His Dark Mercy: Dark Love (The Marino Series Book 1)

Table of Contents and Preface Cover Page Title Page Stephen A. Ross Randolph W. Westerfield Bradford D. Jordan J. Ari Pandes Thomas A. Holloway Copyright About the Authors Stephen A. Ross Randolph W. Westerfield Bradford D. Jordan J. Ari Pandes Thomas A. Holloway Brief Contents Contents Preface Coverage Learning Solutions Real Financial Decisions Application Tools Study Aids Award Winning Technology Instructor Resources for Fundamentals of Corporate Finance, Eleventh Canadian Edition Acknowledgements Connect Chapter 1: Introduction to Corporate Finance Chapter 1 Introduction 1.1 Corporate Finance and the Financial Manager What Is Corporate Finance? The Financial Manager Financial Management Decisions 1.2 Forms of Business Organization Sole Proprietorship Partnership Corporation Income Trust Co-operative (Co-op) 1.3 The Goal of Financial Management Possible Goals The Goal of Financial Management A More General Goal 1.4 The Agency Problem and Control of the Corporation Agency Relationships Management Goals Do Managers Act in the Shareholders’ Interests? Corporate Social Responsibility and Ethical Investing 1.5 Financial Markets and the Corporation Cash Flows to and from the Firm Money versus Capital Markets Primary versus Secondary Markets 1.6 Financial Institutions 1.7 Trends in Financial Markets and Financial Management 1.8 Outline of the Text Summary and Conclusions Key Terms Concepts Review and Critical Thinking Questions Internet Application Questions Chapter 2: Financial Statements, Cash Flow, and Taxes Chapter 2 Introduction 2.1 Statement of Financial Position Assets Liabilities and Owners’ Equity Net Working Capital Liquidity Debt versus Equity Value versus Cost 2.2 Statement of Comprehensive Income International Financial Reporting Standards (IFRS) Non-Cash Items Time and Costs 2.3 Cash Flow Cash Flow from Assets Cash Flow to Creditors and Shareholders 2.4 Taxes Individual Tax Rates Average versus Marginal Tax Rates Taxes on Investment Income Corporate Taxes Taxable Income Global Tax Rates Capital Gains and Carry-Forward and Carry-Back 2.5 Capital Cost Allowance Asset Purchases and Sales Summary and Conclusions Key Terms Chapter Review Problems and Self-Test Answers to Self-Test Problems Concepts Review and Critical Thinking Questions Questions and Problems Mini Case Internet Application Questions Chapter 3: Working with Financial Statements Chapter 3 Introduction 3.1 Cash Flow and Financial Statements: A Closer Look Sources and Uses of Cash Statement of Cash Flows 3.2 Standardized Financial Statements Common-Size Statements Common–Base Year Financial Statements: Trend Analysis 3.3 Ratio Analysis Short-Term Solvency or Liquidity Measures Other Liquidity Ratios Long-Term Solvency Measures Asset Management, or Turnover, Measures Profitability Measures Market Value Measures 3.4 The Du Pont Identity 3.5 Using Financial Statement Information Why Evaluate Financial Statements? Choosing a Benchmark Problems with Financial Statement Analysis Summary and Conclusions Key Terms Chapter Review Problems And Self-Test Answers to Self-Test Problems Concept Review And Critical Thinking Questions Questions and Problems Mini Case Internet Application Questions Chapter 4: Long-Term Financial Planning and Corporate Growth Chapter 4 Introduction 4.1 What Is Financial Planning? Growth as a Financial Management Goal Dimensions of Financial Planning What Can Planning Accomplish? 4.2 Financial Planning Models: A First Look A Financial Planning Model: The Ingredients A Simple Financial Planning Model 4.3 The Percentage of Sales Approach An Illustration of the Percentage of Sales Approach 4.4 External Financing and Growth External Financing Needed and Growth Internal Growth Rate Financial Policy and Growth Determinants of Growth A Note on Sustainable Growth Rate Calculations 4.5 Some Caveats on Financial Planning Models Summary and Conclusions Key Terms Chapter Review Problems and Self-Test Answers to Self-Test Problems Concepts Review and Critical Thinking Questions Questions and Problems Mini Case Internet Application Questions Appendix 4A A Financial Planning Model for the Hoffman Company Appendix Questions and Problems Appendix 4B Derivation of the Sustainable Growth Formula Chapter 5: Introduction to Valuation: The Time Value of Money Chapter 5 Introduction 5.1 Future Value and Compounding Investing for a Single Period Investing for More than One Period A Note on Compound Growth 5.2 Present Value and Discounting The Single-Period Case Present Values for Multiple Periods 5.3 More on Present and Future Values Present versus Future Value Determining the Discount Rate Finding the Number of Periods Summary and Conclusions Key Terms Chapter Review Problems and Self-Test Answers to Self-Test Problems Concepts Review and Critical Thinking Questions Questions and Problems Chapter 6: Discounted Cash Flow Valuation Chapter 6 Introduction 6.1 Future and Present Values of Multiple Cash Flows Future Value with Multiple Cash Flows Present Value with Multiple Cash Flows A Note on Cash Flow Timing 6.2 Valuing Level Cash Flows: Annuities and Perpetuities Present Value for Annuity Cash Flows Future Value for Annuities A Note on Annuities Due Perpetuities Growing Perpetuities Formula for Present Value of Growing Perpetuity Growing Annuity Formula for Present Value of Growing Annuity 6.3 Comparing Rates: The Effect of Compounding Effective Annual Rates and Compounding Calculating and Comparing Effective Annual Rates Mortgages EARs and APRs Taking It to the Limit: A Note on Continuous Compounding 6.4 Loan Types and Loan Amortization Pure Discount Loans Interest-Only Loans Amortized Loans Summary and Conclusions Key Terms Chapter Review Problems and Self-Test Answers to Self-Test Problems Concepts Review and Critical Thinking Questions Questions and Problems Mini Case Internet Application Questions Appendix 6A Proof of Annuity Present Value Formula Chapter 7: Interest Rates and Bond Valuation Chapter 7 Introduction 7.1 Bonds and Bond Valuation Bond Features and Prices Bond Values and Yields Interest Rate Risk Finding the Yield to Maturity 7.2 More on Bond Features Is It Debt or Equity? Long-Term Debt: The Basics The Indenture 7.3 Bond Ratings 7.4 Some Different Types of Bonds Financial Engineering Stripped Bonds Floating-Rate Bonds Other Types of Bonds 7.5 Bond Markets How Bonds Are Bought and Sold Bond Price Reporting A Note on Bond Price Quotes Bond Funds Bonds and Restructuring 7.6 Inflation and Interest Rates Real versus Nominal Rates The Fisher Effect Inflation and Present Values 7.7 Determinants of Bond Yields The Term Structure of Interest Rates Bond Yields and the Yield Curve: Putting It All Together Conclusion Summary and Conclusions Key Terms Chapter Review Problems and Self-Test Answers to Self-Test Problems Concepts Review and Critical Thinking Questions Questions and Problems Mini Case Internet Application Questions Appendix 7A Managing Interest Rate Risk Duration Appendix Questions and Problems Appendix 7B Callable Bonds and Bond Refunding The Call Provision Cost of the Call Provision Value of the Call Provision The Refunding Issue When Should Firms Refund Callable Bonds? Interest Savings on New Issue NPV for the Refunding Operation Should Firms Issue Callable Bonds? Appendix Review Problems and Self-Test Answers to Appendix Self-Test Problems Appendix Questions and Problems Chapter 8: Stock Valuation Chapter 8 Introduction 8.1 Common Stock Valuation Common Stock Cash Flows Common Stock Valuation: Some Special Cases Changing the Growth Rate Components of the Required Return 8.2 Common Stock Features Shareholders’ Rights Dividends Classes of Stock 8.3 Preferred Stock Features Stated Value Cumulative and Non-Cumulative Dividends Is Preferred Stock Really Debt? Preferred Stock and Taxes Beyond Taxes 8.4 Stock Market Reporting Growth Opportunities Application: The Price–Earnings Ratio Summary and Conclusions Key Terms Chapter Review Problems and Self-Test Answers to Self-Test Problems Concepts Review and Critical Thinking Questions Questions and Problems Mini Case Internet Application Questions Appendix 8A Corporate Voting Cumulative Voting Straight Voting Proxy Voting Appendix Review Problem and Self-Test Answer to Appendix Self-Test Problem Appendix Question and Problem Chapter 9: Net Present Value and Other Investment Criteria Chapter 9 Introduction 9.1 Net Present Value The Basic Idea Estimating Net Present Value 9.2 The Payback Rule Defining the Rule Analyzing the Payback Period Rule Redeeming Qualities Summary of the Rule The Discounted Payback Rule 9.3 The Average Accounting Return Analyzing the Average Accounting Return Method 9.4 The Internal Rate of Return Problems with the IRR Redeeming Qualities of the IRR 9.5 The Profitability Index 9.6 The Practice of Capital Budgeting 9.7 Capital Rationing Soft Rationing Hard Rationing Summary and Conclusions Key Terms Chapter Review Problems and Self-Test Answers to Self-Test Problems Concepts Review and Critical Thinking Questions Questions and Problems Internet Application Questions Appendix 9A The Modified Internal Rate of Return Method 1: The Discounting Approach Method 2: The Reinvestment Approach Method 3: The Combination Approach MIRR or IRR: Which Is Better? Appendix Questions and Problems Mini Case Chapter 10: Making Capital Investment Decisions Chapter 10 Introduction 10.1 Project Cash Flows: A First Look Relevant Cash Flows The Stand-Alone Principle 10.2 Incremental Cash Flows Sunk Costs Opportunity Costs Side Effects Net Working Capital Financing Costs Inflation Capital Budgeting and Business Taxes in Canada Other Issues 10.3 Pro Forma Financial Statements and Project Cash Flows Getting Started: Pro Forma Financial Statements Project Cash Flows Project Total Cash Flow and Value 10.4 More on Project Cash Flow A Closer Look at Net Working Capital Depreciation and Capital Cost Allowance An Example: The Majestic Mulch and Compost Company (MMCC) 10.5 Alternative Definitions of Operating Cash Flow The Bottom-up Approach The Top-down Approach The Tax Shield Approach Conclusion 10.6 Applying the Tax Shield Approach to the Majestic Mulch and Compost Company Project Present Value of the Tax Shield on CCA Salvage Value versus UCC 10.7 Some Special Cases of Discounted Cash Flow Analysis Evaluating Cost-Cutting Proposals Replacing an Asset Evaluating Equipment with Different Lives Setting the Bid Price Summary and Conclusions Key Terms Chapter Review Problems and Self-Test Answers to Self-Test Problems Concepts Review and Critical Thinking Questions Questions and Problems Mini Case Internet Application Questions Appendix 10A More on Inflation and Capital Budgeting Appendix Question and Problem Appendix 10B Capital Budgeting with Spreadsheets Appendix 10C Deriving the Tax Shield on CCA Formula Chapter 11: Project Analysis and Evaluation Chapter 11 Introduction 11.1 Evaluating NPV Estimates The Basic Problem Projected versus Actual Cash Flows Forecasting Risk Sources of Value 11.2 Scenario and Other What-If Analyses Getting Started Scenario Analysis Sensitivity Analysis Simulation Analysis 11.3 Break-Even Analysis Fixed and Variable Costs Accounting Break-Even Accounting Break-Even: A Closer Look Uses for the Accounting Break-Even 11.4 Operating Cash Flow, Sales Volume, and Break-Even Accounting Break-Even and Cash Flow Cash Flow and Financial Break-Even Points 11.5 Operating Leverage The Basic Idea Implications of Operating Leverage Measuring Operating Leverage Operating Leverage and Break-Even 11.6 Managerial Options Contingency Planning The Option to Expand The Option to Abandon The Option to Wait The Tax Option Options in Capital Budgeting: An Example Strategic Options Conclusion Summary and Conclusions Key Terms Chapter Review Problems and Self-Test Answers to Self-Test Problems Concept Review and Critical Thinking Questions Questions and Problems Mini Case Internet Application Questions Chapter 12: Lessons from Capital Market History Chapter 12 Introduction 12.1 Returns Dollar Returns Percentage Returns 12.2 The Historical Record A First Look A Closer Look 12.3 Average Returns: The First Lesson Calculating Average Returns Average Returns: The Historical Record Risk Premiums The First Lesson 12.4 The Variability of Returns: The Second Lesson Frequency Distributions and Variability The Historical Variance and Standard Deviation The Historical Record Normal Distribution Value at Risk The Second Lesson 2008: The Bear Growled and Investors Howled Using Capital Market History 12.5 More on Average Returns Arithmetic versus Geometric Averages Calculating Geometric Average Returns Arithmetic Average Return or Geometric Average Return? 12.6 Capital Market Efficiency Price Behaviour in an Efficient Market The Efficient Markets Hypothesis Market Efficiency—Forms and Evidence Summary and Conclusions Key Terms Chapter Review Problems and Self-Test Answers to Self-Test Problems Concept Review and Critical Thinking Questions Questions and Problems Mini Case Chapter 13: Return, Risk, and the Security Market Line Chapter 13 Introduction 13.1 Expected Returns and Variances Expected Return Calculating the Variance 13.2 Portfolios Portfolio Weights Portfolio Expected Returns Portfolio Variance Portfolio Standard Deviation and Diversification The Efficient Set Correlations in the Financial Crisis of 2007–2009 13.3 Announcements, Surprises, and Expected Returns Expected and Unexpected Returns Announcements and News 13.4 Risk: Systematic and Unsystematic Systematic and Unsystematic Risk Systematic and Unsystematic Components of Return 13.5 Diversification and Portfolio Risk The Effect of Diversification: Another Lesson from Market History The Principle of Diversification Diversification and Unsystematic Risk Diversification and Systematic Risk Risk and the Sensible Investor 13.6 Systematic Risk and Beta The Systematic Risk Principle Measuring Systematic Risk Portfolio Betas 13.7 The Security Market Line Beta and the Risk Premium Calculating Beta The Security Market Line 13.8 Arbitrage Pricing Theory And Empirical Models Summary and Conclusions Key Terms Chapter Review Problems and Self-Test Answers to Self-Test Problems Concepts Review and Critical Thinking Questions Questions and Problems Internet Application Questions Appendix 13A Derivation of the Capital Asset Pricing Model Appendix Question and Problem Chapter 14: Cost of Capital Chapter 14 Introduction 14.1 The Cost of Capital: Some Preliminaries Required Return versus Cost of Capital Financial Policy and Cost of Capital 14.2 The Cost of Equity The Dividend Growth Model Approach The SML Approach The Cost of Equity in Rate Hearings 14.3 The Costs of Debt and Preferred Stock The Cost of Debt The Cost of Preferred Stock 14.4 The Weighted Average Cost of Capital The Capital Structure Weights Taxes and the Weighted Average Cost of Capital Solving the Warehouse Problem and Similar Capital Budgeting Problems Performance Evaluation: Another Use of the WACC 14.5 Divisional and Project Costs of Capital The SML and the WACC Divisional Cost of Capital The Pure Play Approach The Subjective Approach 14.6 Company Valuation With the WACC 14.7 Flotation Costs and the Weighted Average Cost of Capital The Basic Approach Flotation Costs and NPV Internal Equity and Flotation Costs 14.8 Calculating WACC for Loblaw Estimating Financing Proportions Market Value Weights for Loblaw Cost of Debt Cost of Preferred Shares Cost of Common Stock CAPM Dividend Valuation Model Growth Rate Loblaw’s WACC Summary and Conclusions Key Terms Chapter Review Problems and Self-Test Answers to Self-Test Problems Concepts Review and Critical Thinking Questions Questions and Problems Mini Case Internet Application Questions Appendix 14A Adjusted Present Value All-Equity Value Additional Effects of Debt Flotation Costs Tax Subsidy Non-Market Rate Financing APV and Beta No Taxes Corporate Taxes The Project Is Not Scale Enhancing Comparison of WACC and APV Appendix Questions and Problems Appendix 14B Economic Value Added and the Measurement of Financial Performance Calculating Economic Value Added Some Caveats on EVA Appendix Questions and Problems Chapter 15: Raising Capital Chapter 15 Introduction 15.1 The Financing Life Cycle of a Firm: Early-Stage Financing and Venture Capital Venture Capital Some Venture Capital Realities Choosing a Venture Capitalist Conclusion 15.2 The Public Issue 15.3 The Basic Procedure for a New Issue Securities Registration Exempt Securities and Crowdfunding Alternative Issue Methods 15.4 The Cash Offer Types of Underwriting Bought Deal Dutch Auction Underwriting The Selling Period The Overallotment Option Lockup Agreements The Quiet Periods The Investment Dealers 15.5 IPOs and Underpricing IPO Underpricing: The 1999–2000 Experience Evidence on Underpricing Why Does Underpricing Exist? 15.6 New Equity Sales and the Value of the Firm 15.7 The Cost of Issuing Securities IPOs in Practice: The Case of Seven Generations Energy 15.8 Rights The Mechanics of a Rights Offering Number of Rights Needed to Purchase a Share The Value of a Right Theoretical Value of a Right Ex Rights Value of Rights after Ex-Rights Date The Underwriting Arrangements Effects on Shareholders Cost of Rights Offerings 15.9 Dilution Dilution of Proportionate Ownership Dilution of Value: Book versus Market Values 15.10 Issuing Long-Term Debt Summary and Conclusions Key Terms Chapter Review Problems and Self-Test Answers to Self-Test Problems Concepts Review and Critical Thinking Questions Questions and Problems Mini Case Internet Application Questions Chapter 16: Financial Leverage and Capital Structure Policy Chapter 16 Introduction 16.1 The Capital Structure Question Firm Value and Stock Value: An Example Capital Structure and the Cost of Capital 16.2 The Effect of Financial Leverage The Basics of Financial Leverage Corporate Borrowing and Homemade Leverage 16.3 Capital Structure and the Cost of Equity Capital M&M Proposition I: The Pie Model The Cost of Equity and Financial Leverage: M&M Proposition II Business and Financial Risk 16.4 M&M Propositions I and II with Corporate Taxes The Interest Tax Shield Taxes and M&M Proposition I Taxes, the WACC, and Proposition II 16.5 Bankruptcy Costs Direct Bankruptcy Costs Indirect Bankruptcy Costs Agency Costs of Equity 16.6 Optimal Capital Structure The Static Theory of Capital Structure Optimal Capital Structure and the Cost of Capital Optimal Capital Structure: A Recap Capital Structure: Some Managerial Recommendations 16.7 The Pie Again The Extended Pie Model Marketed Claims versus Non-Marketed Claims 16.8 The Pecking-Order Theory Internal Financing and the Pecking Order Implications of the Pecking Order 16.9 Observed Capital Structures 16.10 Long-Term Financing Under Financial Distress and Bankruptcy Liquidation and Reorganization Agreements to Avoid Bankruptcy Summary and Conclusions Key Terms Chapter Review Problems and Self-Test Answers to Self-Test Problems Concepts Review and Critical Thinking Questions Questions and Problems Mini Case Internet Application Questions Appendix 16A Capital Structure and Personal Taxes Value of the Firm with Personal and Corporate Taxes Appendix Questions and Problems Appendix 16B Derivation of Proposition II (Equation 16.4) Chapter 17: Dividends and Dividend Policy Chapter 17 Dividends and Dividend Policy 17.1 Cash Dividends and Dividend Payment Cash Dividends Standard Method of Cash Dividend Payment Dividend Payment: A Chronology More on the Ex-Dividend Date 17.2 Does Dividend Policy Matter? An Illustration of the Irrelevance of Dividend Policy 17.3 Real-World Factors Favouring a Low Payout Taxes Some Evidence on Dividends and Taxes in Canada Flotation Costs Dividend Restrictions 17.4 Real-World Factors Favouring a High Payout Desire for Current Income Uncertainty Resolution Tax and Legal Benefits from High Dividends Conclusion 17.5 A Resolution of Real-World Factors? Information Content of Dividends Dividend Signalling in Practice The Clientele Effect 17.6 Establishing a Dividend Policy Residual Dividend Approach Dividend Stability A Compromise Dividend Policy Some Survey Evidence on Dividends 17.7 Stock Repurchase: An Alternative to Cash Dividends Cash Dividends versus Repurchase Real-World Considerations in a Repurchase Share Repurchase and EPS 17.8 Stock Dividends and Stock Splits Some Details on Stock Splits and Stock Dividends Value of Stock Splits and Stock Dividends Reverse Splits Summary and Conclusions Key Terms Chapter Review Problems and Self-Test Answers to Self-Test Problems Concepts Review and Critical Thinking Questions Questions and Problems Mini Case Internet Application Questions Chapter 18: Short-Term Finance and Planning Chapter 18 Introduction 18.1 Tracing Cash and Net Working Capital Activities that Increase Cash Activities that Decrease Cash 18.2 The Operating Cycle and the Cash Cycle Defining the Operating and Cash Cycles Calculating the Operating and Cash Cycles Interpreting the Cash Cycle 18.3 Some Aspects of Short-Term Financial Policy The Size of the Firm’s Investment in Current Assets Alternative Financing Policies for Current Assets Which Financing Policy Is Best? Current Assets and Liabilities in Practice 18.4 The Cash Budget Sales and Cash Collections Cash Outflows The Cash Balance 18.5 A Short-Term Financial Plan Short-Term Planning and Risk 18.6 Short-Term Borrowing Operating Loans Letters of Credit Secured Loans Factoring Securitized Receivables—A Financial Innovation Inventory Loans Trade Credit Money Market Financing Summary and Conclusions Key Terms Chapter Review Problems and Self-Test Answers to Self-Test Problems Concepts Review and Critical Thinking Questions Questions and Problems Internet Application Questions Chapter 19: Cash and Liquidity Management Chapter 19 Introduction 19.1 Reasons for Holding Cash Speculative and Precautionary Motives The Transaction Motive Costs of Holding Cash Cash Management versus Liquidity Management 19.2 Determining the Target Cash Balance The Basic Idea Other Factors Influencing the Target Cash Balance 19.3 Understanding Float Disbursement Float Collection Float and Net Float Float Management Accelerating Collections Over-the-Counter Collections Controlling Disbursements 19.4 Investing Idle Cash Temporary Cash Surpluses Characteristics of Short-Term Securities Some Different Types of Money Market Securities Summary and Conclusions Key Terms Chapter Review Problems and Self-Test Answers to Self-Test Problems Concepts Review and Critical Thinking Questions Questions and Problems Mini Case Internet Application Questions Appendix 19A Cash Management Models The BAT Model The Miller–Orr Model: A More General Approach Appendix Review Problem and Self-Test Answers to Appendix Self-Test Problem Appendix Questions and Problems Chapter 20: Credit and Inventory Management Chapter 20 Introduction 20.1 Credit and Receivables Components of Credit Policy The Cash Flows from Granting Credit The Investment in Receivables 20.2 Terms of the Sale Why Trade Credit Exists The Basic Form The Credit Period Cash Discounts Credit Instruments 20.3 Analyzing Credit Policy Credit Policy Effects Evaluating a Proposed Credit Policy 20.4 Optimal Credit Policy The Total Credit Cost Curve Organizing the Credit Function 20.5 Credit Analysis When Should Credit Be Granted? Credit Information Credit Evaluation and Scoring 20.6 Collection Policy Monitoring Receivables Collection Effort Credit Management in Practice 20.7 Inventory Management The Financial Manager and Inventory Policy Inventory Types Inventory Costs 20.8 Inventory Management Techniques The ABC Approach The Economic Order Quantity (EOQ) Model Extensions to the EOQ Model Managing Derived-Demand Inventories Materials Requirements Planning (MRP) Just-In-Time Inventory Summary and Conclusions Key Terms Chapter Review Problems and Self-Test Answers to Self-Test Problems Concepts Review and Critical Thinking Questions Questions and Problems Mini Case Internet Application Questions Appendix 20A More on Credit Policy Analysis Two Alternative Approaches Discounts and Default Risk Appendix Review Problems and Self-Test Answers to Appendix Self-Test Problems Appendix Questions and Problems Chapter 21: International Corporate Finance Chapter 21 Introduction 21.1 Terminology 21.2 Foreign Exchange Markets and Exchange Rates Exchange Rates Types of Transactions 21.3 Purchasing Power Parity Absolute Purchasing Power Parity Relative Purchasing Power Parity Currency Appreciation and Depreciation 21.4 Interest Rate Parity, Unbiased Forward Rates, and the Generalized Fisher Effect Covered Interest Arbitrage Interest Rate Parity (IRP) Forward Rates and Future Spot Rates Putting It All Together 21.5 International Capital Budgeting Method 1: The Home Currency Approach Method 2: The Foreign Currency Approach Unremitted Cash Flows 21.6 Financing International Projects The Cost of Capital for International Firms International Diversification and Investors Sources of Short- and Intermediate-Term Financing 21.7 Exchange Rate Risk Transaction Exposure Economic Exposure Translation Exposure Managing Exchange Rate Risk 21.8 Political and Governance Risks Corporate Governance Risk Summary and Conclusions Key Terms Chapter Review Problems and Self-Test Answers to Self-Test Problems Concepts Review and Critical Thinking Questions Questions and Problems Mini Case Internet Application Questions Chapter 22: Leasing Chapter 22 Introduction 22.1 Leases and Lease Types Leasing versus Buying Operating Leases Financial Leases 22.2 Accounting and Leasing 22.3 Taxes, Canada Revenue Agency (CRA), and Leases 22.4 The Cash Flows from Leasing The Incremental Cash Flows 22.5 Lease or Buy? A Preliminary Analysis NPV Analysis A Misconception Asset Pool and Salvage Value 22.6 A Leasing Paradox Resolving the Paradox Leasing and Capital Budgeting 22.7 Reasons for Leasing Good Reasons for Leasing Bad Reasons for Leasing Other Reasons for Leasing Leasing Decisions in Practice Summary and Conclusions Key Terms Chapter Review Problems and Self-Test Answers to Self-Test Problems Concepts Review and Critical Thinking Questions Questions and Problems Mini Case Internet Application Questions Chapter 23: Mergers and Acquisitions Chapter 23 Introduction 23.1 The Legal Forms of Acquisitions Merger or Consolidation Acquisition of Stock Acquisition of Assets Acquisition Classifications A Note on Takeovers Alternatives to Merger 23.2 Taxes and Acquisitions Determinants of Tax Status Taxable versus Tax-Free Acquisitions 23.3 Accounting for Acquisitions 23.4 Gains from Acquisition Synergy Revenue Enhancement Cost Reductions Tax Gains Changing Capital Requirements Avoiding Mistakes A Note on Inefficient Management and Opportunistic Takeover Offers The Negative Side of Takeovers 23.5 Some Financial Side Effects of Acquisitions Earnings Per Share (EPS) Growth Diversification 23.6 The Cost of an Acquisition Case I: Cash Acquisition Case II: Stock Acquisition Cash versus Common Stock 23.7 Defensive Tactics The Control Block and the Corporate Charter Repurchase/Standstill Agreements Exclusionary Offers and Dual-Class Stock Share Rights Plans Going Private and Leveraged Buyouts LBOs to Date: The Record Other Defensive Devices and Jargon of Corporate Takeovers 23.8 Some Evidence on Acquisitions 23.9 Divestitures and Restructurings Summary and Conclusions Key Terms Chapter Review Problems and Self-Test Answers to Self-Test Problems Concepts Review and Critical Thinking Questions Questions and Problems Mini Case Internet Application Questions Chapter 24: Enterprise Risk Management Chapter 24 Introduction 24.1 Insurance 24.2 Managing Financial Risk The Impact of Financial Risk: The Credit Crisis of 2007–09 The Risk Profile Reducing Risk Exposure Hedging Short-Term Exposure Cash Flow Hedging: A Cautionary Note Hedging Long-Term Exposure Conclusion 24.3 Hedging with Forward Contracts Forward Contracts: The Basics The Payoff Profile Hedging with Forwards 24.4 Hedging with Futures Contracts Trading in Futures Futures Exchanges Hedging with Futures 24.5 Hedging with Swap Contracts Currency Swaps Interest Rate Swaps Commodity Swaps The Swap Dealer Interest Rate Swaps: An Example Credit Default Swaps (CDS) 24.6 Hedging with Option Contracts Option Terminology Options versus Forwards Option Payoff Profiles Option Hedging Hedging Commodity Price Risk with Options Hedging Exchange Rate Risk with Options Hedging Interest Rate Risk with Options Actual Use of Derivatives Summary and Conclusions Key Terms Chapter Review Problems and Self-Test Answers to Self-Test Problems Concepts Review and Critical Thinking Questions Questions and Problems Mini Case Internet Application Questions Chapter 25: Options and Corporate Securities Chapter 25 Introduction 25.1 Options: The Basics Puts and Calls Stock Option Quotations Option Payoffs Put Payoffs Long-Term Options 25.2 Fundamentals of Option Valuation Value of a Call Option at Expiration The Upper and Lower Bounds on a Call Option’s Value A Simple Model: Part I Four Factors Determining Option Values 25.3 Valuing a Call Option A Simple Model: Part II The Fifth Factor A Closer Look 25.4 Employee Stock Options ESO Features ESO Repricing 25.5 Equity as a Call Option on the Firm’s Assets Case I: The Debt Is Risk-Free Case II: The Debt Is Risky 25.6 Warrants The Difference between Warrants and Call Options Warrants and the Value of the Firm 25.7 Convertible Bonds Features of a Convertible Bond Value of a Convertible Bond 25.8 Reasons for Issuing Warrants and Convertibles The Free Lunch Story The Expensive Lunch Story A Reconciliation 25.9 Other Options The Call Provision on a Bond Put Bonds The Overallotment Option Insurance and Loan Guarantees Managerial Options Summary and Conclusions Key Terms Chapter Review Problems and Self-Test Answers to Self-Test Problems Concepts Review and Critical Thinking Questions Questions and Problems Mini Case Internet Application Questions Appendix 25A The