European Edition

Peter Moles,Robert Parrino and

David Kidwell

©WILEYA John Wiley and Sons, Ltd, Publication

Preface xxvii

Organisation and coverage xxix

Proven pedagogical framework xxxii

Instructor and student resources xxxvi

Acknowledgements xxxviii

PART 1 iNTit@B>U€TI@[N] H

CHAPTER 1 The Financial Manager and the Firm 2

The Role of the Financial Manager, 4Stakeholders, 4It's All About Cash Flows, 5

Building Intuition: Cash Flows Matter Most to Investors, 7Three Fundamental Decisions in Financial Management, 7

Building Intuition: Sound Investments are Those Where the Valueof the Benefits Exceeds Their Costs, 8Building Intuition: Financing Decisions Affect theValue of the Firm, 9

Forms of Business Organisation, 10Sole Proprietorships, 10Partnerships, 11Companies, 11 .'Hybrid Forms of Business Organisation, 13

Managing the Financial Function, 14Organisational Structure, 14Positions Reporting to the CFO, 14External Auditors, 15The Audit Committee, 16

The Goal of the Firm, 16What Should Management Maximise?, 16Why Not Maximise Profits?, 16

Building Intuition: The Timing of Cash Flows Affects Their Value, 17Building Intuition: The Riskiness of Cash FlowsAffects Their Value, 17

Maximise the Value of the Firm's Shares, 18Building Intuition: The Financial Manager's Goal is to Maximisethe Value of the Firm's Shares, 18

Can Management Decisions Affect Share Prices?, 18Agency Conflicts: Separation of Ownership and Control, 20

Ownership and Control, 20

S FULL CONTENTS

Agency Relationships, 20Do Managers Really Want to Maximise the Share Price?, 20Aligning the Interests of Management and Shareholders, 21Corporate Governance Frameworks, 23OECD Principles of Corporate Governance, 24Sarbanes-Oxley and Other Regulatory Reforms inthe United States, 24

The Importance of Ethics in Business, 26Business Ethics, 26Are Business Ethics Different from Everyday Ethics?, 27Types of Ethical Conflicts in Business, 28The Importance of an Ethical Business Culture, 29Serious Consequences, 29

Summary of Learning Objectives, 31Self-Study Problems, 32Solutions to Self-Study Problems, 32Critical Thinking Questions, 32Questions and Problems, 33Sample Test Problems, 34

2 The Financial Environment and the Level of Interest Rates 38

The Financial System, 41The Financial System at Work, 41How Funds Flow Through the Financial System, 42

Direct Financing, 43A Direct Market Transaction, 43Investment Banks and Direct Financing, 44

Types of Financial Markets, 45Primary and Secondary Markets, 46Exchanges and Over-the-Counter Markets, 47Money and Capital Markets, 47Public and Private Markets, 48Futures and Options Markets, 49

The Stock Market, 49Second Markets and Multilateral TradingFacilities, 50Stock Market Indices, 50

Financial Institutions and Indirect Financing, 52Indirect Market Transactions, 52Financial Institutions and their Services, 53Companies and the Financial System, 54

FULL CONTENTS

The Determinants of Interest Rate Levels, 55The Real Rate of Interest, 56Loan Contracts and Inflation, 58The Fisher Equation and Inflation, 58Cyclical and Long-Term Trends in Interest Rates, 60Planning Ahead by Financial Managers, 62

Summary of Learning Objectives, 62Summary of Key Equations, 64Self-Study Problems, 64Solutions to Self-Study Problems, 64Critical Thinking Questions, 65Questions and Problems, 65Sample Test Problems, 67

CHAPTER 3 Financial Statements, Cash Flows and Taxes 69

Financial Statements and Accounting Principles, 71Annual Reports, 71Generally Accepted Accounting Principles, 72Fundamental Accounting Principles, 73

The Balance Sheet, 75Current Assets and Liabilities, 75Non-Current Assets and Liabilities, 77Equity, 78

Market Value versus Book Value, 81A More Informative Balance Sheet, 81A Market-Value Balance Sheet, 83

The Income Statement and the, Statement ofRetained Earnings, 84

The Income Statement, 84The Statement of Retained Earnings, 88

Cash Flows, 88Net Income versus Cash Flows, 88The Statement of Cash Flows, 89Additional Cash Flow Calculations, 92

Tying the Financial Statements Together, 92International Accounting Issues, 95

Information, Timeliness and Language, 95Foreign Currency Issues, 95Differences in Presentation and AccountingStandards, 95Differences in the Business Environment, 96

Corporate Income Tax, 97Corporate Income Taxes, 98Average versus Marginal Tax Rates, 98Unequal Treatment of Dividends and Interest Payments, 100

FULL CONTENTS

Summary of Learning Objectives, 102Summary of Key Equations, 104Self-Study Problems, 104Solutions to Self-Study Problems, 105Critical Thinking Questions, 106Questions and Problems, 106Sample Test Problems, 110

Analysing Financial Statements 1 1 2

Background for Financial Statement Analysis, 114Perspectives on Financial StatementAnalysis, 114Guidelines for Financial Statement Analysis, 115

Common-Size Financial Statements, 116Common-Size Balance Sheets, 117Common-Size Income Statements, 119

Financial Statement Analysis, 121Why Ratios are Better Measures, 121Short-Term Liquidity Ratios, 122Efficiency Ratios, 125Leverage Ratios, 128Profitability Ratios, 132Market-Value Indicators, 134Concluding Comments on Ratios, 135

The DuPont System: A Diagnostic Tool, 136An Overview of the DuPont System, 136The ROA Equation, 136The ROE Equation, 138The DuPont System, 138Applying.the DuPont System, 139Is Maximising ROE an Appropriate Goal?, 140

Selecting a Benchmark, 141Trend Analysis, 141Industry Analysis, 141Peer Group Analysis, 142

Using Financial Ratios, 144Performance Analysis of Fabrique Aerospatiale, 144Limitations of Financial Statement Analysis, 147

Summary of Learning Objectives, 148Summary of Key Equations, 149Self-Study Problems, 151Solutions to Self-Study Problems, 152Critical Thinking Questions, 154Questions and Problems, 154Sample Test Problems, 160

FULL CONTENTS

FUTURE CASH AMD

CHAPTER 5 The Time Value of Money 162

The Time Value of Money, 164Consuming Today or Tomorrow, 164

Building Intuition: The Value of Money Changes with Time, 165Time Lines as Aids to Problem Solving, 165Future Value versus Present Value, 166

Future Value and Compounding, 167Single-Period Investment, 167Two-Period Investment, 168The Future Value Equation, 170The Future Value Factor, 172Applying the Future Value Formula, 173

Building Intuition: Compounding Drives Much of theEarnings on Long-Term Investments, 175

Present Value and Discounting, 179Single-Period Investment, 179Multiple-Period Investment, 180The Present Value Equation, 181Future and Present Value Equations are the Same, 181Applying the Present Value Formula, 181The Relations among Time, the Discount Rate and Present Value, 183

Additional Concepts and Applications, 185Finding the Interest Rate, 186The Rule of 72, 1 8 7 . 'Compound Growth Rates, 187Concluding Comments, 189

Summary of Learning Objectives, 190Summary of Key Equations, 191Self-Study Problems, 191Solutions to Self-Study Problems, 191Critical Thinking Questions, 193Questions and Problems, 193Sample Test Problems, 196

CHAPTER 6 Discounted Cash Flows and Valuation 198

Multiple Cash Flows, 200Future Value of Multiple Cash Flows, 200Present Value of Multiple Cash Flows, 203

Level Cash Flows: Annuities and Perpetuities, 206Present Value of an Annuity, 207Future Value of an Annuity, 218

FULL CONTENTS

Perpetuities, 219Annuities Due, 221

Cash Flows that Grow at a Constant Rate, 222Growing Annuity, 223Growing Perpetuity, 223

The Effective Annual Interest Rate, 224Why the Confusion?, 225Calculating the Effective Annual Interest Rate, 225Comparing Interest Rates, 226Consumer Protection and Interest Rate Disclosure, 227The Appropriate Interest Rate Factor, 228

Summary of Learning Objectives, 229Summary of Key Equations, 230Self-Study Problems, 231Solutions to Self-Study Problems, 231Critical Thinking Questions, 232Questions and Problems, 233Sample Test Problems, 238Appendix: Deriving the Formula for the Present"Value of an Ordinary Annuity, 238Problem, 239

7 Risk and Return 241

Risk and Return, 244Building Intuition: More Risk Means a Higher Expected Return, 244

Quantitative Measures of Return, 244Holding Period Returns, 244Expected Returns, 246

The Variance and Standard Deviation as Measures of Risk, 250Calculating the Variance and Standard Deviation, 250Interpreting the Variance and Standard Deviation, 251Other Measures of Risk, 255

, Historical Market Performance, 255Risk and Diversification, 259

Single-Asset Portfolios, 260

FULL CONTENTS

Summary of Learning Objectives, 279Summary of Key Equations, 280Self-Study Problems, 281Solutions to Self-Study Problems, 281Critical Thinking Questions, 282Questions and Problems, 283Sample Test Problems, 286

CHAPTER 8 Bond Valuation and the Structure of Interest Rates 288

Capital Market Efficiency, 290Efficient Market Hypotheses, 291

Corporate Bonds, 293Market for Corporate Bonds, 293Bond Price Information, 294Types of Corporate Bonds, 294

Bond Valuation, 296The Bond Valuation Formula, 297Par, Premium and Discount Bonds, 298Semi-annual Compounding, 301Zero-Coupon Bonds, 303

Bond Yields, 305Yield to Maturity, 305Effective Annual Yield, 306Realised Yield, 308

Interest Rate Risk, 309Bond Theorems, 309 .Bond Theorem Applications, 311

The Structure of Interest Rates, 312Marketability, 313Call Provision, 313Default Risk, 313The Term Structure of Interest Rates, 315

Summary of Learning Objectives, 318Summary of Key Equations, 319Self-Study Problems, 320Solutions to Self-Study Problems, 320Critical Thinking Questions, 322Questions and Problems, 322Sample Test Problems, 325

CHAPTER 9 Share Valuation 327

The Market for Shares, 329Secondary Markets, 329Secondary Markets and their Efficiency, 330Reading the Stock Market Listings, 332

FULL CONTENTS

Ordinary and Preference Shares, 334Preference Shares: Debt or Equity?, 335

Valuing Ordinary Shares, 335A One-Period Model, 335A Perpetuity Model, 336The General Dividend Valuation Model, 337The Growth Share Pricing Paradox, 338

Share Valuation: Some Simplifying Assumptions, 339Zero-Growth Dividend Model, 339Constant-Growth Dividend Model, 340Computing Future Share Prices, 343The Relationship between R and g, 344Mixed (Supernormal) Growth Dividend Model, 345

Valuing Preference Shares, 348Preference Shares with a Fixed Maturity, 349Perpetual Preference Shares, 350

Summary of Learning Objectives, 351Summary of Key Equations, 352Self-Study Problems, 352

"Solutions to Self-Study Problems, 353Critical Thinking Questions, 354Questions and Problems, 355Sample Test Problems, 358

The Fundamentals of Capital Budgeting 362

An Introduction to Capital Budgeting, 364The Importance of Capital Budgeting, 364The Capital Budgeting Process, 365Sources of Information, 365Classification of Investment Projects, 366Basic Capital Budgeting Terms, 367

Building Intuition: Investment Decisions have Opportunity Costs, 368Net Present Value, 368

Valuation of Real Assets, 369NPV - The Basic Concept, 369NPV and Value Creation, 370Framework for Calculating NPV, 371Net Present Value Techniques, 372Concluding Comments on NPV, 376

The Payback Period, 377Computing the Payback Period, 377

FULL CONTENTS

How the Payback Period Performs, 378Discounted Payback Period, 380Evaluating the Payback Rule, 381

The Accounting Rate of Return, 382Internal Rate of Return, 382

Calculating the IRR, 383When the IRR and NPV Methods Agree, 385When the NPV and IRR Methods Disagree, 387Modified Internal Rate of Return (MIRR), 391IRR versus NPV: A Final Comment, 392

Capital Budgeting in Practice, 393Practitioners' Methods of Choice, 394Ongoing and Post-Audit Reviews, 394

Summary of Learning Objectives, 395Summary of Key Equations, 396Self-Study Problems, 397Solutions to Self-Study Problems, 398Critical Thinking Questions, 400Questions and Problems, 401

' Sample Test Problems, 407

CHAPTER 11 Cash Flows and Capital Budgeting 408

Calculating Project Cash Flows, 410Building Intuition: Capital Budgeting is ForwardLooking, 410

Incremental After-Tax Free Cash Flows, 411The FCF Calculation, 411

Building Intuition: Incremental After-Tax Free Cash Flowsare what Shareholders Care About, 413

Cash Flows from Operations, 414Cash Flows Associated with Investments, 415The FCF Calculation: An Example, 415FCF versus Accounting Earnings, 419

Estimating Cash Flows in Practice, 420Five General Rules for Incremental After-TaxFree Cash Flow Calculations, 420Nominal versus Real Cash Flows, 424Tax Rates and Depreciation, 426Computing the Terminal-Year FCF, 431Expected Cash Flows, 435

Building Intuition: We Discount Expected Cash Flowsin an NPV Analysis, 436

Forecasting Free Cash Flows, 437Cash Flows from Operations, 437Investment Cash Flows, 438

FULL CONTENTS

Special Cases (Optional), 439Projects with Different Lives, 439When to Disinvest from an Asset, 442When to Replace an Existing Asset, 443The Cost of Using an Existing Asset, 444

Summary of Learning Objectives, 445Summary of Key Equations, 446Self-Study Problems, 446Solutions to Self-Study Problems, 447Critical Thinking Questions, 448Questions and Problems, 449Sample Test Problems, 453

H2 Evaluating Project Economics and Capital Rationing 456

Variable Costs, Fixed Costs and Project Risk, 458Cost Structure and Sensitivity of EBITDA to Revenue Changes, 459Cost Structure and Sensitivity of EBIT to Revenue Changes, 462

Building Intuition: High Fixed Costs Mean Larger Fluctuationsin Cash Flows and Profits, 463

Calculating Operating Leverage, 466Degree of Pre-tax Cash Flow Operating Leverage, 467Degree of Accounting Operating Leverage, 467

Building Intuition: Revenue Changes Drive Profit Volatilitythrough Operating Leverage, 469

Break-Even Analysis, 469Pre-Tax Operating Cash Flow Break-Even, 470Accounting Break-Even, 472

Risk Analysis, 474Sensitivity Analysis, 475Scenario Analysis, 476Simulation Analysis, 477

Investment Decisions with Capital Rationing, 478Capital Rationing in a Single Period, 478Capital Rationing Across Multiple Periods, 481

Summary of Learning Objectives, 483Summary of Key Equations, 484Self-Study Problems, 485Solutions to Self-Study Problems, 485Critical Thinking Questions, 486Questions and Problems, 487Sample Test Problems, 490

13> The Cost of Capital 492

The Firm's Overall Cost of Capital, 494The Market Value Balance Sheet, 495

FULL CONTENTS

Building Intuition: The Market Value of a Firm's AssetsEquals the Market Value of the Claims on Those Assets, 496

How Firms Estimate their Cost of Capital, 497Building Intuition: Firm's Cost of Capital is a Weighted Averageof All its Financing Costs, 499

The Cost of Debt, 499Key Concepts for Estimating the Cost of Debt, 500

Building Intuition: The Current Cost of Long-Term Debt isWhat Matters When Calculating WACC, 501

Estimating the Current Cost of a Bond or an Outstanding Loan, 501Taxes and the Cost of Debt, 502Estimating the Cost of Debt for a Firm, 503

The Cost of Equity, 505Ordinary Shares, 505Preference Shares, 512

Using the WACC in Practice, 514Calculating WACC: An Example, 515Limitations of WACC as a Discount Rate for Evaluating Projects, 517

Building Intuition: Why WACC Only Worksfor the Current Mix of Liabilities, 520

Alternatives to Using WACC for Evaluating Projects, 520Summary of Learning Objectives, 522Summary of Key Equations, 523Self-Study Problems, 524Solutions to Self-Study Problems, 524Critical Thinking Questions, 525Questions and Problems, 526Sample Test Problems, 529'

PART 5AND

CHAPTER 14 Working Capital Management 532

Working Capital Basics, 534Working Capital Terms and Concepts, 535Working Capital Accounts and Trade-Offs, 535

The Operating and Cash Conversion Cycles, 538Operating Cycle, 539Cash Conversion Cycle, 541

Working Capital Investment Strategies, 544Flexible Current Asset Investment Strategy, 544Restrictive Current Asset Investment Strategy, 544

Building Intuition: Consideration of the Working Capital Trade-offs, 545

FULL CONTENTS

The Working Capital Trade-Off, 545Accounts Receivable, 546

Terms of Sale, 546Aging Accounts Receivable, 548

/ Inventory Management, 549Economic Order Quantity, 549Just-in-Time Inventory Management, 551

Cash Management and Budgeting, 551Reasons for Holding Cash, 551Cash Collection, 552

Financing Working Capital, 554Strategies for Financing Working Capital, 554Financing Working Capital in Practice, 556Sources of Short-Term Financing, 557

Summary of Learning Objectives, 560Summary of Key Equations, 562Self-Study Problems, 562Solutions to Self-Study Problems, 563Critical Thinking Questions, 564

" "Questions and Problems, 564Sample Test Problems, 569

15 How Firms Raise Capital 571

Bootstrapping, 573How New Businesses Get Started, 574Initial Funding of the Firm, 574Business Incubators, 574

Venture Capital, 575The Venture Capital Industry, 575Why Venture Capital Funding is Different, 576The Venture Capital Funding Cycle, 577Venture Capitalists Provide More Than Financing, 581The Cost of Venture Capital Funding, 581

Initial Public Offering, 581Advantages and Disadvantages of Going Public, 582

Building Intuition: Investors View Seasoned Securitiesas Less Risky than Unseasoned Securities, 583

Investment Banking Services, 583Origination, 584Underwriting, 585Distribution, 587The Proceeds, 587

IPO Pricing and Cost, 589The Underpricing Debate, 589IPOs are Consistently Underpriced, 589

FULL CONTENTS 2S38

The Cost of an IPO, 593 _-Seasoned Offerings by a Public Company, 594

Raising Seasoned Equity, 594The Costs of a Seasoned Equity Issue, 599

y Issuing Bonds, -599Private Markets and Bank Loans, 601

Private versus Public Markets, 601Private Placements, 601Competitive or Negotiated Sale, 602Private Equity Firms, 603Commercial Bank Lending, 604Lease Finance, 606Concluding Comments on Funding the Firm, 609

Summary of Learning Objectives, 610Summary of Key Equations, 611Self-Study Problems, 611Solutions to Self-Study Problems, 612Critical Thinking Questions, 612Questions and Problems, 613

' Sample Test Problems, 616

CHAPTER 16 Capital Structure Policy 618

Capital Structure and Firm Value, 620The Optimal Capital Structure, 620

Building Intuition: The Optimal Capital Structure Minimisesthe Cost of Financing a Firm's Activities, 620

The Modigliani and Miller Propositions, 620Building Intuition: Capital Structure Does Not Affect Firm ValueIf It Does Not Affect Total Cash Flows to Security Holders, 622Building Intuition: The Cost of Equity Increases withFinancial Leverage, 625

The Benefits and Costs of Using Debt, 630The Benefits of Debt, 631The Costs of Debt, 637

Building Intuition: People Behave Differently towards a Firmin Financial Distress and this Increases Bankruptcy Costs, 640

Two Theories of Capital Structure, 644The Trade-Off Theory, 644The Pecking-Order Theory, 645The Empirical Evidence, 645

Practical Considerations in Choosing a Capital Structure, 647Summary of Learning Objectives, 649Summary of Key Equations, 650Self-Study Problems, 650Solutions to Self-Study Problems, 650

FULL CONTENTS

Critical Thinking Questions, 651.Questions and Problems, 652Sample Test Problems, 655

CHAPTER 17 Dividends and Dividend Policy 658

Dividends, 660Building Intuition: Dividends Reduce the Shareholders' Investmentin a Firm, 661

Types of Dividends, 661The Dividend Payment Process, 663

Building Intuition: Dividend Announcements Send Signalsto Investors, 664

Share Repurchases, 667How Share Buybacks Differ from Dividends, 667How Shares are Repurchased, 669

Dividend Policy and Firm Value, 670Benefits and Costs of Dividends, 671Share Price Reactions to Dividend Announcements, 673Dividends versus Share Repurchases, 674

Share Dividends and Share Splits, 675Share Dividends, 675Share Splits, 675Reasons for Share Dividends and Splits, 676

Setting a Dividend Policy, 677What Managers Tell Us, 677Practical Considerations in Setting a Dividend Policy, 678

Summary of Learning Objectives, 678Self-Study Problems, 680Solutions to Self-Study Problems, 680Critical Thinking Questions, 681Questions and Problems, 681Sample Test Problems, 684

& BUSINESSAND FINANCIAL

CHAPTER 18 Business Formation, Growth and Valuation 688

Starting a Business, 690Making the Decision to Proceed, 690Choosing the Right Organisational Form, 691Financial Considerations, 696

The Role of the Business Plan, 701Why Business Plans are Important, 701

FULL CONTENTS

The Key Elements of a Business Plan, 702Valuing a Business, 703

Fundamental Business Valuation Principles, 703Building Intuition: The Value of a Business is Specific to a Pointin Time, 704

\Business Valuation Approaches, 704^_J Building Intuition: The Value of a Business is Not the Same to

All Investors, 705Important Issues in Valuation, 720

Public versus Private Companies, 720Young (Rapidly Growing) versus Mature Companies, 721Controlling Interest versus Minority Interest, 722Key People, 723

Summary of Learning Objectives, 723Summary of Key Equations, 724Self-Study Problems, 725Solutions to Self-Study Problems, 726Critical Thinking Questions, 727Questions and Problems, 728

"-" Sample Test Problems, 732

CHAPTER 19 Financial Planning and Forecasting 734

Financial Planning, 736The Planning Documents, 736

Building Intuition: A Firm's Strategy Drives its Business Decisions, 738Concluding Comments, 739

Financial Planning Models, 739The Sales Forecast, 740Building a Financial Planning Model, 740A Simple Planning Model, 742

A Better Financial Planning Model, 745Travaux Maritime SA, 745The Income Statement, 746The Balance Sheet, 747The Preliminary Projected Balance Sheet, 749The Final Projected Balance Sheet, 751

Beyond the Basic Planning Models, 753Improving Financial Planning Models, 753

Managing and Financing Growth, 755External Funding Needed, 756A Graphical View of Growth, 759The Internal Growth Rate, 760The Sustainable Growth Rate, 761Growth Rates and Profits, 763Growth as a Planning Goal, 764

FULL CONTENTS

Summary of Learning Objectives, 765Summary of Key Equations, 766Self-Study Problems, 767Solutions to Self-Study Problems, 768Critical Thinking Questions, 770Questions and Problems, 770Sample Test Problems, 774

7 CORPOHATi KOSGC

20 Corporate Risk Management 778

Why Companies Manage Corporate Risks, 781Building Intuition: Risk Management Can Help Firms AvoidHaving to Raise Capital When it is Difficult to Do so, 782

The Risk Management Process, 782Building Intuition: Risk Management Can Help FirmsAddress Capital Market Imperfections, 783

Managing Operational, Business and Financial Risks, 784Operational and Business Risks, 784Risk Management Methods, 785

Building Intuition: Financial Risk Management Allows Firmsto Exploit their Comparative Advantages, 786Building Intuition: Corporate Risk Management Decisionsare Based on Cost-Benefit Trade-offs, 786

Forwards and Futures, 787Valuing a Forward Contract, 787The Value of a Forward Contract Prior to Maturity, 792Futures Contracts, 793

Swaps, 794Valuing Interest Rate Swaps, 797Cross-Currency Swaps, 800Valuing Cross-Currency Swaps, 801

Financial Options, 804Call Options, 804 v

Put Options, 806American, European and Bermudan Options, 808More on the Shape of Option Payoff Functions, 808

Building Intuition: Payoff Functions for Options are Not Linear, 808Option Valuation, 809

Limits on Option Values, 809Variables that Affect Option Values, 811The Binomial Option Pricing Model, 812

FULL CONTENTS

Put-Call Parity, 816Options and Risk Management, 817

Real Options, 818Options to Defer Investment, 818Options to Make Follow-On Investments, 819Options to Change Operations, 819Options to Abandon Projects, 820Concluding Comments on NPV Analysis and RealOptions, 820

Agency Costs, 821Agency Costs of Debt, 822Agency Costs of Equity, 824

Summary of Learning Objectives, 825Summary of Key Equations, 827Self-Study Problems, 827Solutions to Self-Study Problems, 828Critical Thinking Questions, 830Questions and Problems, 831Sample Test Problems, 835

CHAPTER 21 International Financial Management 837

Introduction to International Financial Management, 839Globalisation of the World Economy, 839The Rise of Multinational Corporations, 840Factors Affecting International Financial Management, 841Goals of International Financial Management, 845Basic Principles Remain the Same, 845

Building Intuition: The Basic Principles of Finance Apply NoMatter Where You Do Business, 846

Foreign Exchange Markets, 847Market Structure and Major Participants, 847Foreign Exchange Rates, 847The Equilibrium Exchange Rate, 850Foreign Currency Quotations, 850

Country Risk, 858Country Risk Analysis, 859

Cost of Capital for International Projects, 862Building Intuition: It is Best to Adjust the Cash Flows whenModelling Country Risk, 864

Country Risk Premium, 865International Capital Budgeting, 868

Determining Cash Flows, 869Exchange Rate Risk, 869Country Risk, 870The SOCAFI Brazil Example, 871

FULL CONTENTS

Islamic Finance, 875Islamic Finance Instruments, 876

Summary of Learning Objectives, 877Summary of Key Equations, 879Self-Study Problems, 879Solutions to Self-Study Problems, 880Critical Thinking Questions, 881Questions and Problems, 881Sample Test Problems, 885

Present Value and Future Value Tables 887

Solutions to Selected Questions and Problems 892

Glossary 903

Subject Index 915

Company Index 931