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Solution Manual for Financial Management Principles and Applications 8th Australian Edition by Titman

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ISBN-10 ‏ : ‎ 148861721X
ISBN-13 ‏ : ‎ 978-1488617218
Author: Sheridan Titman Tony Martin John Martin;

Financial Management is a total learning package that reflects the vitality of an ever-expanding discipline, building on the foundations of economics and accounting.

Adapted for the Australian market, students are presented with a cohesive, inter-related subject that they can use when approaching problems. Building on the strengths of the previous edition, this edition refines content, creating a modern teaching approach.

Five key principles are woven throughout the text using multiple teaching methods, forming a rationalised, coherent, integrated and intuitive problem-solving approach.

Part 1 Introduction to financial management
Chapter 1 Getting started—Principles of finance
Finance Spotlight Welcome to the world of finance
1.1 Finance: an overview
What is finance?
Why study finance?
1.2 Three types of business organisation
Sole proprietorship
Partnership
Corporation
How does finance fit into a firm’s organisational structure?
1.3 The goal of the financial manager
Maximising shareholder wealth
Ethical considerations in corporate finance
Finance Spotlight Ethical considerations arising from Bond issues
1.4 The five basic principles of finance
Principle 1: Money has a time value
Principle 2: There is a risk-return trade-off
Principle 3: Cash flows are the source of value
Principle 4: Market prices reflect information
Principle 5: Individuals respond to incentives
Chapter summary
Study questions
Endnotes
Chapter 2 Firms and the financial market
Finance Spotlight Superannuation—defined benefit versus defined contribution
2.1 The basic structure of the Australian financial markets
2.2 The financial marketplace: financial institutions
Commercial banks: everyone’s financial marketplace
Non-bank financial intermediaries
Investment companies
Finance Spotlight Controlling costs in managed funds
2.3 The financial marketplace: securities markets
How securities markets bring corporations and investors together
Types of security
Stock markets
Finance Spotlight Where’s the money around the world?
Financial markets and the Global Financial Crisis (GFC)
Chapter summary
Study questions
Endnotes
Chapter 3 Understanding financial statements, taxes and cash flows
3.1 An overview of the firm’s financial statements
Finance Spotlight Accounting is the language of business
Basic financial statements
Why study financial statements?
What are the accounting principles used to prepare financial statements?
3.2 The income statement
Income statement of H. J. Boswell Ltd
Connecting the income statement and the balance sheet
Interpreting firm profitability using the income statement
IFRS and earnings management
Checkpoint 3.1 Constructing an income statement
3.3 Corporate tax, personal tax and dividend imputation
Calculating taxable income and company tax payable
Personal income tax and capital gains tax
Checkpoint 3.2 Calculation of personal income tax and capital gains tax
Dividend imputation
Checkpoint 3.3 Comparison between a classical tax system and a dividend imputation tax system
3.4 The balance sheet
The balance sheet of H. J. Boswell Ltd
Firm liquidity and net working capital
Debt and equity financing
Checkpoint 3.4 Constructing a balance sheet
Book values, historical costs and market values
Finance Spotlight Your personal balance sheet and income statement
3.5 The cash flow statement
Sources and uses of cash
H. J. Boswell’s cash flow statement
Finance Spotlight IFRS versus GAAP
Checkpoint 3.5 Interpreting the statement of cash flows
Chapter summary
Study questions
Study problems
Mini-case
Endnotes
Chapter 4 Financial analysis: sizing up firm performance
Finance Spotlight Financial ratios and business
4.1 Why do we analyse financial statements?
4.2 Common-size statements: standardising financial information
The common-size income statement: H. J. Boswell Ltd
The common-size balance sheet: H. J. Boswell Ltd
4.3 Using financial ratios
Liquidity ratios
Checkpoint 4.1 Evaluating James Hardie Industries PLC’s liquidity
Capital structure ratios
Asset management efficiency ratios
Checkpoint 4.2 Comparing the financing decisions of Wesfarmers Ltd and Woolworths Ltd
Profitability ratios
Checkpoint 4.3 Evaluating the return on assets for Wesfarmers Ltd and Woolworths Ltd
Market value ratios
Finance Spotlight Your cash budget and personal savings ratio
Checkpoint 4.4 Comparing Treasury Wine Estates with Australian Vintage using market value ratios
Summing up the financial analysis of H. J. Boswell Ltd
Finance Spotlight Ratios and international accounting standards
4.4 Selecting a performance benchmark
Trend analysis
Peer-firm comparisons
4.5 Limitations of ratio analysis
Chapter summary
Study questions
Study problems
Mini-case
Endnotes
Part 2 Valuation of financial assets
Chapter 5 The time value of money—The basics
Finance Spotlight A dollar saved is two dollars earned
5.1 Using timelines to visualise cash flows
Checkpoint 5.1 Creating a timeline
5.2 Compounding and future value
Compound interest and time
Compound interest and the interest rate
Techniques for valuing cash flows at different points in time
Applying compounding to things other than money
Checkpoint 5.2 Calculating the future value of a cash flow
Compound interest with shorter compounding periods
Checkpoint 5.3 Calculating future values using non-annual compounding periods
Finance Spotlight Saving for your first house
5.3 Discounting and present value
The mechanics of discounting future cash flows
Checkpoint 5.4 Solving for the present value of a future cash flow
Discounting with shorter discounting periods
Two additional types of discounting problem
The Rule of 72
Checkpoint 5.5 Solving for the number of periods, n
Checkpoint 5.6 Solving for the interest rate, i
5.4 Making interest rates comparable
Calculating the interest rate and converting it to an EAR
Checkpoint 5.7 Calculating an effective annual rate (EAR)
To the extreme: continuous compounding
Chapter summary
Study questions
Study problems
Mini-case
Chapter 6 The time value of money—Annuities and other topics
Finance Spotlight Annuities we all know
6.1 Annuities
Ordinary annuities
Checkpoint 6.1 Solving for an ordinary annuity payment
Checkpoint 6.2 The present value of an ordinary annuity
Amortised loans
Checkpoint 6.3 Determining the outstanding balance of a loan
Annuities due
Finance spotlight Saving for retirement
6.2 Perpetuities
Calculating the present value of a level perpetuity
Checkpoint 6.4 The present value of a level perpetuity
Calculating the present value of a growing perpetuity
Checkpoint 6.5 The present value of a growing perpetuity
6.3 Complex cash-flow streams
Checkpoint 6.6 The present value of a complex cash-flow stream
Chapter summary
Study questions
Study problems
Mini-case
Chapter 7 Risk and return—An introduction: history of financial market returns
Finance Spotlight Using statistics
7.1 Realised and expected rates of return and risk
Calculating the realised return from an investment
Calculating the expected return from an investment
Measuring risk
Checkpoint 7.1 Evaluating an investment’s return and risk
7.2 A brief history of financial market returns
Australian financial markets: domestic investment returns
Lessons learned
Australian shares versus other categories of investment
Global financial markets: international investing
Finance Spotlight Determining your tolerance for risk
7.3 Geometric versus arithmetic average rates of return
Calculating the geometric or compound average rate of return
Choosing the right ‘average’
Checkpoint 7.2 Calculating the arithmetic and geometric average rates of return
7.4 What determines share prices?
The efficient markets hypothesis
Do we expect financial markets to be perfectly efficient?
Market efficiency: what does the evidence show?
Chapter summary
Study questions
Study problems
Mini-case
Endnotes
Chapter 8 Risk and return—Capital market theory
Finance Spotlight Risk and your personal investment plan
8.1 Portfolio returns and portfolio risk
Calculating the expected return of a portfolio
Checkpoint 8.1 Calculating a portfolio’s expected rate of return
Evaluating portfolio risk
Calculating the standard deviation of a portfolio’s returns
Finance Spotlight International diversification
Checkpoint 8.2 Evaluating a portfolio’s risk and return
8.2 Systematic risk and the market portfolio
Diversification and unsystematic risk
Diversification and systematic risk
Systematic risk and beta
Calculating the portfolio beta
8.3 The security market line and the CAPM
Using the CAPM to estimate expected rates of return
Checkpoint 8.3 Estimating the expected rate of return using the CAPM
Chapter summary
Study questions
Study problems
Mini-case
Endnotes
Chapter 9 Debt valuation and interest rates
Finance Spotlight Borrow now, pay later
9.1 Overview of government and corporate debt
Borrowing money in the private financial market
Borrowing money in the public financial market
Checkpoint 9.1 Calculating the rate of interest on a floating-rate loan
Basic bond features
Finance Spotlight Fixed- and variable-rate mortgages
9.2 Valuing bonds
Valuing bonds by discounting future cash flows
Step 1: Determine bondholder cash flows
Step 2: Estimate the appropriate discount rate
Checkpoint 9.2 Calculating the yield to maturity on a corporate bond
Step 3: Calculate the present value using the discounted cash flow
Checkpoint 9.3 Valuing a bond issue
Checkpoint 9.4 Valuing a bond issue that pays semi-annual interest
9.3 Bond valuation: four key relationships
First relationship
Second relationship
Third relationship
Fourth relationship
9.4 Types of bond
Secured versus unsecured
Priority of claims
Initial offering market
Abnormal risk
Coupon level
Amortising or non-amortising
Convertibility
Finance Spotlight International bonds
9.5 Determinants of interest rates
Inflation and real versus nominal interest rates
Checkpoint 9.5 Solving for the real rate of interest
Interest rate determinants: breaking it down
Checkpoint 9.6 Solving for the nominal rate of interest
The maturity-risk premium and the term structure of interest rates
Chapter summary
Study questions
Study problems
Mini-case
Endnotes
Chapter 10 Share valuation
Finance Spotlight Getting your fair share
10.1 Ordinary shares
Characteristics of ordinary shares
Finance Spotlight Does a share by any other name smell as sweet?
Agency costs and ordinary shares
Valuing ordinary shares using the discounted dividend model
Checkpoint 10.1 Valuing ordinary shares
10.2 The comparables approach to valuing ordinary shares
Defining the price-earnings (P/E) ratio valuation model
What determines the P/E ratio for a share?
Checkpoint 10.2 Valuing ordinary shares using the P/E ratio
An aside on managing for shareholder value
A word of caution about P/E ratios
10.3 Preference shares
Features of preference shares
Valuing preference shares
Checkpoint 10.3 Valuing preference shares
A quick review: valuing bonds, preference shares and ordinary shares
Chapter summary
Study questions
Study problems
Mini-case
Endnotes