brealey−meyers principles of corporate finance 7th edition chapter 9

... increased by 4.7 percent from the start of 2001 Since there were about 9.9 billion shares of GE outstanding, investors wereplacing a total value on the stock of $497 billion Buying stocks is a risky ... Rate of Profit,” Management Science 3 (October 1956), pp 102–110. 3 This is the accepted interpretation of the U.S Supreme Court’s directive in 1944 that “the returns to the equity owner [of a ... (August 1994), pp 9–45. Trang 12We have to use trial and error to find the value of r that makes P0equal $50 It turnsout that the r implicit in these more realistic forecasts is approximately 099,

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... levels, so they paid down debt in 1991 and replenished equity in 1991, 1992, and 1993 But net stock issues turned negative in 1994 and stayed negative for the rest of the decade Aggregate debt issues ... “The Value of the Voting Right: A Study of the Milan Stock Ex-change,” Review of Financial Studies 7 (1994), pp 125–148 The data for the United States were for the pe-riod 1984–1990 This was ... funds F I G U R E 1 4 2 Holdings of corporate equities, 2000. Source: Board of Governors of the Federal Reserve System, Division of Research and Statis-tics, Flow of Funds Accounts Table L.213

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... Dividend Policies of Japanese and U.S Firms,” Journal of Finance 53 (June 1998), pp 879–904 Trang 9On May 9, 1994, FPL Group, the parent companyof Florida Power & Light Company, announced a ... $1,000/$110 ⫽ 9.09 shares The company starts with 100 shares, it buys back 9.09, and therefore 90.91 sharesremain outstanding Each of these shares can look forward to a dividend stream of $1,000/90.91 ⫽ ... before the an-nouncement of a repurchase See D S Lee, W Mikkelson, and M M Partch, “Managers Trading around Stock Repurchases,” Journal of Finance 47 (1992), pp 1947–1961. 19See R Comment and G Jarrell,

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... interest rate ⫽ 8.491.02⫽ $8.32 ⫽ $8.49 ⫽ 1.463 ⫻ 18.332 ⫹ 1.537 ⫻ 023Probability of rise ⫻ 18.334 ⫹ 3 11 ⫺ probability of rise2 ⫻ 04 Probability of rise⫽ 463, or 46.3% In the case of AOL stock flows ... there is a simple relationship between the value of the call and that of the put:9 Value of put⫽ value of call ⫺ share price ⫹ present value of exercise price Expected future value 1⫹ interest ... worth $12.97 But what if the share price falls to $44.88? In that case the most that you can Value of call in month 3⫽ $67.43 ⫺ $55/1.01 ⫽ $12.97 Trang 10CHAPTER 21 Valuing Options 599hope for

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... convertible preferred issues al-In 1999 Amazon.com issued $1.25 billion of 4 3/4 percent convertible bonds due in 2009.7These could be converted at any time to 6.41 shares of common stock Inother words, ... McConnell and E S Schwartz, “The Origin of LYONs: A Case Study in Financial Innovation,” Journal of Applied Corporate Finance 4 (Winter 1992), pp 40–47 For a discussion of how to value an earlier LYON ... howAmazon.com issued a convertible bond in 1999 Over the following two years 1 0 0 1 2 3 2 Value of firm, $ millions 2 Value of firm, $ millions 2 Value of firm, $ millions in full (b ) F I G U

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... interest rate2 20 Dec 83 Dec 84 Dec 85 Dec 86 Dec 87 Dec 88 Dec 89 Dec 90 Dec 91 Dec 92 Dec 93 Dec 94 Dec 95 Dec 96 Dec 97 Dec 98 Dec 99 Dec 00 Real yield on UK indexed bonds Yield on UK nominal bonds ... discount rates For example, • In 1945 U.S Treasury bills offered a return of 4 percent: At their 1981 peak they offered a turn of over 17 percent Why does the same security offer radically different ... Inflation,” Journal of Finance 32 (May 1977), pp 277–290. Trang 17the Treasury bill over the next three months is certain; we will assume it yields a2 percent quarterly rate The return on each of the other

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... preponderance of short-term assets tend to is-sue short-term debt See M H Stohs and D C Mauer, “The Determinants of Corporate Debt Maturity Structure,” Journal of Business 69 (July 1996), pp 279–312. ... call them at their face value. Trang 10of this call option: Until 1989 the company was prohibited from calling the bond inany circumstances and from 1989 to 1996 it was not allowed to call the bond ... discussion of the attraction of income bonds, see J J McConnell and G G Schlar-baum, “Returns, Risks, and Pricing of Income Bonds, 1956–1976 (Does Money Have an Odor?),” Jour-nal of Business

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... tax into a fall of less than 1 percent in the value of “Fi-nancial Innovation in the Management of Catastrophe Risk,” Journal of Applied Corporate Finance 10 (Fall 1997), pp 84–95; and K Froot, ... Examination,” Journal of Fi-nancial Economics 60 (2001), pp 529–571. “Cor-porate Insurance Strategy: The Case of British Petroleum,” Journal of Applied Cor“Cor-porate Finance 6 (Fall 1993), pp 4–15. ... Integrated Approach to Corporate Risk Management,” Midland Corporate Finance Journal 3 (Summer 1985), pp 41–56. 27.2 HEDGING WITH FUTURES Hedging involves taking on one risk to offset another We will

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... hand In this diagram, each of the 138 points repre-sents the experience of a different country between 1994 and 1999 The vertical axis shows the change in the value of the foreign currency relative ... “Anomalies: Foreign Exchange,” Journal of Political Economy 4 (1990), pp 179–192. Trang 9other words, forward rates seem to contain a risk premium, but the sign of thispremium swings backward and ... example, between 1994 and 1999 prices in Turkey rose about 20 times Or, to put it another way, you could say that the purchasing power of money in Turkey declined by about 95 percent If exchange

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... 1999 earned a negative profit margin. Trang 13How Profitable Is Executive Paper?Net Profit Margin If you want to know the proportion of sales that finds its Return on Assets (ROA) Managers often ... different items of net working capital. Sources: T A B L E 2 9 4 Sources and uses of funds for Executive Paper Corporation, 1999 (figures in $ millions). Trang 7Look first at the uses of funds The ... reservoir of cash For Executive Paper in 1999 The bottom portion of the balance sheet shows the sources of the cash that wasused to acquire the net working capital and fixed assets Some of the cash

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... cost of capital,that is, the rate of return offered by other, equivalent-risk investment opportu-nities.1The benefits of holding inventory are often indirect For example, a largeinventory of finished ... and stretching $3.5 million of payables (see lines 1 and 2 in the table) In addition the company sells the $5 million of marketable securities it held at the end of 1999 (line 8) Thus it raises ... end of 1998 Ford had $23.8 billion in cash and marketable securities and only $9.8 billion in debt But in the next three years Ford went on a shopping spree that resulted in the expenditure of

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... Executive 8 (September/ October 1992), pp 39–42. 9R J Pisapia, “The Cash Manager’s Expanding Role: Working Capital,” Journal of Cash Management 10 (November/December 1990), pp 11–14. Trang 10Companies ... the cost of carrying cash, you should hold a smaller inventory of cash and therefore make smaller and more frequent sales of Treasury CHAPTER 31 Cash Management 891 Order size (number of books) ... of $1 million and an availability float of $100,000: Trang 4Notice that the company gains as a result of the payment float and loses as a re-sult of the availability float The difference is often

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... Prediction of Corporate Bankruptcy,” Journal of Finance 23 (September 1968), pp 589–609 The equation cited here comes from E I Altman, Corporate Financial Distress, John Wiley, New York, 1983. 12 ... Used in Interfirm Trade,” Journal of Finance 54 (June 1999), pp 1109–1129. Trang 3their accounts are large, if the customers need time to ascertain the quality of the goods, and if the goods are ... percent of the prompt payers do so Suppose Cast Iron reviews a sample of 1,000 customers, none of whom has de-faulted yet Of these, 950 have a record of prompt payment, and 50 have a record of slow

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... stock-financed mergers are announced.19Andrade, Mitchell, and Stafford found an average market-adjusted fall of 1.5 percent on the an-nouncement of stock-financed mergers between 1973 and 1998 There ... Journal of Finance 30 (March 1975), pp 93–114; and D Galai and R W Masulis, “The Option Pricing Model and the Risk Factor of Stock,” Journal of Financial Economics 3 (January–March 1976), especially ... in unrelated lines of businesses The majority of mergers in the 1960s and 1970s were conglomerate They became lesspopular in the 1980s In fact, much of the action since the 1980s has come frombreaking

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... 20 Annual inflation, percent 15 10 –5 –10 –15 193 0 194 0 195 0 196 0 197 0 198 0 199 0 FIGURE 3.4 Annual rates of inflation in the United States from 192 6 to 2000 Source: Ibbotson Associates, Inc., ... Find out in the next episode of The Jones Family, Incorporated Brealey−Meyers: Principles of Corporate Finance, Seventh Edition I Value How to Calculate Present Values CHAPTER © The McGraw−Hill ... ϩ300,000 ϩ261 ,90 0 Total ϭ NPV ϭ $18,400 Brealey−Meyers: Principles of Corporate Finance, Seventh Edition I Value How to Calculate Present Values © The McGraw−Hill Companies, 2003 CHAPTER How to...

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... and E Solomon, “The Arithmetic of Capital Budgeting,” Journal of Business 29 (April 195 6), pp 124–1 29 Brealey−Meyers: Principles of Corporate Finance, Seventh Edition I Value © The McGraw−Hill ... Arithmetic of Capital Budgeting Decisions,” Journal of Business, 29: 124–1 29 (April 195 6) Brealey−Meyers: Principles of Corporate Finance, Seventh Edition 112 PART I I Value © The McGraw−Hill Companies, ... 2 29 171 114 57 7% 8.2% 9. 8% 12.2% 16.4% 24.6% For simplicity we have ignored taxes There will be plenty about taxes in Chapter 49. 1% Brealey−Meyers: Principles of Corporate Finance, Seventh Edition...

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... 32.00 19. 20 11.52 11.52 5.76 14. 29 24. 49 17. 49 12. 49 8 .93 8 .93 8 .93 4.45 10.00 18.00 14.40 11.52 9. 22 7.37 6.55 6.55 6.55 6.55 3. 29 5.00 9. 50 8.55 7.70 6 .93 6.23 5 .90 5 .90 5 .90 5 .90 5 .90 5 .90 5 .90 ... 12,887 7,7 29 1,210 3,200 748 32,610 19, 552 1,331 1 ,92 0 9, 807 48 ,90 1 29, 345 1,464 1,152 16 ,94 0 35,834 21, 492 1,611 1,152 11,5 79 19, 717 11,830 1,772 576 5,5 39 1 ,94 9† Ϫ1,400 Ϫ1,580 262 3,432 5 ,92 9 4,053 ... Ϫ1,580 12,887 7,7 29 1,210 262 32,610 19, 552 1,331 3,432 48 ,90 1 29, 345 1,464 5 ,92 9 35,834 21, 492 1,611 4,053 19, 717 11,830 1,772 1 ,93 9 682 93 4 Ϫ550 3,686 Ϫ7 39 8, 295 Ϫ1 ,97 2 12,163 Ϫ1,6 29 8,678 1,307...

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... and Return CHAPTER Risk and Return Dollars (log scale) 100 High minus low book-to-market 10 Small minus large 0.1 193 2 193 7 194 2 194 7 195 2 195 7 196 2 196 7 197 2 197 7 198 2 198 7 199 2 199 7 Year FIGURE ... review of the evidence on the CAPM, see J H Cochrane, “New Facts in Finance, ” Journal of Economic Perspectives 23 ( 199 9), pp 36–58 Brealey−Meyers: Principles of Corporate Finance, Seventh Edition ... percent market risk premium in Figure 8 .9 and the 9. 1 percent premium reported in Table 7.1 15 199 Brealey−Meyers: Principles of Corporate Finance, Seventh Edition 200 II Risk © The McGraw−Hill...

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... Capital for Multinational Firms,” Journal of Applied Corporate Finance (Fall 199 5), pp 95 –102 233 Brealey−Meyers: Principles of Corporate Finance, Seventh Edition 234 II Risk Capital Budgeting and ... Flow (CEQt ) Ratio of CEQt to Ct 100 100 100 94 .6 89. 6 84.8 94 6 896 ϭ 94 62 848 ϭ 94 63 241 Brealey−Meyers: Principles of Corporate Finance, Seventh Edition 242 PART II II Risk Capital Budgeting ... Measures of Systematic Risk: Some Further Evidence,” Journal of Financial and Quantitative Analysis 10 (June 197 9), pp 231–284 237 Brealey−Meyers: Principles of Corporate Finance, Seventh Edition...

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... the cost of capital was percent in nominal terms 283 Visit us at www.mhhe.com/bm7e Brealey−Meyers: Principles of Corporate Finance, Seventh Edition Brealey−Meyers: Principles of Corporate Finance, ... “Abandonment Value in Capital Budgeting,” Journal of Finance 22 (December 196 7), pp 577– 590 Brealey−Meyers: Principles of Corporate Finance, Seventh Edition III Practical Problems in Capital Budgeting ... C Myers, “Determinants of Corporate Borrowing,” Journal of Financial Economics (November 197 7), pp 146–175 273 Brealey−Meyers: Principles of Corporate Finance, Seventh Edition 274 PART III III...

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