–262 single amounts, 241–248 special applications, 268–276 spreadsheets for, 239, 244, 247, 251–252, 254–255, 259, 261, 264–266, 269–270, 273–275 valuation and, 326 Timing option, 576 TIPRA (Tax Increase Prevention and Reconciliation Act of 2005), 663 Tombstone, 107 Top-down approach for sales forecast, 203–204 Total assets return on, 154–156 turnover, 144–145, 164 Total asset turnover, 144–145 Total cash disbursements, 205–207 Total cash receipts, 204–205 Total cost of inventory, 705 Total leverage, 601, 611–614, 637 degree of total leverage, 612 Total proceeds, 108 Total rate of return, 394 Total risk, 415, 621–625 Track Software, Inc., 297–300 Trading blocs, 771, 857–859 Transfer prices, 563 Translation (current rate) method, 132 Translation practices, 864–865 Transnational corporations See Multinational companies Treasurer, 63 Treasury bills (T-bills), 306, 419 inflation and, 308 negative interest rates, 306 Treasury bonds, 308, 312 Treasury notes, 308, 312 Treasury securities bonds, 308, 312 mortgage rates, 312 notes, 308, 312 stock, 356, 357 T-bills, 306, 308, 419 yield curves, 310–314 27/07/18 4:54 PM www.ebookslides.com 974 Index Treasury stock, 356, 357 Trend-chasing behavior, 50 True (effective) annual rate, 265–266 Trump, Donald, 58 Trustee, 318 Trust receipt inventory loans, 757 Two-bin inventory monitoring method, 704 Two-tier offer, 830 U Uber, 88 Uncertainty capital budgeting, 562 cash budgets, 210–211 weighted average cost of capital and, 460 Uncorrelated, 410 Underpricing, 456 in initial public offering, 110–111 Underwriting, 107–108 Underwriting syndicate, 107 Unequal-lived projects, 572–575 Unicorns, 88 United States corporations, 618 foreign direct investment role in, 523–524 foreign takeover of companies in, 834 largest bankruptcies in, 839 Treasury securities See Treasury securities United States Postal Service, 721 Unlimited funds, 479 Unlimited liability, 67–68 Unsecured bonds, 318, 322, 783–784 Unsecured creditors, 353, 842 Unsecured short-term financing, 737 Unsecured short-term loans, 743–749 U.S Treasury securities See Treasury securities V Value and valuation, 325, 636–637 See also Book value; Future value; Market value; Net present value (NPV); Par value; Present value; Stock valuation; Time value bonds, 93, 327–337 breakup value, 822 cash flow and, 325, 367–370 common stock valuation, 360–376 See also Dividend valuation models conversion (or stock) value, 785, 788, 800 depreciable value, 193 Z03_ZUTT1515_15_GE_IDX.indd 974 dividends, 362–367 economic value added, 489–490, 502 fundamentals, 325–327 inputs, 325–326 investment decisions contributing to, 539 liquidation value per share, 370–371 maximizing, 635 model, 326–327 preferred stock, 364 required returns and, 326–327 risk and, 326–327 salvage value, 535 straight bond value, 787–788, 800 time value, 326 Value Line, 133 Variable-growth dividend model, 365–367 Variable operating cost per unit (VC), 603 Venezuela, 556 Venture capital, 88, 103 Venture capitalists, 88, 103–104 Vertical merger, 818 Vesting requirements, 75 Volkswagen, 501 Voluntary reorganization, 840 Voluntary settlements, 837–838, 845 Voting rights, 356–357 W WACC See Weighted average cost of capital Wage Earner plan, 841 Wall Street Reform and Consumer Protection Act (Dodd-Frank), 102 Wancyk, Mavis, 236 Warehouse receipt loans, 757–758 Warrant premium, 792–793 Warrants See also Stock purchase warrants premium, 792–793 trading, 790 Washington Redskins, 522 Weighted average cost of capital (WACC), 446–447, 458–462, 638, 688, 690 book value weights, 461 calculating, 443, 458–460 capital structure and, 627–628 capital structure weights, 461–462 target capital structure weights, 461–462 uncertainty and, 460 weighting schemes, 461–462 Welch, Jack, 51 Wells Fargo, 444 Western Europe, mergers in, 834 WFOE (wholly foreign-owned enterprise), 524 Whirlpool Corporation, 653, 654, 660, 665 White knight, 831 Whole Foods, 136–163 Wholly foreign-owned enterprise (WFOE), 524 Widely owned (stock), 355 Winterkorn, Martin, 501 Wire transfers, 723 Working capital, 61, 695 change in net working capital, 528, 536 decisions, 60–61 management, 693, 694 net working capital, 528, 536, 695 speed and, 698 Working capital decisions, 60–61 Working capital management, 693, 694 World Trade Organization (WTO), 859, 887 WSP Canada Inc., 477 X Xerox Corporation, 676 Y Yield bond, 320, 335–337 current, 320 Yield curve, 309–314 decisions based on, 311–312 expectations theory, 312–314 flat yield curve, 310 inverted, 309, 311 liquidity preference theory, 314 market segmentation theory, 314 normal, 309–310 Treasury securities, 310–314 Yield to call (YTC), 320, 335 Yield to maturity (YTM), 309, 320–321, 449, 490 bond values and, 335–337 calculator for, 336 vs coupon rate, 335 spreadsheets for, 336–337 Z Zero-balance accounts (ZBAs), 722–723 Zero-coupon bonds, 322, 324 Zero-growth dividend model, 362–364 Zero-growth valuation model, 638 27/07/18 4:54 PM www.ebookslides.com FREQUENTLY USED SYMBOLS AND ABBREVIATIONS AAI Average Age of Inventory EOQ Economic Order Quantity ACH Automated Clearinghouse EPS Earnings per Share ACP Average Collection Period ERP Enterprise Resource Planning ANPV Annualized Net Present Value EU European Union A/P Accounts Payable EVA Economic Value Added APP Average Payment Period FC Fixed Operating Cost APR Annual Percentage Rate FCF Free Cash Flow APY Annual Percentage Yield FDI Foreign Direct Investment A/R Accounts Receivable FLM Financial Leverage Multiplier bj Beta Coefficient or Index of Nondiversifiable Risk for Asset j FV Future Value GAAP Generally accepted accounting principles bp Portfolio Beta GATT General Agreement on Tariffs and Trade B0 Value of a Bond g Growth Rate C Carrying Cost per Unit per Period I Interest Payment CAPM Capital Asset Pricing Model i Expected Inflation Rate CCC Cash Conversion Cycle IPO Initial Public Offering CD Stated Cash Discount in Percentage Terms IRR Internal Rate of Return CF0 Initial Investment JIT Just-In-Time System CFt Cash Flow in Period t LBO Leveraged Buyout CV Coefficient of Variation Dp Preferred Stock Dividend m Number of times per year interest is compounded D t • Per-Share Dividend Expected at the End of Year t M Bond’s Par Value M/B Market/Book Ratio •  Depreciation Expense in Year t MACRS Modified Accelerated Cost Recovery System DFL Degree of Financial Leverage MNC Multinational Company DIP Debtor in Possession MP Market Price per Share DOL Degree of Operating Leverage MPR Market Price Ratio of Exchange DPS Dividends per Share MRP Materials Requirement Planning DTC Depository Transfer Check n •  Number of Outcomes Considered DTL Degree of Total Leverage •  Number of Periods—Typically, Years e Exponential Function 2.7183 •  Years to Maturity E Exercise Price of the Warrant N EAR Effective Annual Rate • Number of Days Payment Can Be Delayed by Giving up the Cash Discount EBIT Earnings Before Interest and Taxes • Number of Shares of Common Stock Obtainable With One Warrant Nd Net Proceeds from the Sale of Debt (Bond) EBITDA Earnings Before Interest, Taxes, Depreciation, and Amortization EOM End of the Month Z03_ZUTT1515_15_GE_IDX.indd 975 27/07/18 4:54 PM www.ebookslides.com FREQUENTLY USED SYMBOLS AND ABBREVIATIONS (CONTINUED) Nn Net Proceeds from the Sale of New Common Stock Np Net Proceeds from the Sale of Preferred Stock NAFTA North American Free Trade Agreement r r Cost of Retained Earnings r s •  Required Return on Common Stock •  Cost of Common Stock Equity Net Current Asset Investment R F Risk-Free Rate of Interest NCAI RADR Risk-Adjusted Discount Rate NFAI Net Fixed Asset Investment RE Ratio of Exchange NOPAT Net operating profits after taxes ROA Return on Total Assets NPV Net Present Value ROE Return on Common Equity O Order Cost Per Order S • Usage in Units per Period OC Operating Cycle •  Sales in Dollars OCF Operating Cash Flow SML Security Market Line P Price (value) of asset t Time P0 Value of Common Stock T Firm’s Marginal Tax Rate PD Preferred Stock Dividend TVW Theoretical Value of a Warrant P/E Price/Earnings Ratio V •  Value of an Asset or Firm PI Profitability Index •  Venture Capital PMT Amount of Payment VC Value of Entire Company VD Value of All Debt VP Value of Preferred Stock V S Value of Common Stock Pr Probability PV Present Value Q •  Order Quantity in Units •  Sales Quantity in Units • Actual, Expected (r–), or Required Rate of r Return VC Variable Operating Cost per Unit w j • Proportion of the Portfolio’s Total Dollar Value Represented by Asset j • Proportion of a Specific Source of Financing j in the Firm’s Capital Structure •  Annual Rate of Interest •  Cost of Capital r* Real Rate of Interest WACC Weighted Average Cost of Capital rwacc Weighted Average Cost of Capital WTO World Trade Organization rd •  Required Return on Bond YTM Yield to Maturity •  Before-Tax Cost of Debt ZBA Zero Balance Account rj Required Return on Asset j s Standard Deviation rm •  Market Return ∑ Summation Sign •  Return on the Market Portfolio of Assets rp •  Cost of Preferred Stock •  Portfolio Return Z03_ZUTT1515_15_GE_IDX.indd 976 27/07/18 4:54 PM www.ebookslides.com Stocks • ETFs • Mutual Funds • Bonds Get $500,000 Virtual Cash and simulate managing a portfolio of stocks, bonds, and mutual funds With the purchase of this book, you are entitled to a 50% discount to StockTrak.com, the leading stock simulation for the university education market! To take advantage of this exclusive offer, ask your professor to register on StockTrak.com and create a custom trading challenge for your class When you receive an HTML link from your professor, you will be asked to enter this code to receive your discount: ZUT-0917 If your professor is not using StockTrak.com as part of the class, you can still register as an individual and save 50%! NYSE • NASDAQ • CBOE • CME • NYMEX • TSX • LSE • Euronext Z03_ZUTT1515_15_GE_IDX.indd 977 27/07/18 4:54 PM www.ebookslides.com This page intentionally left blank A01_MISH4182_11_GE_FM.indd 10/06/15 11:46 am www.ebookslides.com This page intentionally left blank A01_MISH4182_11_GE_FM.indd 10/06/15 11:46 am www.ebookslides.com This page intentionally left blank A01_MISH4182_11_GE_FM.indd 10/06/15 11:46 am www.ebookslides.com This page intentionally left blank A01_MISH4182_11_GE_FM.indd 10/06/15 11:46 am www.ebookslides.com This page intentionally left blank A01_MISH4182_11_GE_FM.indd 10/06/15 11:46 am www.ebookslides.com New to This Global Edition • Tax Cuts and Jobs Act of 2017, which made sweeping changes to the American corporate and personal tax codes, has been included • Highlights on how tax changes may alter firms’ incentives in a variety of ways • Content and feature updates throughout the text and inclusion of global examples in the end-of-chapter homework assignments—from Britain, Scotland, Thailand, and Singapore—reflect global application in managerial finance • MyLab Finance now includes the following features ° New chapter introduction videos and animations that explain the importance of the chapter content within the context of managerial finance ° New and updated solution videos of the author discussing or solving in-chapter examples Principles of Managerial Finance FIFTEENTH EDITION Chad J Zutter • Scott B Smart FIFTEENTH EDITION This is a special edition of an established title widely used by colleges and universities throughout the world Pearson published this exclusive edition for the benefit of students outside the United States and Canada If you purchased this book within the United States or Canada, you should be aware that it has been imported without the approval of the Publisher or Author Principles of Managerial Finance Now in its fifteenth edition, Principles of Managerial Finance continues to help students develop a variety of skills—Excel modeling, ethical reasoning, and critical thinking—to succeed in a rapidly changing financial and managerial environment A strong pedagogy and generous use of examples, including personal finance examples, make this text an easily accessible resource for in- and out-of-class learning GLOBAL EDITION G LO B A L EDITION GLOBAL EDITION Pearson Global Edition Zutter Smart Zutter_15_129226151X_Final.indd 14/08/18 8:28 PM ... Governance Zutter/ Smart Principles of Managerial Finance*† Principles of Managerial Finance— Brief Edition* † Mishkin/Eakins Financial Markets and Institutions† Moffett/Stonehill/Eiteman Fundamentals of. .. adaptation from the United States edition, entitled Principles of Managerial Finance, 15th Edition, ISBN 978-0-13-447631-5 by Chad J Zutter and Scott B Smart, published by Pearson Education © 2019... A01_ZUTT1515_15_GE_FM.indd 23/08/18 4:47 PM www.ebookslides.com FIFTEENTH EDITION GLOBAL EDITION Principles of Managerial Finance Chad J Zutter University of Pittsburgh Scott B Smart Indiana University Harlow,