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Principles ofManagerial FinanceA01 ZUTT6315 15 SE FM.indd 127/11/17 8:03 PM
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FIFTEENTH EDITIONPrinciples ofManagerial FinanceChad J. ZutterUniversity of PittsburghScott B. SmartIndiana UniversityNew York, NYA01 ZUTT6315 15 SE FM.indd 327/11/17 8:03 PM
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Dedicated to our good friend and mentor,Dr. Lawrence J. Gitman,who trusted us as coauthors and successorsof Principles of Managerial Finance.CJZSBSA01 ZUTT6315 15 SE FM.indd 527/11/17 8:03 PM
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Brief ContentsContents ixAbout the Authors xxixPreface xxxiAcknowledgments xlivPART 1 Introduction to ManagerialFinance 112753 Financial Statements and Ratio Analysis4 Long- and Short-Term FinancialPlanning 142Time Value of Money 189PART 3 Valuation of Securities6776255Interest Rates and Bond Valuation 256Stock Valuation 305Leverage and Capital Structure 552Payout Policy 606PART 7 Short-Term FinancialDecisions 64515 Working Capital and Current Assets16PART 4 Risk and the Required Rate ofReturn 345891314The Role of Managerial Finance 2The Financial Market Environment 41PART 2 Financial Tools5PART 6 Long-Term FinancialDecisions 551Management 646Current Liabilities Management 689PART 8 Special Topics in ManagerialFinance 72517 Hybrid and Derivative Securities 72618 Mergers, LBOs, Divestitures, and Business19Failure 765International Managerial Finance 809Risk and Return 346The Cost of Capital 396PART 5 Long-Term InvestmentDecisions 42910 Capital Budgeting Techniques 43011 Capital Budgeting Cash Flows 47112 Risk and Refinements in CapitalAppendix A-1Glossary G-1Index I-1Budgeting 509viiA01 ZUTT6315 15 SE FM.indd 727/11/17 8:03 PM
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ContentsAbout the Authors xxixPreface xxxiAcknowledgments xlivPART 1 Introduction to Managerial Finance1The Role ofManagerialFinance 21.11Finance and the Firm 4What Is Finance? 4What Is a Firm? 5What Is the Goal of the Firm? 5in practiceFOCUS ON ETHICS:Do Corporate Executives Have a SocialResponsibility? 6The Role of Business Ethics 10 REVIEW QUESTIONS 11 Brookdale SeniorLiving––Is Brookdale’sManagement About to BeRetired? 3in practiceFOCUS ON PRACTICE:Must Search Engines Screen Out FakeNews? 121.21.4 Developing Skills for YourCareer 32Critical Thinking 32Communication and Collaboration 33Financial Computing Skills 33Summary 33Opener-In-Review 35Self-Test Problem 35Warm-Up Exercises 36Problems 37Spreadsheet Exercise 40Managing The Firm 12The Managerial Finance Function 13 REVIEW QUESTIONS 211.3 Organization Forms, Taxation,and the Principal-Agent Relationship 21Legal Forms of Business Organization 21Agency Problems and Agency Costs 28Corporate Governance 28 REVIEW QUESTIONS 32ixA01 ZUTT6315 15 SE FM.indd 927/11/17 8:03 PM
xContents2The FinancialMarketEnvironment2.1412.4The Securities IssuingProcess 57Commercial Banks, Investment Banks,and the Shadow Banking System 43Issuing Common Stock 57 REVIEW QUESTIONS 45 REVIEW QUESTIONS 652.2 Airbnb––Billions of VCFunding Gives AirbnbPlenty of Room 42Financial Institutions 43Financial Markets 45The Relationship Between Institutionsand Markets 45The Money Market 46The Capital Market 47in practiceFOCUS ON PRACTICE:Berkshire Hathaway: Can Buffett BeReplaced? 48The Role of Capital Markets 52in practiceFOCUS ON ETHICS:Should Insider Trading Be Legal? 54 REVIEW QUESTIONS 552.3 Regulation of Financial Marketsand Institutions 552.5Financial Markets in Crisis 65Financial Institutions and Real EstateFinance 65Spillover Effects and Recovery from theGreat Recession 68 REVIEW QUESTIONS 68Summary 69Opener-In-Review 70Self-Test Problem 71Warm-Up Exercises 71Problems 72Spreadsheet Exercise 73INTEGRATIVE CASE 1 Merit EnterpriseCorp. 74Regulations Governing FinancialInstitutions 55Regulations Governing FinancialMarkets 56 REVIEW QUESTIONS 56A01 ZUTT6315 15 SE FM.indd 1027/11/17 8:03 PM
Contents xiPART 2 Financial Tools3FinancialStatements andRatio Analysis 763.175The Stockholders’ Report 78The Letter to Stockholders 78in practiceMore Countries Adopt InternationalFinancial Reporting Standards 78The Four Key Financial Statements 79in practice Kroger––Ratios Point toTrouble at Kroger 77GLOBAL FOCUS:FOCUS ON ETHICS:Earnings Shenanigans 79Notes to the Financial Statements 85Consolidating International FinancialStatements 85 REVIEW QUESTIONS 863.2Using Financial Ratios 87Interested Parties 87Types of Ratio Comparisons 87Cautions About Using Ratio Analysis 90 REVIEW QUESTIONS 913.3Liquidity Ratios 92Current Ratio 92Quick (Acid-Test) Ratio 94 REVIEW QUESTIONS 953.4Activity Ratios 95Inventory Turnover 95Average Collection Period 96Average Payment Period 98Total Asset Turnover 98 REVIEW QUESTION 993.5Times Interest Earned Ratio 102Fixed-Payment Coverage Ratio 103 REVIEW QUESTIONS 1033.6Profitability Ratios 103Common-Size Income Statements 103Gross Profit Margin 104Operating Profit Margin 106Net Profit Margin 106Earnings Per Share (EPS) 107Return on Total Assets (ROA) 108Return on Equity (ROE) 108 REVIEW QUESTIONS 1103.7Market Ratios 110Price/Earnings (P/E) Ratio 111Market/Book (M/B) Ratio 113 REVIEW QUESTION 1143.8A Complete Ratio Analysis 114Summarizing of Whole Foods’ FinancialCondition 114DuPont System of Analysis 118 REVIEW QUESTIONS 121Summary 121Opener-In-Review 123Self-Test Problems 123Warm-Up Exercises 124Problems 125Spreadsheet Exercise 140Debt Ratios 99Debt Ratio 101Debt-to-Equity Ratio 101A01 ZUTT6315 15 SE FM.indd 1127/11/17 8:04 PM
xiiContents4Long- and ShortTerm FinancialPlanning 1424.14.4The Financial PlanningProcess 144Profit Planning: Pro FormaStatements 165Long-Term Strategic Financial Plans 144Short-Term (Operating) FinancialPlans 145Preceding Year’s Financial Statements 166Sales Forecast 166 REVIEW QUESTION 167 REVIEW QUESTIONS 1464.24.5Measuring the Firm’s CashFlow 146 Netflix Inc.––NotStreaming at Netflix—Cash Flow 143Depreciation 146Depreciation Methods 147Developing the Statement of CashFlows 149Free Cash Flow 154in practiceFOCUS ON ETHICS:Is Excess Cash Always a GoodThing? 155in practiceFOCUS ON PRACTICE:Free Cash Flow at LinkedIn 156 REVIEW QUESTIONS 1574.3Cash Planning: CashBudgets 157The Sales Forecast 157Preparing the Cash Budget 158Evaluating the Cash Budget 163Coping with Uncertainty in the CashBudget 164Cash Flow within the Month 165Preparing the Pro FormaIncome Statement 167Considering Types of Costs andExpenses 168 REVIEW QUESTIONS 1694.6 Preparing the Pro FormaBalance Sheet 169 REVIEW QUESTIONS 1714.7Evaluation of Pro FormaStatements 171 REVIEW QUESTIONS 172Summary 172Opener-In-Review 174Self-Test Problems 174Warm-Up Exercises 176Problems 176Spreadsheet Exercise 187 REVIEW QUESTIONS 165A01 ZUTT6315 15 SE FM.indd 1227/11/17 8:04 PM
Contents xiii5Time Value ofMoney 1895.1The Role of Time Value inFinance 191Future Value Versus Present Value 191Computational Tools 192Basic Patterns of Cash Flow 194 REVIEW QUESTIONS 1945.2 Mega Millions Jackpot––Pay Me Now or Pay MeLater 190Single Amounts 195Future Value of a Single Amount 195Present Value of a Single Amount 199 REVIEW QUESTIONS 202 EXCEL REVIEW QUESTIONS 2025.3Annuities 203Types of Annuities 203Finding the Future Value of an OrdinaryAnnuity 204Finding the Present Value of an OrdinaryAnnuity 205Finding the Future Value of an AnnuityDue 207Finding the Present Value of an AnnuityDue 208Finding the Present Value of aPerpetuity 210 REVIEW QUESTIONS 211 EXCEL REVIEW QUESTIONS 2115.4Mixed Streams 212Future Value of a Mixed Stream 212Present Value of a Mixed Stream 214 REVIEW QUESTION 215 EXCEL REVIEW QUESTION 215A General Equation forCompounding 217Using Compu
Chad J. Zutter University of Pittsburgh Scott B. Smart Indiana University Principles of Managerial Finance FIFTEENTH EDITION New York, NY A01_ZUTT6315_15_SE_FM.indd 3 27/11/17 8:03 PM