The Fundamental Principles of Finance.

Cover -- Half Title -- Title -- Copyright -- Contents -- List of Figures -- List of Tables -- 1 The Fundamental Principles of Finance -- The Three Fundamental Principles of Finance -- The Three Precepts -- Differentiating Between the Principles and the Precepts -- Making Use of the Principles and Precepts -- Summary -- End of Chapter Problems -- 2 Time Value of Money -- The Cost of Money -- The Fundamental Principles in Action -- Understanding Why Money Has Time Value-Economic Equivalency -- Adjusting Cash Flow Values Over Time -- Future Value and Compounding -- FV of a Single Cash Flow -- FV of Uneven Cash Flows -- Present Value and Discounting -- PV of a Single Cash Flow -- Determining the Correct Exponent -- PV of Uneven Cash Flows -- Compounding/Discounting More Often Than Annually -- The Effective Annual Rate (EAR) -- The Impact of EAR on FV and PV Calculations of Single Cash Flows -- Annuities -- Future Value of an Ordinary Annuity -- Future Value of an Annuity Due -- Present Value of an Ordinary Annuity -- Present Value of an Annuity Due -- A Simple Understanding of the Annuity Due Value -- Perpetuities -- Amortized Loans -- Solving for Other Variables in the TVM Calculations -- Discrete Time vs. Continuous Time -- Summary of the Principles and Precepts Applied in This Chapter -- End of Chapter Problems -- 3 Risk and Return -- The Fundamental Principles in Action -- Measuring Return -- Annualized Return -- Average Returns -- Expected Return and Risk -- Risk and Risk Aversion -- The Relationship Between Risk and Return -- Types of Risk -- Business Risk -- The Coefficient of Variation of EBIT -- The Coefficient of Variation of the Operating Margin -- The Degree of Operating Leverage -- Financial Risk -- The Coefficient of Variation of Net Income -- The Coefficient of Variation of the Net Margin -- The Degree of Financial Leverage.

Degree of Combined Leverage -- Portfolio Risk -- Measuring Portfolio Risk -- Beta -- Portfolio Risk and Return -- Relevant Risk and Required Return-The CAPM -- Summary of the Principles and Precepts Applied in This Chapter -- End of Chapter Problems -- Excel Project -- 4 The Term Structure of Interest Rates -- The Fundamental Principles in Action -- Real vs. Nominal Interest Rates-The Effects of Inflation -- The Determinants of Interest Rates -- The Default Risk Premium -- The Liquidity Risk Premium -- The Maturity Risk Premium -- Determining Interest Rates -- The Yield Curve -- Bond Yields vs. Stock Returns-The Fed Model -- Summary of the Principles and Precepts Applied in This Chapter -- End of Chapter Problems -- 5 Bonds and Bond Valuation -- The Fundamental Principles in Action -- The Basics of Bonds -- Calculating the Value of a Bond -- Bond Values Over Time -- Using Excel to Calculate Bond Prices -- Calculating a Bond's Yield to Maturity -- Calculating a Bond's Yield to Call -- Duration and Its Use -- Summary of the Principles and Precepts Applied in This Chapter -- End of Chapter Problems -- 6 Stocks and Stock Valuation -- The Fundamental Principles in Action -- The Basics of Stocks -- The Dividend Discount Model -- Preferred Stock Valuation -- Common Stock Valuation With Dividends-Constant Growth -- Common Stock Valuation With Dividends-Non-Constant Growth -- Common Stock Valuation Without Dividends-The Cash Flow From Assets Model -- Understanding Operating Accounts -- Calculating Cash Flow From Assets -- Using the Cash Flow From Assets Model to Value a Firm's Common Equity -- Summary of the Principles and Precepts Applied in This Chapter -- End of Chapter Problems -- 7 Capital Budgeting Decision Methods -- The Fundamental Principles in Action -- The Capital Budgeting Decision Methods -- The Payback Period -- The Discounted Payback Period.

The Net Present Value -- The Internal Rate of Return -- Comparing the NPV and IRR Methods -- The Modified Internal Rate of Return -- Evaluating Capital Budgeting Projects -- Cash Flow Estimation -- Relevant Cash Flows -- Changes in Net Working Capital -- Evaluating Capital Budgeting Projects -- Initial Cash Flows -- Operating Cash Flows -- Terminal Cash Flows -- Net Operating Cash Flow -- Paying Attention to Details -- The Truth of PR2 -- Adjusting for Risk in the Capital Budgeting Analysis Process -- The Investment Opportunity Schedule -- Summary of the Principles and Precepts Applied in This Chapter -- End of Chapter Problems -- Excel Project -- Replacement Project Analysis -- 8 Capital Structure and the WACC -- The Fundamental Principles in Action -- Understanding Capital Structure and Its Effects -- The Component Costs of Capital -- The After-Tax Cost of Debt -- The Cost of Preferred Equity -- The Cost of Internal Common Equity -- The CAPM Approach -- The DDM Approach -- The Cost of External Common Equity -- Determining the Weights for the Component Costs -- Putting It All Together -- Summary of the Principles and Precepts Applied in This Chapter -- End of Chapter Problems -- Comprehensive Excel Problem -- 9 Analyzing and Forecasting Financial Statements -- Understanding the Financial Statements -- The Balance Sheet -- Current Assets -- Long-Term Assets -- Current Liabilities -- Long-Term Liabilities -- Equity -- The Income Statement -- The Statement of Cash Flows -- Statement of Retained Earnings -- Analyzing the Financial Statements -- Liquidity Ratios -- Asset Management Ratios -- Debt Management Ratios -- Profitability Ratios -- Market Value Ratios -- Value and Growth Metrics -- The Du Pont Equation -- Trend Analysis, Benchmarking, Common Size Analysis and Percent Change Analysis -- Benchmarking.

Common Size Analysis and Percent Change Analysis -- Forecasting Financial Statements-The Percent of Sales Method -- Forecasting the Income Statement -- Forecasting the Balance Sheet -- Analyzing the Pro Forma Statements -- Summary -- End of Chapter Problems -- Comprehensive Excel Problem -- 10 Finance Within the Firm -- The Role of Finance -- Finance Is a Strategic Discipline -- The Intrinsic Value of the Firm -- Corporate Sustainability -- How to Maximize the Intrinsic Stock Price -- Types of Financial Decisions -- The Importance of Finance -- Careers in Finance -- Investments and Wealth Management -- Financial Markets and Institutions -- Financial Management -- Forms of Business Organization -- Proprietorship -- Partnership -- Corporation -- The Secret to a Successful Business -- Summary -- End of Chapter Problems -- 11 Legal and Ethical Issues in Finance -- Financial and Accounting Scandals -- WorldCom -- Enron -- Towers Financial -- Adelphia Communications -- Bayou Hedge Fund -- Refco -- Madoff Investment Securities -- Lessons From Financial Scandals -- Misusing Risk -- Lincoln Savings and Loan -- Proctor &amp -- Gamble and Bankers Trust -- Orange County, California -- Barings Bank -- Long Term Capital Management -- Lessons From Misusing Risk -- The 2008 Financial Crisis -- Agency Issues -- Summary -- End of Chapter Problems -- 12 Financial Markets and Institutions -- Financial Markets -- Primary Markets -- Secondary Markets -- Money Market -- Capital Market -- The Efficient Market Hypothesis -- Beating the Market -- The Three Levels of Market Efficiency -- Weak Form Efficiency -- Semi-Strong Form Efficiency -- Strong Form Efficiency -- A Way to View Market Efficiency -- Forces That Determine Market Efficiency -- Institutional Investors -- Financial Securities -- Money Market Securities -- Capital Market Securities -- Equity -- Debt.

Treasury Bonds -- Municipal Bonds -- Corporate Bonds -- Mutual Funds -- Derivative Securities -- Options -- Financial Institutions -- The Federal Reserve System -- Commercial Banks -- Savings and Loan Associations -- Credit Unions -- Finance Companies -- Insurance Companies -- Retirement Plans -- Summary -- End of Chapter Problems -- Index.

The Fundamental Principles of Finance offers a new and innovative approach to financial theory. The book introduces three fundamental principles of finance that flow throughout the theoretical material covered in most corporate finance textbooks.

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Electronic reproduction. Ann Arbor, Michigan : ProQuest Ebook Central, 2024. Available via World Wide Web. Access may be limited to ProQuest Ebook Central affiliated libraries.