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Fundamentals of Corporate Finance 11th Edition Ross- Testbank

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The best-selling Fundamentals of Corporate Finance (FCF) has three basic themes that are the central focus of the book:
1) An emphasis on intuition―the authors separate and explain the principles at work on a common sense, intuitive level before launching into any specifics.
2) A unified valuation approach―net present value (NPV) is treated as the basic concept underlying corporate finance.
3) A managerial focus―the authors emphasize the role of the financial manager as decision maker, and they stress the need for managerial input and judgment.

The Eleventh Edition continues the tradition of excellence that has earned Fundamentals of Corporate Finance its status as market leader. McGraw-Hill’s adaptive learning component, LearnSmart, provides assignable modules that help students master chapter core concepts and come to class more prepared. In addition, resources within Connect help students solve financial problems and apply what they’ve learned. Ross Fundamentals’ intuitive approach, managerial focus, and strong end-of-chapter content combine with a complete digital solution to help your students achieve higher outcomes in the course.

 

Table of Content:

  1. Part One Introduction
  2. Chapter 1: Goals and Governance of the Corporation
  3. 1.1 Investment and Financing Decisions
  4. The Investment (Capital Budgeting) Decision
  5. The Financing Decision
  6. 1.2 What Is a Corporation?
  7. Other Forms of Business Organization
  8. 1.3 Who Is the Financial Manager?
  9. 1.4 Goals of the Corporation
  10. Shareholders Want Managers to Maximize Market Value
  11. 1.5 Agency Problems, Executive Compensation, and Corporate Governance
  12. Executive Compensation
  13. Corporate Governance
  14. 1.6 The Ethics of Maximizing Value
  15. 1.7 Careers in Finance
  16. 1.8 Preview of Coming Attractions
  17. 1.9 Snippets of Financial History
  18. Summary
  19. Questions and Problems
  20. Chapter 2: Financial Markets and Institutions
  21. 2.1 The Importance of Financial Markets and Institutions
  22. 2.2 The Flow of Savings to Corporations
  23. The Stock Market
  24. Other Financial Markets
  25. Financial Intermediaries
  26. Financial Institutions
  27. Total Financing of U.S. Corporations
  28. 2.3 Functions of Financial Markets and Intermediaries
  29. Transporting Cash across Time
  30. Risk Transfer and Diversification
  31. Liquidity
  32. The Payment Mechanism
  33. Information Provided by Financial Markets
  34. 2.4 The Crisis of 2007–2009
  35. Summary
  36. Questions and Problems
  37. Chapter 3: Accounting and Finance
  38. 3.1 The Balance Sheet
  39. Book Values and Market Values
  40. 3.2 The Income Statement
  41. Income versus Cash Flow
  42. 3.3 The Statement of Cash Flows
  43. Free Cash Flow
  44. 3.4 Accounting Practice and Malpractice
  45. 3.5 Taxes
  46. Corporate Tax
  47. Personal Tax
  48. Summary
  49. Questions and Problems
  50. Chapter 4: Measuring Corporate Performance
  51. 4.1 How Financial Ratios Relate to Shareholder Value
  52. 4.2 Measuring Market Value and Market Value Added
  53. 4.3 Economic Value Added and Accounting Rates of Return
  54. Accounting Rates of Return
  55. Problems with EVA and Accounting Rates of Return
  56. 4.4 Measuring Efficiency
  57. 4.5 Analyzing the Return on Assets: The Du Pont System
  58. The Du Pont System
  59. 4.6 Measuring Financial Leverage
  60. Leverage and the Return on Equity
  61. 4.7 Measuring Liquidity
  62. 4.8 Interpreting Financial Ratios
  63. 4.9 The Role of Financial Ratios
  64. Summary
  65. Questions and Problems
  66. Minicase
  67. Part Two Value
  68. Chapter 5: The Time Value of Money
  69. 5.1 Future Values and Compound Interest
  70. 5.2 Present Values
  71. Finding the Interest Rate
  72. 5.3 Multiple Cash Flows
  73. Future Value of Multiple Cash Flows
  74. Present Value of Multiple Cash Flows
  75. 5.4 Reducing the Chore of the Calculations: Part 1
  76. Using Financial Calculators to Solve Simple Time-Value-of-Money Problems
  77. Using Spreadsheets to Solve Simple Time-Value-of-Money Problems
  78. 5.5 Level Cash Flows: Perpetuities and Annuities
  79. How to Value Perpetuities
  80. How to Value Annuities
  81. Future Value of an Annuity
  82. Annuities Due
  83. 5.6 Reducing the Chore of the Calculations: Part 2
  84. Using Financial Calculators to Solve Annuity Problems
  85. Using Spreadsheets to Solve Annuity Problems
  86. 5.7 Effective Annual Interest Rates
  87. 5.8 Inflation and the Time Value of Money
  88. Real versus Nominal Cash Flows
  89. Inflation and Interest Rates
  90. Valuing Real Cash Payments
  91. Real or Nominal?
  92. Summary
  93. Questions and Problems
  94. Minicase
  95. Chapter 6: Valuing Bonds
  96. 6.1 Bond Pricing
  97. 6.2 Interest Rates and Bond Prices
  98. Interest Rate Risk and Bond Maturity
  99. 6.3 Yield to Maturity
  100. 6.4 Bond Rates of Return
  101. 6.5 The Yield Curve
  102. Nominal and Real Rates of Interest
  103. 6.6 Corporate Bonds and the Risk of Default
  104. Protecting against Default Risk
  105. Not All Corporate Bonds Are Plain Vanilla
  106. Summary
  107. Questions and Problems
  108. Chapter 7: Valuing Stocks
  109. 7.1 Stocks and the Stock Market
  110. Reading Stock Market Listings
  111. 7.2 Market Values, Book Values, and Liquidation Values
  112. 7.3 Valuing Common Stocks
  113. Valuation by Comparables
  114. Price and Intrinsic Value
  115. The Dividend Discount Model
  116. 7.4 Simplifying the Dividend Discount Model
  117. Case 1: The Dividend Discount Model with No Growth
  118. Case 2: The Dividend Discount Model with Constant Growth
  119. Case 3: The Dividend Discount Model with Nonconstant Growth
  120. 7.5 Valuing a Business by Discounted Cash Flow
  121. Valuing the Concatenator Business
  122. Repurchases and the Dividend Discount Model
  123. 7.6 There Are No Free Lunches on Wall Street
  124. Random Walks and Efficient Markets
  125. 7.7 Market Anomalies and Behavioral Finance
  126. Market Anomalies
  127. Bubbles and Market Efficiency
  128. Behavioral Finance
  129. Summary
  130. Questions and Problems
  131. Minicase
  132. Chapter 8: Net Present Value and Other Investment Criteria
  133. 8.1 Net Present Value
  134. A Comment on Risk and Present Value
  135. Valuing Long-Lived Projects
  136. Choosing between Alternative Projects
  137. 8.2 The Internal Rate of Return Rule
  138. A Closer Look at the Rate of Return Rule
  139. Calculating the Rate of Return for Long-Lived Projects
  140. A Word of Caution
  141. Some Pitfalls with the Internal Rate of Return Rule
  142. 8.3 The Profitability Index
  143. Capital Rationing
  144. Pitfalls of the Profitability Index
  145. 8.4 The Payback Rule
  146. Discounted Payback
  147. 8.5 More Mutually Exclusive Projects
  148. Problem 1: The Investment Timing Decision
  149. Problem 2: The Choice between Long- and Short-Lived Equipment
  150. Problem 3: When to Replace an Old Machine
  151. 8.6 A Last Look
  152. Summary
  153. Questions and Problems
  154. Minicase
  155. Appendix: More on the IRR Rule
  156. Using the IRR to Choose between Mutually Exclusive Projects
  157. Using the Modified Internal Rate of Return When There Are Multiple IRRs
  158. Chapter 9: Using Discounted Cash-Flow Analysis to Make Investment Decisions
  159. 9.1 Identifying Cash Flows
  160. Discount Cash Flows, Not Profits
  161. Discount Incremental Cash Flows
  162. Discount Nominal Cash Flows by the Nominal Cost of Capital
  163. Separate Investment and Financing Decisions
  164. 9.2 Corporate Income Taxes
  165. 9.3 An Example—Blooper Industries
  166. Forecasting Blooper’s Cash Flows
  167. Calculating the NPV of Blooper’s Mine
  168. Further Notes and Wrinkles Arising from Blooper’s Project
  169. Summary
  170. Questions and Problems
  171. Minicase
  172. Chapter 10: Project Analysis
  173. 10.1 The Capital Investment Process, Some Problems, and Some Solutions
  174. 10.2 Some “What-If” Questions
  175. Sensitivity Analysis
  176. Stress Tests and Scenario Analysis
  177. 10.3 Break-Even Analysis
  178. Accounting Break-Even Analysis
  179. NPV Break-Even Analysis
  180. Operating Leverage
  181. 10.4 Real Options and the Value of Flexibility
  182. The Option to Expand
  183. A Second Real Option: The Option to Abandon
  184. A Third Real Option: The Timing Option
  185. A Fourth Real Option: Flexible Production Facilities
  186. Summary
  187. Questions and Problems
  188. Minicase
  189. Part Three Risk
  190. Chapter 11: Introduction to Risk, Return, and the Opportunity Cost of Capital
  191. 11.1 Rates of Return: A Review
  192. 11.2 A Century of Capital Market History
  193. Market Indexes
  194. The Historical Record
  195. Using Historical Evidence to Estimate Today’s Cost of Capital
  196. 11.3 Measuring Risk
  197. Variance and Standard Deviation
  198. A Note on Calculating Variance
  199. Measuring the Variation in Stock Returns
  200. 11.4 Risk and Diversification
  201. Diversification
  202. Asset versus Portfolio Risk
  203. Market Risk versus Specific Risk
  204. 11.5 Thinking about Risk
  205. Message 1: Some Risks Look Big and Dangerous but Really Are Diversifiable
  206. Message 2: Market Risks Are Macro Risks
  207. Message 3: Risk Can Be Measured
  208. Summary
  209. Questions and Problems
  210. Chapter 12: Risk, Return, and Capital Budgeting
  211. 12.1 Measuring Market Risk
  212. Measuring Beta
  213. Betas for Amazon and McDonald’s
  214. Total Risk and Market Risk
  215. 12.2 What Can You Learn from Beta?
  216. Portfolio Betas
  217. The Portfolio Beta Determines the Risk of a Diversified Portfolio
  218. 12.3 Risk and Return
  219. Why the CAPM Makes Sense
  220. The Security Market Line
  221. Using the CAPM to Estimate Expected Returns
  222. How Well Does the CAPM Work?
  223. 12.4 The CAPM and the Opportunity Cost of Capital
  224. The Company Cost of Capital
  225. What Determines Project Risk?
  226. Don’t Add Fudge Factors to Discount Rates
  227. Summary
  228. Questions and Problems
  229. Chapter 13: The Weighted-Average Cost of Capital and Company Valuation
  230. 13.1 Geothermal’s Cost of Capital
  231. 13.2 The Weighted-Average Cost of Capital
  232. Calculating Company Cost of Capital as a Weighted Average
  233. Use Market Weights, Not Book Weights
  234. Taxes and the Weighted-Average Cost of Capital
  235. What If There Are Three (or More) Sources of Financing?
  236. The NPV of Geothermal’s Expansion
  237. Checking Our Logic
  238. 13.3 Interpreting the Weighted-Average Cost of Capital
  239. When You Can and Can’t Use WACC
  240. Some Common Mistakes
  241. How Changing Capital Structure Affects Expected Returns
  242. What Happens When the Corporate Tax Rate Is Not Zero
  243. 13.4 Practical Problems: Measuring Capital Structure
  244. 13.5 More Practical Problems: Estimating Expected Returns
  245. The Expected Return on Bonds
  246. The Expected Return on Common Stock
  247. The Expected Return on Preferred Stock
  248. Adding It All Up
  249. Real-Company WACCs
  250. 13.6 Valuing Entire Businesses
  251. Calculating the Value of the Deconstruction Business
  252. Summary
  253. Questions and Problems
  254. Minicase
  255. Part Four Financing
  256. Chapter 14: Introduction to Corporate Financing
  257. 14.1 Creating Value with Financing Decisions
  258. 14.2 Patterns of Corporate Financing
  259. Are Firms Issuing Too Much Debt?
  260. 14.3 Common Stock
  261. Stock Splits
  262. Ownership of the Corporation
  263. Voting Procedures
  264. The Wall Street Walk
  265. Classes of Stock
  266. 14.4 Preferred Stock
  267. 14.5 Corporate Debt
  268. Debt Comes in Many Forms
  269. Innovation in the Debt Market
  270. 14.6 Convertible Securities
  271. Summary
  272. Questions and Problems
  273. Chapter 15: How Corporations Raise Venture Capital and Issue Securities
  274. 15.1 Venture Capital
  275. Venture Capital Companies
  276. 15.2 The Initial Public Offering
  277. Arranging a Public Issue
  278. Other New-Issue Procedures
  279. The Underwriters
  280. 15.3 General Cash Offers by Public Companies
  281. General Cash Offers and Shelf Registration
  282. Costs of the General Cash Offer
  283. Market Reaction to Stock Issues
  284. 15.4 The Private Placement
  285. Summary
  286. Questions and Problems
  287. Minicase
  288. Appendix: Hotch Pot’s New-Issue Prospectus
  289. Part Five Debt and Payout Policy
  290. Chapter 16: Debt Policy
  291. 16.1 How Borrowing Affects Value in a Tax-Free Economy
  292. MM’s Argument—A Simple Example
  293. How Borrowing Affects Earnings per Share
  294. How Borrowing Affects Risk and Return
  295. 16.2 Debt and the Cost of Equity
  296. No Magic in Financial Leverage
  297. 16.3 Debt, Taxes, and the Weighted-Average Cost of Capital
  298. Debt and Taxes at River Cruises
  299. How Interest Tax Shields Contribute to the Value of Stockholders’ Equity
  300. Corporate Taxes and the Weighted-Average Cost of Capital
  301. The Implications of Corporate Taxes for Capital Structure
  302. 16.4 Costs of Financial Distress
  303. Bankruptcy Costs
  304. Costs of Bankruptcy Vary with Type of Asset
  305. Financial Distress without Bankruptcy
  306. 16.5 Explaining Financing Choices
  307. The Trade-Off Theory
  308. A Pecking Order Theory
  309. The Two Faces of Financial Slack
  310. Is There a Theory of Optimal Capital Structure?
  311. Summary
  312. Questions and Problems
  313. Minicase
  314. Appendix: Bankruptcy Procedures
  315. Chapter 17: Payout Policy
  316. 17.1 How Corporations Pay Out Cash to Shareholders
  317. How Firms Pay Dividends
  318. Stock Dividends
  319. Stock Repurchases
  320. 17.2 The Information Content of Dividends and Repurchases
  321. 17.3 Dividends or Repurchases? The Payout Controversy
  322. Dividends or Repurchases? An Example
  323. Repurchases and the Dividend Discount Model
  324. Dividends and Share Issues
  325. 17.4 Why Dividends May Increase Value
  326. 17.5 Why Dividends May Reduce Value
  327. Taxation of Dividends and Capital Gains under Current Tax Law
  328. Taxes and Payout—A Summary
  329. 17.6 Payout Policy and the Life Cycle of the Firm
  330. Summary
  331. Questions and Problems
  332. Minicase
  333. Part Six Financial Analysis and Planning
  334. Chapter 18: Long-Term Financial Planning
  335. 18.1 What Is Financial Planning?
  336. Why Build Financial Plans?
  337. 18.2 Financial Planning Models
  338. Components of a Financial Planning Model
  339. 18.3 A Long-Term Financial Planning Model for Dynamic Mattress
  340. Pitfalls in Model Design
  341. Choosing a Plan
  342. Valuing Dynamic Mattress
  343. 18.4 External Financing and Growth
  344. Summary
  345. Questions and Problems
  346. Minicase
  347. Chapter 19: Short-Term Financial Planning
  348. 19.1 Links between Long-Term and Short-Term Financing
  349. Tax Strategies
  350. Reasons to Hold Cash
  351. 19.2 Tracing Changes in Cash
  352. 19.3 Cash Budgeting
  353. Preparing the Cash Budget
  354. 19.4 Dynamic’s Short-Term Financial Plan
  355. Dynamic Mattress’s Financing Plan
  356. Evaluating the Plan
  357. A Note on Short-Term Financial Planning Models
  358. Summary
  359. Questions and Problems
  360. Minicase
  361. Chapter 20: Working Capital Management
  362. 20.1 Working Capital
  363. Components of Working Capital
  364. Working Capital and the Cash Cycle
  365. 20.2 Accounts Receivable and Credit Policy
  366. Terms of Sale
  367. Credit Agreements
  368. Credit Analysis
  369. The Credit Decision
  370. Collection Policy
  371. 20.3 Inventory Management
  372. 20.4 Cash Management
  373. Check Handling and Float
  374. Other Payment Systems
  375. Electronic Funds Transfer
  376. International Cash Management
  377. 20.5 Investing Idle Cash: The Money Market
  378. Money Market Investments
  379. Calculating the Yield on Money Market Investments
  380. Yields on Money Market Investments
  381. The International Money Market
  382. 20.6 Managing Current Liabilities: Short-Term Debt
  383. Bank Loans
  384. Commercial Paper
  385. Summary
  386. Questions and Problems
  387. Minicase
  388. Part Seven Special Topics
  389. Chapter 21: Mergers, Acquisitions, and Corporate Control
  390. 21.1 Types of Mergers
  391. 21.2 Sensible Motives for Mergers
  392. Economies of Scale and Scope
  393. Economies of Vertical Integration
  394. Complementary Resources
  395. Changes in Corporate Control
  396. Industry Consolidation
  397. Industrial Logic Does Not Guaranty Success
  398. 21.3 Dubious Reasons for Mergers
  399. Improved Diversification
  400. The Bootstrap Game
  401. Management Bias
  402. 21.4 The Mechanics of a Merger
  403. The Form of Acquisition
  404. Mergers, Antitrust Law, and Popular Opposition
  405. 21.5 Evaluating Mergers
  406. Mergers Financed by Cash
  407. Mergers Financed by Stock
  408. A Warning
  409. Another Warning
  410. 21.6 The Market for Corporate Control
  411. 21.7 Proxy Contests
  412. 21.8 Takeovers
  413. 21.9 Leveraged Buyouts
  414. Barbarians at the Gate?
  415. 21.10 Divestitures, Spin-Offs, and Carve-Outs
  416. 21.11 The Benefits and Costs of Mergers
  417. Who Gains and Loses from Mergers?
  418. Buyers versus Sellers
  419. Mergers and Society
  420. Summary
  421. Questions and Problems
  422. Minicase
  423. Chapter 22: International Financial Management
  424. 22.1 Foreign Exchange Markets
  425. Spot Exchange Rates
  426. Forward Exchange Rates
  427. 22.2 Some Basic Relationships
  428. Exchange Rates and Inflation
  429. Real and Nominal Exchange Rates
  430. Inflation and Interest Rates
  431. The Forward Exchange Rate and the Expected Spot Rate
  432. Interest Rates and Exchange Rates
  433. 22.3 Hedging Currency Risk
  434. Transaction Risk
  435. Economic Risk
  436. 22.4 International Capital Budgeting
  437. Net Present Values for Foreign Investments
  438. The Cost of Capital for Foreign Investment
  439. Avoiding Fudge Factors
  440. Political Risk
  441. Summary
  442. Questions and Problems
  443. Minicase
  444. Chapter 23: Options
  445. 23.1 Calls and Puts
  446. Selling Calls and Puts
  447. Payoff Diagrams Are Not Profit Diagrams
  448. Financial Alchemy with Options
  449. Some More Option Magic
  450. 23.2 What Determines Option Values?
  451. Upper and Lower Limits on Option Values
  452. The Determinants of Option Value
  453. Option-Valuation Models
  454. 23.3 Spotting the Option
  455. Options on Real Assets
  456. Options on Financial Assets
  457. Summary
  458. Questions and Problems
  459. Chapter 24: Risk Management
  460. 24.1 Why Hedge?
  461. 24.2 Reducing Risk with Options
  462. 24.3 Forward and Futures Contracts
  463. The Mechanics of Futures Trading
  464. Commodity and Financial Futures
  465. Forward Contracts
  466. 24.4 Valuing Futures and Forward Contracts
  467. 24.5 Swaps
  468. Interest Rate Swaps
  469. Currency Swaps
  470. 24.6 Innovation in the Derivatives Market
  471. 24.7 Is “Derivative” a Four-Letter Word?
  472. Summary
  473. Questions and Problems
  474. Part Eight Conclusion
  475. Chapter 25: What We Do and Do Not Know about Finance
  476. 25.1 What We Do Know: The Six Most Important Ideas in Finance
  477. Net Present Value (Chapter 5)
  478. Risk and Return (Chapters 11 and 12)
  479. Efficient Capital Markets (Chapter 7)
  480. MM’s Irrelevance Propositions (Chapters 16 and 17)
  481. Option Theory (Chapter 23)
  482. Agency Theory
  483. 25.2 What We Do Not Know: Nine Unsolved Problems in Finance
  484. What Determines Project Risk and Present Value?
  485. Risk and Return—Have We Missed Something?
  486. Are There Important Exceptions to the Efficient-Market Theory?
  487. Is Management an Off-Balance-Sheet Liability?
  488. How Can We Explain Capital Structure?
  489. How Can We Resolve the Payout Controversy?
  490. How Can We Explain Merger Waves?
  491. What Is the Value of Liquidity?
  492. Why Are Financial Systems Prone to Crisis?
  493. What Should Be the Goals of the Corporation?
  494. 25.3 A Final Word
  495. Questions and Problems
  496. Appendix A
  497. Glossary
  498. Index

 

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