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vi Contents
4 Bond Valuation 118 Box: Corporate Valuation and Stock

Beginning of Chapter Questions 119 Prices 165
Who Issues Bonds? 119 Types of Common Stock 166
Box: intrinsic Value and the Cost of The Market Stock Price versus Intrinsic
debt 120 Value 167
Box: the Global Economic Crisis: Stock Market Reporting 169
Betting With or Against the Valuing Common Stocks 170
U.S. Government: the Case of Valuing a Constant Growth
treasury Bond Credit default Stock 173
Swaps 121 Expected Rate of Return on a Constant
Key Characteristics of Bonds 122 Growth Stock 177
Bond Valuation 126 Valuing Nonconstant Growth
Changes in Bond Values over Time 130 Stocks 179
Bonds with Semiannual Coupons 133 Stock Valuation by the Free Cash Flow
Box: drinking Your Coupons 133 Approach 183
Bond Yields 134 Market Multiple Analysis 183
The Pre-Tax Cost of Debt: Determinants of Preferred Stock 184
Market Interest Rates 138 Stock Market Equilibrium 185
The Real Risk-Free Rate of Interest, r* 139 The Efficient Markets Hypothesis 189
The Inflation Premium (IP) 140 Box: Rational Behavior versus
The Nominal, or Quoted, Risk-Free Rate Animal Spirits, Herding, and
of Interest, rRF 141 Anchoring Bias 192
The Default Risk Premium (DRP) 142 Summary 193
Box: the Global Economic 6 Financial options 204
Crisis: insuring with Credit Beginning of Chapter Questions 205
default Swaps: Let the Buyer Box: the intrinsic Value of Stock
Beware! 144 options 205
Box: the Global Economic Overview of Financial Options 206
Crisis: U.S. treasury Bonds Box: Financial Reporting for
downgraded! 146 Employee Stock options 209
Box: the Few, the Proud, the… The Single-Period Binomial Option
AAA-Rated Companies! 147 Pricing Approach 209
Box: the Global Economic Crisis: The Single-Period Binomial Option
Are investors Rational? 148 Pricing Formula 214
The Liquidity Premium (LP) 149 The Multi-Period Binomial Option Pricing
The Maturity Risk Premium (MRP) 149 Model 216
The Term Structure of Interest Rates 152 The Black-Scholes Option Pricing Model
Financing with Junk Bonds 153 (OPM) 219
Bankruptcy and Reorganization 154 Box: taxes and Stock
Summary 155 options 224
5 Basic Stock Valuation 163 The Valuation of Put Options 225
Beginning of Chapter Questions 164 Applications of Option Pricing in
Legal Rights and Privileges of Common Corporate Finance 227
Stockholders 164 Summary 230
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
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Contents vii
7 Accounting for Financial Tying the Ratios Together: The Du Pont

Management 234 Equation 299
Beginning of Chapter Questions 235 Comparative Ratios and
Financial Statements and Reports 235 Benchmarking 301
Box: intrinsic Value, Free Cash Flow, Uses and Limitations of Ratio
and Financial Statements 236 Analysis 302
The Balance Sheet 236 Box: Ratio Analysis on the
Box: the Global Economic Crisis: Web 303
Let’s Play Hide-and-Seek! 238 Looking beyond the Numbers 304
The Income Statement 238 Summary 304
Statement of Stockholders’
Equity 240
Net Cash Flow 241 Part ii CorPoratE valuation
Box: Financial Analysis on the 9 Financial Planning and
Web 242 Forecasting Financial
Statement of Cash Flows 243 Statements 316
Box: Filling in the GAAP 246 Beginning of Chapter Questions 317
Modifying Accounting Data for Overview of Financial Planning 317
Managerial Decisions 247 Box: Corporate Valuation and
Box: Financial Bamboozling: How to Financial Planning 318
Spot it 250 Sales Forecast 320
MVA and EVA 256 Additional Funds Needed (AFN)
Box: Sarbanes-oxley and Financial Equation Method 322
Fraud 259 Forecasted Financial Statements
The Federal Income Tax System 260 Method 327
Summary 266 Forecasting When the Ratios
8 Analysis of Financial Change 342
Statements 278 Summary 345
Beginning of Chapter Questions 279 10 determining the Cost of
Financial Analysis 279 Capital 356
Box: intrinsic Value and Analysis of Beginning of Chapter Questions 357
Financial Statements 280 The Weighted Average Cost of
Liquidity Ratios 281 Capital 357
Asset Management Ratios 284 Box: Corporate Valuation and the
Box: the Global Economic Crisis: the Cost of Capital 358
Price is Right (or Wrong!) 285 Basic Definitions 360
Debt Management Ratios 287 Cost of Debt, rd(1 – T) 361
Profitability Ratios 290 Cost of Preferred Stock, rps 364
Box: the World Might be Flat, but Box: GE and Warren Buffett: the
Global Accounting isn’t: iFRS Cost of Preferred Stock 365
Versus FASB 292 Cost of Common Stock, rs 366
Market Value Ratios 294 The CAPM Approach 367
Trend Analysis, Common Size Dividend-Yield-Plus-Growth-Rate,
Analysis, and Percentage Change or Discounted Cash Flow (DCF),
Analysis 297 Approach 375
viii Contents
Own-Bond-Yield-Plus-Judgmental-Risk- Employee Stock Ownership Plans

Premium Approach 378 (ESOPs) 438
Comparison of the CAPM, DCF, and Summary 441
Own-Bond-Yield-Plus-Judgmental-
Risk-Premium Methods 379
Adjusting the Cost of Equity for Flotation Part iii ProjECt valuation
Costs 380 12 Capital Budgeting: decision
Composite, or Weighted Average, Cost Criteria 452
of Capital, WACC 382 Beginning of Chapter Questions 453
Box: Global Variations in the Cost of An Overview of Capital
Capital 384 Budgeting 453
Factors That Affect the WACC 385 Box: Corporate Valuation and
Adjusting the Cost of Capital for Capital Budgeting 454
Risk 387 Net Present Value (NPV) 456
Privately Owned Firms and Small Internal Rate of Return (IRR) 459
Businesses 390 Multiple Internal Rates of Return 462
Four Mistakes to Avoid 391 Reinvestment Rate Assumptions 464
Summary 392 Modified Internal Rate of Return
11 Corporate Valuation and Value- (MIRR) 466
Based Management 404 NPV Profiles 468
Beginning of Chapter Questions 405 Profitability Index (PI) 471
Overview of Corporate Valuation 405 Payback Period 472
Box: Corporate Valuation: Putting Conclusions on Capital Budgeting
the Pieces together 406 Methods 475
The Corporate Valuation Model 407 Decision Criteria Used in Practice 477
Value-Based Management 415 Other Issues in Capital Budgeting 477
Managerial Behavior and Shareholder Summary 484
Wealth 424 13 Capital Budgeting: Estimating
Corporate Governance 425 Cash Flows and Analyzing
Box: Let’s Go to Miami! iBM’s 2009 Risk 495
Annual Meeting 427 Beginning of Chapter Questions 496
Box: the Global Economic Crisis: Conceptual Issues 496
Would the U.S. Government Box: Corporate Valuation, Cash
Be an Effective Board Flows, and Risk Analysis 497
director? 430 Analysis of an Expansion Project 502
Box: the Global Economic Crisis: Risk Analysis in Capital Budgeting 508
Shareholder Reactions to the Measuring Stand-Alone Risk 509
Crisis 433 Sensitivity Analysis 510
Box: the Sarbanes-oxley Act Scenario Analysis 512
of 2002 and Corporate Monte Carlo Simulation 515
Governance 434 Box: the Global Economic Crisis:
Box: international Corporate Are Bank Stress tests Stressful
Governance 437 Enough? 519
Contents ix
Project Risk Conclusions 520 16 Capital Structure decisions:

Box: Capital Budgeting Part ii 613
Practices in the Asian/Pacific Beginning of Chapter Questions 614
Region 521 Capital Structure Theory: Arbitrage
Replacement Analysis 522 Proofs of the Modigliani-Miller
Real Options 523 Models 614
Phased Decisions and Decision Box: Corporate Valuation and
Trees 525 Capital Structure decisions 615
Summary 529 Introducing Personal Taxes: The Miller
14 Real options 544 Model 625
Beginning of Chapter Questions 545 Criticisms of the MM and Miller
Valuing Real Options 545 Models 629
The Investment Timing Option: An Extension of the MM Model:
An Illustration 546 Nonzero Growth and a Risky Tax
The Growth Option: Shield 631
An Illustration 556 Risky Debt and Equity as an
Concluding Thoughts on Real Option 634
Options 560 Capital Structure Theory: Our View 639
Summary 563 Summary 641
17 distributions to Shareholders:
Part iv stratEgiC FinanCing dividends and Repurchases 648
DECisions Beginning of Chapter Questions 649
15 Capital Structure decisions: An Overview of Cash Distributions 649
Part i 570 Box: Uses of Free Cash
Beginning of Chapter Questions 571 Flow: distributions to
A Preview of Capital Structure Shareholders 650
Issues 571 Procedures for Cash Distributions 651
Box: Corporate Valuation and Cash Distributions and Firm Value 654
Capital Structure 572 Clientele Effect 657
Business Risk and Financial Risk 574 Information Content, or Signaling,
Capital Structure Theory 581 Hypothesis 658
Box: Yogi Berra on the MM Implications for Dividend Stability 660
Proposition 583 Setting the Target Distribution Level:
Capital Structure Evidence and The Residual Distribution
Implications 590 Model 660
Box: taking a Look at Global Capital Box: the Global Economic Crisis:
Structures 592 Will dividends Ever Be the
Estimating the Optimal Capital Same? 661
Structure 594 The Residual Distribution Model in
Anatomy of a Recapitalization 599 Practice 663
Box: the Global Economic Crisis: A Tale of Two Cash Distributions:
deleveraging 603 Dividends versus Stock
Summary 604 Repurchases 664
x Contents
The Pros and Cons of Dividends and Box: tVA Ratchets down its interest
Repurchases 673 Expenses 721
Box: dividend Yields around the Managing the Risk Structure of Debt with
World 675 Project Financing 723
Other Factors Influencing Summary 725
Distributions 675 19 Lease Financing 732
Summarizing the Distribution Policy Beginning of Chapter Questions 733
Decision 676 Types of Leases 733
Stock Splits and Stock Tax Effects 736
Dividends 678 Financial Statement Effects 737
Box: the Global Economic Box: off–Balance Sheet Financing: is
Crisis: talk about a Split it Going to disappear? 740
Personality! 679 Evaluation by the Lessee 740
Dividend Reinvestment Plans 681 Evaluation by the Lessor 745
Summary 682 Other Issues in Lease Analysis 747
Box: What You don’t Know Can
Part v taCtiCal FinanCing Hurt You! 748
DECisions Box: Lease Securitization 750
Other Reasons for Leasing 751
18 initial Public offerings, investment
Summary 753
Banking, and Financial
Restructuring 692 20 Hybrid Financing: Preferred
Beginning of Chapter Questions 693 Stock, Warrants, and
The Financial Life Cycle of a Start-up Convertibles 760
Beginning of Chapter Questions 761
Company 693
Preferred Stock 761
The Decision to Go Public 694
Box: the Romance Had no
The Process of Going Public: An Initial
Chemistry, But it Had a Lot of
Public Offering 696
Preferred Stock! 763
Equity Carve-outs: A Special Type of
Box: Hybrids Aren’t only for
IPO 705
Corporations 764
Other Ways to Raise Funds in the Capital
Warrants 766
Markets 705
Convertible Securities 772
Box: Bowie Bonds CH-CH-Change
A Final Comparison of
Asset Securitization 709
Warrants and Convertibles 780
Investment Banking Activities and
Reporting Earnings When
Their Role in the Global Economic
Warrants or Convertibles Are
Crisis 710
Outstanding 781
The Decision to Go Private 711
Summary 782
Box: the Global Economic Crisis:
What Was the Role of investment
Banks? 712 Part vi Working CaPital
Managing the Maturity managEmEnt
Structure of Debt 714 21 Working Capital Management 790
Refunding Operations 716 Beginning of Chapter Questions 791
Contents xi
Current Asset Holdings 791 The Payments Pattern Approach to

Box: Corporate Valuation Monitoring Receivables 846
and Working Capital Analyzing Proposed Changes in Credit
Management 792 Policy 851
Current Assets Financing Policies 794 Analyzing Proposed Changes in Credit
The Cash Conversion Cycle 797 Policy: Incremental Analysis 853
Box: Some Firms operate with The Cost of Bank Loans 859
negative Working Capital! 803 Choosing a Bank 866
The Cash Budget 803 Summary 867
Cash Management and the Target Cash 23 other topics in Working Capital
Balance 807 Management 877
Box: the CFo Cash Management Beginning of Chapter Questions 878
Scorecard 808 The Concept of Zero Working Capital 878
Cash Management Techniques 809 Setting the Target Cash Balance 879
Box: Your Check isn’t in the Inventory Control Systems 885
Mail 811 Accounting for Inventory 886
Inventory Management 812 The Economic Ordering Quantity (EOQ)
Box: Supply Chain Model 888
Management 812 EOQ Model Extensions 895
Receivables Management 814 Summary 900
Box: Supply Chain Finance 816
Accruals and Accounts Payable
(Trade Credit) 818 Part vii sPECial toPiCs
Box: A Wag of the Finger or tip of 24 derivatives and Risk
the Hat? the Colbert Report Management 908
and Small Business Payment Beginning of Chapter Questions 909
terms 819 Reasons to Manage Risk 909
Short-Term Marketable Securities 822 Box: Corporate Valuation and Risk
Short-Term Financing 824 Management 910
Short-Term Bank Loans 824 Background on Derivatives 913
Commercial Paper 828 Derivatives in the News 914
Use of Security in Short-Term Other Types of Derivatives 917
Financing 829 Corporate Risk Management 923
Summary 830 Box: Enterprise Risk Management
22 Providing and obtaining and Value at Risk 926
Credit 842 Using Derivatives to Reduce Risks 927
Beginning of Chapter Questions 843 Box: Risk Management in the Cyber
Credit Policy 843 Economy 931
Setting the Credit Period and Summary 935
Standards 844 25 Bankruptcy, Reorganization, and
Setting the Collection Policy 845 Liquidation 940
Cash Discounts 845 Beginning of Chapter Questions 941
Other Factors Influencing Credit Financial Distress and Its
Policy 846 Consequences 941
xii Contents
Issues Facing a Firm in Financial Holding Companies 1007

Distress 943 Summary 1009
Settlements without Going through 27 Multinational Financial
Formal Bankruptcy 944 Management 1016
Federal Bankruptcy Law 946 Beginning of Chapter Questions 1017
Reorganization in Bankruptcy 947 Multinational, or Global,
Liquidation in Bankruptcy 957 Corporations 1017
Other Motivations for Bankruptcy 960 Box: Corporate Valuation in a
Box: A nation of defaulters? 961 Global Context 1018
Some Criticisms of Bankruptcy Multinational versus Domestic Financial
Laws 962 Management 1019
Summary 963 Exchange Rates 1020
26 Mergers, LBos, divestitures, and Exchange Rates and International
Holding Companies 970 Trade 1023
Beginning of Chapter Questions 971 The International Monetary System and
Rationale for Mergers 972 Exchange Rate Policies 1025
Types of Mergers 975 Trading in Foreign Exchange 1029
Level of Merger Activity 975 Interest Rate Parity 1030
Hostile versus Friendly Takeovers 976 Purchasing Power Parity 1032
Merger Regulation 978 Box: Hungry for a Big Mac? Go to
Overview of Merger Analysis 979 Ukraine! 1034
The Adjusted Present Value (APV) Inflation, Interest Rates, and Exchange
Approach 980 Rates 1036
The Free Cash Flow to Equity (FCFE) International Money and Capital
Approach 983 Markets 1037
Illustration of the Three Valuation Box: Greasing the Wheels of
Approaches for a Constant Capital international Business 1037
Structure 985 Box: Stock Market indices around
Setting the Bid Price 991 the World 1040
Analysis When There Is a Multinational Capital Budgeting 1041
Permanent Change in Capital Box: Consumer Finance in
Structure 993 China 1042
Taxes and the Structure of the Takeover International Capital Structures 1045
Bid 995 Multinational Working Capital
Box: tempest in a teapot? 996 Management 1047
Financial Reporting for Mergers 999 Summary 1050
Analysis for a “True Consolidation” 1001
The Role of Investment Bankers 1002 Appendixes
Who Wins: The Empirical Appendix A Values of the Areas under
Evidence 1003 the Standard Normal Distribution
Box: Merger Mistakes 1004 Function 1057
Corporate Alliances 1005 Appendix B Answers to End-of-Chapter
Leveraged Buyouts 1006 Problems 1059
Divestitures 1006 Appendix C Selected Equations 1069
Contents xiii
Glossary 1085 Web Extension 10-A The Required

Name Index 1109 Return Assuming Nonconstant
Subject Index 1115 Dividends and Stock Repurchases
No Web Extension for Chapter 11
Web Extension 12-A The Accounting
Web Chapters Rate of Return (ARR)
28 Time Value of Money Web Extension 13-A Certainty
29 Basic Financial Tools: A Review Equivalents and Risk-Adjusted
30 Pension Plan Management Discount Rates
31 Financial Management in Not-for- Web Extension 14-A The Abandonment
Profit Businesses Real Option
Web Extension 14-B Risk-Neutral
Web Extensions Valuation
Web Extension 1-A An Overview of Web Extension 15-A Degree of Leverage
Derivatives No Web Extension for Chapter 16
Web Extension 1-B A Closer Look at the No Web Extension for Chapter 17
Stock Markets Web Extension 18-A Rights Offerings
Web Extension 2-A Continuous Web Extension 19-A Leasing Feedback
Probability Distributions Web Extension 19-B Percentage Cost
Web Extension 2-B Estimating Beta with Analysis
a Financial Calculator Web Extension 19-C Leveraged Leases
No Web Extension for Chapter 3 Web Extension 20-A Calling Convertible
Web Extension 4-A A Closer Look at Issues
Zero Coupon Bonds Web Extension 21-A Secured Short-Term
Web Extension 4-B A Closer Look at TIPS: Financing
Treasury Inflation-Protected Securities No Web Extension for Chapter 22
Web Extension 4-C A Closer Look at No Web Extension for Chapter 23
Bond Risk: Duration Web Extension 24-A Risk Management
Web Extension 4-D The Pure with Insurance
Expectations Theory and Estimation of Web Extension 25-A Multiple
Forward Rates Discriminant Analysis
Web Extension 5-A Derivation of Web Extension 26-A Projecting
Valuation Equations Consistent Debt and Interest Expenses
No Web Extension for Chapter 6 No Web Extension for Chapter 27
Web Extension 7-A The Federal Income Web Extension 28-A The Tabular
Tax System for Individuals Approach
No Web extension for Chapter 8 Web Extension 28-B Derivation of
Web Extension 9-A Advanced Annuity Formulas
Techniques for Forecasting Financial Web Extension 28-C Continuous
Statements Accounts Compounding
© Nikada/iStockphoto.com
Preface
Much has happened in finance recently. Years ago, when the body of knowledge
was smaller, the fundamental principles could be covered in a one-term lecture
course and then reinforced in a subsequent case course. This approach is no longer
WEB
feasible. There is simply too much material to cover in one lecture course.
As the body of knowledge expanded, we and other instructors experienced students: Access the
increasing difficulties. Eventually, we reached these conclusions: Intermediate Financial
Management 11e com-
• The introductory course should be designed for all business students, not just
panion site and online
for finance majors, and it should provide a broad overview of finance. There- student resources by visit-
fore, a text designed for the first course should cover key concepts but avoid ing www.cengagebrain.
confusing students by going beyond basic principles. com, searching ISBN
• Finance majors need a second course that provides not only greater depth on 9781111530266, and
the core issues of valuation, capital budgeting, capital structure, cost of capital, clicking “Access Now”
and working capital management but also covers such special topics as merg- under “Study Tools” to go
ers, multinational finance, leasing, risk management, and bankruptcy. to the student textbook
• This second course should also utilize cases that show how finance theory is companion site.
used in practice to help make better financial decisions. instructors: Access the
Intermediate Financial
When we began teaching under the two-course structure, we tried two types Management 11e com-
of existing books, but neither worked well. First, there were books that emphasized panion site and instructor
theory, but they were unsatisfactory because students had difficulty seeing the use- resources by going to
fulness of the theory and consequently were not motivated to learn it. Moreover, login.cengage.com, log-
these books were of limited value in helping students deal with cases. Second, there ging in with your faculty
were books designed primarily for the introductory MBA course that contained account username and
the required material, but they also contained too much introductory material. We password, and using ISBN
eventually concluded that a new text was needed, one designed specifically for the 9781111530266 to reach
second financial management course, and that led to the creation of Intermediate the site through your ac-
count “Bookshelf.”
Financial Management, or IFM for short.
The Next Level: Intermediate Financial

Management
In your introductory finance course you learned a number of terms and concepts.
However, an intro course cannot make you “operational” in the sense of actually
“doing” financial management. For one thing, introductory courses necessarily fo-
cus on individual chapters and even sections of chapters, and first-course exams
generally consist of relatively simple problems plus short-answer questions. As a
result, it is hard to get a good sense of how the various parts of financial man-
agement interact with one another. Second, there is not enough time in the intro
course to allow students to set up and work out realistic problems, nor is there time
to delve into actual cases that illustrate how finance theory is applied in practice.
xvi Preface
Now it is time to move on. In Intermediate Financial Management, we first re-

view materials that were covered in the introductory course, then take up new ma-
terial. The review is absolutely essential, because no one can remember everything
that was covered in the first course, yet all of the introductory material is essential
for a good understanding of the more advanced material. Accordingly, we revisit
topics such as the net present value (NPV) and internal rate of return (IRR) methods,
but now we delve into them more deeply, considering how to streamline and auto-
mate the calculations, how to obtain the necessary data, and how errors in the data
might affect the outcome. We also relate the topics covered in different chapters to
one another, showing, for example, how cost of capital, capital structure, dividend
policy, and capital budgeting combine forces to affect the firm’s value.
Also, because spreadsheets such as Excel, not financial calculators, are used for
most real-world calculations, students need to be proficient with spreadsheets so
that they will be more marketable after graduation. Therefore, we explain how to
do various types of financial analysis with Excel. Working with Excel actually has
two important benefits: (1) a knowledge of Excel is important in the workplace and
the job market, and (2) setting up spreadsheet models and analyzing the results also
provide useful insights into the implications of financial decisions.
Corporate Valuation as a Unifying Theme

Management’s goal is to maximize firm value. Job candidates who understand the
theoretical underpinning for value maximization and have the practical skills to an-
alyze business decisions within this context make better, more valuable employees.
Our goal is to provide you with both this theoretical underpinning and a practical
skill set. To this end we have developed several integrating features that will help
you to keep the big picture of value maximization in mind while you are honing
your analytical skills:
• Every chapter starts off with a series of integrating Beginning of Chapter Ques-
tions that will help you to place the material in the broader context of financial
management.
• Most chapters have a valuation graphic and description that show exactly how
the material relates to corporate valuation.
• Each chapter has a Mini Case that provides a business context for the material.
• Each chapter has an Excel spreadsheet Tool Kit that steps through all of the
calculations in the chapter.
• Each chapter has a spreadsheet Build-a-Model that steps you through con-
structing an Excel model to work problems. We’ve designed these features and
tools so that you’ll finish your course with the skills to analyze business deci-
sions and the understanding of how these decisions impact corporate value.
Design of the Book

Based on more than 30 years working on Intermediate Financial Management and
teaching the advanced undergraduate financial management course, we have con-
cluded that the book should include the following features:
• Completeness. Because IFM is designed for finance majors, it should be self-
contained and suitable for reference purposes. Therefore, we specifically and
purposely included (a) some material that overlaps with introductory finance
Preface xvii
texts and (b) more material than can realistically be covered in a single course.
We included in Chapters 2 through 5 some fundamental materials borrowed
directly from other Cengage Learning texts. If an instructor chooses to cover
this material, or if an individual student feels a need to cover it on his or her
own, it is available. In other chapters, we included relatively brief reviews of
first-course topics. This was necessary both to put IFM on a stand-alone basis
and to help students who have a delay between their introductory and second
financial management courses get up to speed before tackling new material.
This review is particularly important for working capital management and such
“special topics” as mergers, lease analysis, and convertibles—all of which are
often either touched on only lightly or skipped in the introductory course.
Thus, the variety of topics covered in the text provides adopters with a choice
of materials for the second course, and students can use materials that were
not covered for reference purposes. We note, though, that instructors must be
careful not to bite off more than their students can chew.
• Theory and applications. Financial theory is useful to financial decision mak-
ers, both for the insights it provides and for direct application in several im-
portant decision areas. However, theory can seem sterile and pointless unless
its usefulness is made clear. Therefore, in IFM, we present theory in a decision-
making context, which motivates students by showing them how theory can
lead to better decisions. The combination of theory and applications also makes
the text more usable as a reference for case courses as well as for real-world
decision making.
• Computer orientation. Today, a business that does not use computers in its
financial planning is about as competitive as a student who tries to take a
finance exam without a financial calculator. Throughout the text we provide
computer spreadsheet examples for the calculations and spreadsheet problems
for the students to work. This emphasis on spreadsheets both orients students
to the business environment they will face upon graduation and helps them
understand key financial concepts better.
• Global perspective. Successful businesses know that the world’s economies are
rapidly converging, that business is becoming globalized, and that it is difficult
to remain competitive without being a global player. Even purely domestic
firms cannot escape the influence of the global economy, because interna-
tional events have a significant effect on domestic interest rates and economic
activity. All of this means that today’s finance students—who are tomorrow’s
financial executives—must develop a global perspective. To this end, IFM also
contains an entire chapter on multinational financial management. In addition,
to help students “think global,” we provide examples throughout the text that
focus on the types of global problems companies face. Of course, we cannot
make multinational finance experts out of students in a conventional corporate
finance course, but we can help them recognize that insular decision making is
insufficient in today’s world.
Beginning of Chapter Questions

We start each chapter with several Beginning of Chapter (BOC) questions. You will
be able to answer some of the questions before you even read the chapter, and you
will be able to give better answers after you have read it. Other questions are harder,
and you won’t feel truly comfortable answering them until after they have been dis-
cussed in class. We considered putting the questions at the ends of the chapters, but
xviii Preface
we concluded that they would best serve our purposes if placed at the beginning.
Here is a summary of our thinking as we wrote the questions:
• The questions indicate to you the key issues covered in the chapter and the
things you should know when you complete the chapter.
• Some of the questions were designed to help you remember terms and concepts
that were covered in the introductory course. Others indicate where we will be
going beyond the intro course.
• You need to be able to relate different parts of financial management to one
another, so some of the BOC questions were designed to get you to think about
how the various chapters are related to one another. These questions tend to be
harder, and they can be answered more completely after a classroom discus-
sion.
• You also need to think about how financial concepts are applied in the real
world, so some of the BOC questions focus on the application of theories to the
decision process. Again, complete answers to these questions require a good bit
of thought and discussion.
• Some of the BOC questions are designed to help you see how Excel can be used
to make better financial decisions. These questions have accompanying models
that provide tutorials on Excel functions and commands. The completed mod-
els are available on the textbook’s website. Going through them will help you
learn how to use Excel as well as give you valuable insights into the financial
issues covered in the chapter. We have also provided an “Excel Tool Locater,”
which is an index of all of the Excel skills that the BOC models go over. This
index is in the Excel file, Excel Locations.xls. Because recruiters like students
who are good with Excel, this will also help you as you look for a good job. It
will also help you succeed once you are in the workplace.
We personally have used the BOC questions in several different ways:
• In some classes we simply told students to use the BOC questions or not, as they
wished. Some students did study them and retrieve the Excel models from the
Web, but many just ignored them.
• We have also assigned selected BOC questions and then used them, along with
the related Excel models, as the basis for some of our lectures.
• Most recently, we literally built our course around the BOC questions.1 Here we
informed students on day one that we would start each class by calling on them
randomly and grading them on their answers.2 We also informed them that our
exams would be taken verbatim from the BOC questions. They complained a bit
about the quizzes, but the students’ course evaluations stated that the quizzes
should be continued because without them they would have come to class less
well prepared and hence would have learned much less than they did.
• The best way to prepare for the course as we taught it was by first reading
the questions, then reading the chapter, and then writing out notes outlining
answers to the questions in preparation for the oral quiz. We expected students
to give complete answers to “easy” questions, but we gave them good grades if
1
Actually, we broke our course into two segments, one where we covered selected text chapters and
another where we covered cases that were related to and illustrated the text chapters. For the case
portion of the course, students made presentations and discussed the cases. All of the cases required
them to use Excel.
2
Most of our students were graduating seniors who were interviewing for jobs. We excused them from
class (and the quizzes) if they informed us by e-mail before class that they were interviewing.
Preface xix
they could say enough about the harder questions to demonstrate that they had
thought about how to answer them. We would then discuss the harder ques-
tions in lieu of a straight lecture, going into the related Excel models both to
explain Excel features and to provide insights into different issues.
• Our midterm and final exams consisted of five of the harder BOC questions, of
which three had to be answered in two hours in an essay format. It took a much
more complete answer to earn a good grade than would have been required
on the oral quizzes. We also allowed students to use a four-page “cheat sheet”
on the exams.3 That reduced time spent trying to memorize things as opposed
to understanding them. Also, students told us that making up the cheat sheets
was a great way to study.
Major Changes in the Eleventh Edition

As in every revision, we updated and clarified sections throughout the text.
Specifically, we also made the following changes in content:
References to, implications of, and explanations for the global economic crisis.
The text has been updated in almost every chapter to include real-world examples
of the impact of the global economic crisis on financial markets and financial man-
agement. Many chapters have focused “Global Economic Crisis” boxes that discuss
particularly important issues.
Updated big-picture graphics at the start of each chapter.
One of the major challenges students face in this second corporate finance course is
seeing how all of the topics fit together. To aid the students’ integration of the mate-
rial from chapter-to-chapter and across their finance curriculum, we’ve included a
graphic at the beginning of each chapter and in each PowerPoint show that clearly
illustrates where the chapter’s topics fit into the big picture.
Additional integration of the textbook and the accompanying Excel Tool Kit
spreadsheet models for each chapter.
Many figures in the textbook are actually screen shots from the chapter’s Excel Tool
Kit model. This serves two purposes. First, it makes the analysis more transparent
to the student; the student or instructor can go to the Tool Kit and see exactly how
all of the numbers in a figure were calculated. Second, it provides an additional
resource for students and instructors to use in learning Excel.
Significant Changes in Selected Chapters

We made many small improvements within each chapter; some of the more notable
ones are discussed below.
Chapter 1: An Overview of Financial Management and the Financial Environment
We added a new box on globalization, “Columbus Was Wrong—the World Is Flat!
And Hot, And Crowded,” and a new box on the global economic crisis, “Say Hello
to the Global Economic Crisis!” We completely rewrote the section on financial
securities, including a discussion of securitization, and added a new section on the
global crisis. New figures showing the national debt, trade balances, federal budget
3
We did require that students make up their own “cheat sheets,” and we required them to turn their sheets
in with their exams so we could check for independence.
xx Preface
deficits, and the Case-Shiller real estate index help us better illustrate different as-
pects of the global crisis.
Chapter 2: Risk and Return: Part I
We added a new box on the risk that remains even for long-term investors, “What
Does Risk Really Mean?” We added two additional boxes on risk, “How Risky Is a
Large Portfolio of Stocks?” and “Another Kind of Risk: The Bernie Madoff Story.”
Chapter 3: Risk and Return: Part II
We added a box on The Wall Street Journal contest between dart throwers and
investors, “Skill or Luck?” We expanded our discussion of the Fama-French three-
factor model and included a table showing returns of portfolios formed by sorting
on size and the book-to-market ratio.
Chapter 4: Bond Valuation
We added five new boxes related to the global economic crisis: (1) “Betting With
or Against the U.S. Government: The Case of Treasury Bond Credit Default Swaps,”
(2) “Insuring with Credit Default Swaps: Let the Buyer Beware!” (3) “U.S. Treasury
Bonds Downgraded!” (4) “The Few, the Proud, the . . . AAA-Rated Companies!” and
(5) “Are Investors Rational?” We also added a new table summarizing corporate
bond default rates and annual changes in ratings.
Chapter 5: Basic Stock Valuation
We added a new box on behavioral issues, “Rational Behavior versus Animal Spirits,
Herding, and Anchoring Bias.” We also added a new section, “The Market Stock
Price versus Intrinsic Value.”
Chapter 6: Financial Options
We completely rewrote the description of the binomial option pricing model. In ad-
dition to the hedge portfolio, we also discuss replicating portfolios. We now provide
the binomial formula, and we show the complete solution to the two-period model.
To provide greater continuity, the company used to illustrate the binomial example
is now the same company used to illustrate the Black-Scholes model. Our discussion
of put options now includes the Black-Scholes put formula.
Chapter 7: Accounting for Financial Management
We added a new box on the global economic crisis that explains the problems
associated with off-balance-sheet assets, “Let’s Play Hide-and-Seek!” We added a
new figure illustrating the uses of free cash flow. We now have two end-of-chapter
spreadsheet problems, one focusing on the articulation between the income state-
ment and statement of cash flows and one focusing on free cash flow.
Chapter 8: Analysis of Financial Statements
We added a new box on marking to market, “The Price Is Right! (Or Wrong!),” and
a new box on international accounting standards, “The World Might Be Flat, but
Global Accounting Is Bumpy! The Case of IFRS versus FASB.” We have included
discussion of the price/EBITDA ratio, gross profit margin, and operating profit mar-
gin; we also explain how to use the statement of cash flows in financial analysis.
Chapter 9: Financial Planning and Forecasting Financial Statements
It is difficult to do financial planning without using spreadsheet software, so we
completely rewrote the chapter and explicitly integrated the text and the Excel Tool
Kit model. We illustrate the ways that financial policies (i.e., dividend payout and
capital structure choices) affect financial projections, including ways to ensure that
balance sheets balance. The Excel Tool Kit model now shows a very simple way to
incorporate financing feedback effects.
Preface xxi
Chapter 10: Determining the Cost of Capital

We added a new figure to highlight the similarities and differences among capital
structure weights based on book values, market values, and target values. We added
a new box, “GE and Warren Buffett: The Cost of Preferred Stock.” We completely
rewrote our discussion of the market risk premium, which now includes the impact
of stock repurchases on estimating the market risk premium. We also present data
from surveys identifying the market risk premia used by CFOs and professors.
Chapter 11: Corporate Valuation and Value-Based Management
We added three new boxes. The first describes corporate governance issues at IBM,
“Let’s Go to Miami! IBM’s 2009 Annual Meeting.” The second discusses leadership
at bailout recipients, “Would the U.S. Government Be an Effective Board Director?”
The third discusses the 2009 proxy season, “Shareholder Reactions to the Crisis.”
Chapter 12: Capital Budgeting: Decision Criteria
We reworked the numerical examples in this chapter and the next so that they represent
a single, consistent company. We also added a new box, “Why NPV Is Better Than IRR.”
Chapter 13: Capital Budgeting: Estimating Cash Flow and Analyzing Risk
We reworked the numerical examples in this chapter and in the previous one so they
represent a single, consistent company. We also incorporated two additional decimal
places in the MACRS depreciation schedules to reflect the actual rates in the federal
tax tables. We now show how to use tornado diagrams in sensitivity analysis. We re-
wrote our discussion of Monte Carlo simulation and show how to conduct a simulation
analysis without using add-ins but instead using only Excel’s built-in features (Data
Tables and random number generators). We have included an example of replacement
analysis and an example of a decision tree showing abandonment. We added a new
box, “Are Bank Stress Tests Stressful Enough?”
Chapter 15: Capital Structure Decisions: Part I
We improved our discussion of recapitalizations within the context of the FCF valua-
tion model. We added a new box, “Deleveraging,” that discusses the changes in leverage
many companies and individuals are making in light of the global economic crisis.
Chapter 17: Distributions to Shareholders: Dividends and Repurchases
We consolidated the coverage of stock repurchases that had been spread over two
chapters and located it here. We also use the FCF valuation model to illustrate the
different impacts of stock repurchases versus dividend payments. We added two
new boxes. The first discusses recent dividend cuts, “Will Dividends Ever Be the
Same?” and the second discusses Sun Microsystem’s stock splits and recent reverse
split, “Talk About a Split Personality!”
Chapter 18: Initial Public Offerings, Investment Banking, and Financial
Restructuring
We added a new section on investment banking activities. We added a new box on
“Investment Banks and the Global Economic Crisis.”
Chapter 19: Lease Financing
A new box addresses the FASB/IASB movement to capitalize all leases, “Off-Balance
Sheet Financing: Is It Going to Disappear?”
Chapter 20: Hybrid Financing: Preferred Stock, Warrants, and Convertibles
A new box discusses the use of payment-in-kind preferred stock in the merger of
Dow Chemical Company and Rohm & Haas, “The Romance Had No Chemistry, but
It Had a Lot of Preferred Stock!”
xxii Preface
Chapter 21: Working Capital Management

We reorganized the chapter so that we now discuss working capital holdings and
financing before discussing the cash conversion cycle. We rewrote our coverage of
the cash conversion cycle to explain the general concepts and then apply them to
actual financial statement data. We added three new boxes, “Some Firms Operate
with Negative Working Capital!” “Your Check Isn’t in the Mail,” and “A Wag of the
Finger or Tip of the Hat? The Colbert Report and Small Business Payment Terms.”
We added a new section on the cost of bank loans.
Chapter 24: Derivatives and Risk Management
We added a new box on “Value at Risk and Enterprise Risk Management.” Throughout
the chapter we discuss the failure of risk management during the global economic
crisis.
Chapter 25: Bankruptcy, Reorganization, and Liquidation
We added a new box on personal and small business bankruptcies, “A Nation of
Defaulters?”
Chapter 26: Mergers, LBOs, Divestitures, and Holding Companies
We added a section explaining how the stock-swap ratio is determined for mergers
where the payment is in the form of the acquiring company’s stock.
Chapter 27: Multinational Financial Management
We added two new boxes. The first is on regulating international bribery and taxa-
tion, “Greasing the Wheels of International Business.” The second new box discusses
the wave of foreign companies partnering with Chinese banks to provide consumer
finance services, “Consumer Finance in China.”
Test Bank
The instructor’s test bank has been updated and revised with many new questions
and problems.
Other Ways the Book Can be Used

The second corporate finance course can be taught in a variety of other ways,
depending on a school’s curriculum structure and the instructor’s personal prefer-
ences. We have been focusing on the BOC questions and discussions, but we have
used alternative formats, and all can work out very nicely. Therefore, we designed
the book so that it can be flexible.
Mini Cases as a framework for lectures. We originally wrote the Mini Cases specifi-
cally for use in class. We had students read the chapter and the Mini Case, and then we
systematically went through it in class to “explain” the chapter. (See the section titled
“The Instructional Package” later in this Preface for a discussion of lecture aids avail-
able from Cengage Learning.) Here we use a PowerPoint slide show, which is provided
on the Instructor’s Resource CD and on the Instructors website, and which we make
available to students on our own course website. Students bring a printout of the slides
to class, which makes it easier to take good notes. Generally, it takes us about two
hours to frame the issues with the opening questions and then go through a Mini Case,
so we allocate that much time. We want to facilitate questions and class discussion,
and the Mini Case format stimulates both.
The Mini Cases themselves provide case content, so it is not as neces-
sary to use regular cases as it would be if we used lectures based entirely on
Preface xxiii
text chapters. Still, we like to use a number of the free-standing cases that
are available from TextChoice, Cengage Learning’s online case library, at www
.textchoice2.com/casenet, and we have teams of students present their find-
ings in class. The presenters play the role of consultants teaching newly hired
corporate staff members (the rest of the class) how to analyze a particular prob-
lem, and we as instructors play the role of “chief consultant”—normally silent
but available to answer questions if the student “consultants” don’t know the
answers (which is rare). We use this format because it is more realistic to have
students think about how to analyze problems than to focus on the final deci-
sion, which is really the job of corporate executives with far more experience
than undergraduate students.
To ensure that nonpresenting students actually study the case, we call on them
randomly before the presentation begins, we grade them on class participation,
and our exams are patterned closely after the material in the cases. Therefore,
nonpresenting students have an incentive to study and understand the cases and to
participate when the cases are discussed in class. This format has worked well, and
we have obtained excellent results with a relatively small amount of preparation
time. Indeed, some of our Ph.D. students with no previous teaching experience have
taught the course entirely on their own, following our outline and format, and also
obtained excellent results.
An emphasis on basic material. If students have not gained a thorough un-
derstanding of the basic concepts from their earlier finance courses, instructors
may want to place more emphasis on the basics and thus cover Chapters 2
through 5 in detail rather than merely as a review. We even provide a chapter
(Web Chapter 28) on time value of money skills on the textbook’s website for
students who need an even more complete review. Then, Chapters 6 through 17
can be covered in detail, and any remaining time can be used to cover some
of the other chapters. This approach gives students a sound background on the
core of financial management, but it does not leave sufficient time to cover a
number of interesting and important topics. However, because the book is writ-
ten in a modular format, if students understand the fundamental core topics
they should be able to cover the remaining chapters on their own, if and when
the need arises.
A case-based course. At the other extreme, where students have an exceptionally
good background, hence little need to review topics that were covered in the basic
finance course, instructors can spend less time on the early chapters and concen-
trate on advanced topics. When we take this approach, we assign Web Chapter 29 as
a quick review and then assign cases that deal with the topics covered in the early
chapters. We tell students to review the other relevant chapters on their own to the
extent necessary to work the cases, thus freeing up class time for the more advanced
material. This approach works best with relatively mature students, including eve-
ning students with some business experience.
Comprehensive Learning Solutions

Intermediate Financial Management includes a broad range of ancillary materials
designed both to enhance students’ learning and to help instructors prepare for and
conduct classes.
xxiv Preface
Supplemental Student Resources

Students: Access all of the below resources [except the Study Guide] by visit-
ing www.cengagebrain.com, searching ISBN 9781111530266, and clicking “Access
Now” under “Study Tools” to go to the student textbook companion site.
Beginning of chapter (BOC) spreadsheets. Many of the integrative questions
that appear at the start of each chapter have a spreadsheet model that illustrates
the topic. There is also an index of the Excel techniques covered in the BOC Excel
models. This index is in the Excel file, Excel Locations.xls, and it provides a quick
way to locate examples of Excel programming techniques
End-of-chapter Build-A-Model spreadsheet problems. In addition to the Tool
Kits and Beginning of Chapter models, most chapters have a “Build a Model”
spreadsheet problem. These spreadsheets contain financial data plus instructions for
solving a particular problem. The model is partially completed, with headings but
no formulas, so the models must literally be built. The partially completed spread-
sheets for these “Build a Model” problems are on the student companion website,
with the completed versions available to instructors.
Mini Case spreadsheets. These Excel spreadsheets do all the calculations required
in the Mini Cases. They are similar to the Tool Kits for the chapter, except (a) the
numbers in the examples correspond to the Mini Case rather than to the chapter per
se, and (b) there are some features that make it possible to do “what-if” analyses on
a real-time basis in class.
Web Chapters and Web Extensions. Web chapters provide a chapter-length dis-
cussion of specialized topics that are not of sufficient general interest to warrant
inclusion in the printed version of the text. Web extensions provide additional dis-
cussion or examples pertaining to material that is in the text.
Study Guide (ISBN 9781111530273). This printed supplement outlines the key
sections of each chapter, and it provides sets of questions and problems similar to
those in the text, along with worked-out solutions.
Instructor Resources
Instructors: Access the above chapter resources and the following instructor ancil-
laries [except the ExamView Test Bank and Study Guide] by going to login.cengage
.com, logging in with your faculty account username and password, and using ISBN
9781111530266 to search for and to add resources to your account “Bookshelf.”
Unless otherwise noted, all resources and ancillaries are available on both the in-
structor companion site and the Instructor Resource CD (IRCD).
Instructor’s Resource CD (ISBN 9781111530389). The IRCD contains electronic
versions of the Instructor’s Manual, Test Bank, and Study Guide in Microsoft Word®
format. It also has the PPT slides and all of the student companion site spreadsheet
content with applicable solutions.
• Instructor’s Manual (ISBN 9781111530280). This comprehensive manual
contains answers to all the Beginning of Chapter Questions, end-of-chapter
questions and problems, and Mini Cases. The Instructor’s Manual is also avail-
able in print format.
Preface xxv
• PowerPoint ® slides. Created by the authors, the PowerPoint® slides cover es-
sential topics for each chapter. Graphs, tables, and lists are developed sequen-
tially for your convenience and can be easily modified for your needs. There
are also slides that are specifically based on each chapter’s Mini Case and in
which graphs, tables, lists, and calculations are developed sequentially.
• Test Bank (ISBN 9781111530297). The Test Bank that contains more than 1,200
class-tested questions and problems. Information regarding the topic and degree
of difficulty, along with the complete solution for all numerical problems, is pro-
vided with each question. The Test Bank is also available in print format.
ExamView ® Test Bank (ISBN 9781111530310). This easy-to-use, computerized test
creation software contains all of the questions in the Microsoft Word® Test Bank
and is compatible with Microsoft® Windows®. Add or edit questions, instructions,
and answers, and select questions by previewing them on the screen, selecting them
randomly, or selecting them by number. Instructors can also create and administer
quizzes online, whether over the Internet, a local area network (LAN), or a wide area
network (WAN). Contact your Cengage Learning representative for more information.
The ExamView® Test Bank is only available as a standalone CD.
Additional Course Tools

New! Aplia for Intermediate Financial Management.
Engage, prepare and educate your students with this ideal online learning solu-
tion. Aplia™ Finance improves comprehension and outcomes by increasing student
effort and engagement. Students stay on top of coursework with regularly sched-
uled homework assignments while automatic grading provides detailed, immediate
feedback. Aplia™ assignments match the language, style, and structure of the text
which allows your students to apply what they learn directly to homework. Find out
more at www.aplia.com/finance.
• Grade It Now
• End-of-Chapter Problems
• Auto-Graded Problem Sets
• Preparing for Finance Tutorials
• News Analyses
• Course Management System
• Digital Textbook
CengageNOW™ for Intermediate Financial Management. Designed by instructors for
instructors, CengageNOW™ mirrors your natural workflow and provides time-saving,
performance-enhancing tools for you and your students—all in one program!
CengageNOW™ takes the best of current technology tools including online
homework management; fully customizable algorithmic end-of-chapter problems
and test bank; and course support materials such as online quizzing, videos, and
tutorials to support your course goals and save you significant preparation and
grading time!
• Plan student assignments with an easy online homework management com-
ponent
• Manage your grade book with ease
• Teach today’s student using valuable course support materials
• Reinforce student comprehension with Personalized Study
• Test with customizable algorithmic end-of-chapter problems and test bank
• Grade automatically for seamless, immediate results
xxvi Preface
TextChoice. More than 100 cases written by Eugene F. Brigham, Linda Klein, and
Chris Buzzard are now available via TextChoice, Cengage Learning’s online case
library. Cases are organized in a database that allows instructors to select individ-
ual cases or to create customized casebooks. Most cases have optional spreadsheet
models that reduce number crunching, which allows more time for students to
consider conceptual issues. The models also show students how computers can be
used to make better financial decisions. Cases that we have found particularly use-
ful for the different chapters are listed in the end-of-chapter references. The cases,
case solutions, and spreadsheet models can be previewed and ordered by professors
at www.textchoice2.com/casenet.
Cengage Learning Custom Solutions. Whether you need print, digital, or hybrid
course materials, Cengage Learning Custom Solutions can help you create your perfect
learning solution. Draw from Cengage Learning’s extensive library of texts and collec-
tions, add or create your own original work, and create customized media and technol-
ogy to match your learning and course objectives. Our editorial team will work with
you through each step, allowing you to concentrate on the most important thing—your
students. Learn more about all our services at www.cengage.com/custom.
The Cengage Global Economic Watch (GEW) Resource Center. This is your
source for turning today’s challenges into tomorrow’s solutions. This online portal
houses the most current and up-to-date content concerning the economic crisis.
Organized by discipline, the GEW Resource Center offers the solutions instruc-
tors and students need in an easy-to-use format. Included are an overview and
timeline of the historical events leading up to the crisis, links to the latest news
and resources, discussion and testing content, an instructor feedback forum, and a
Global Issues Database. Visit www.cengage.com/thewatch for more information.
Acknowledgments
This book reflects the efforts of a great many people over a number of years. First,
we would like to thank Fred Weston, Joel Houston, Mike Ehrhardt, and Scott Besley,
who worked with us on other books published by Cengage Learning from which we
borrowed liberally to create IFM. We also owe Lou Gapenski special thanks for his
many past contributions to earlier editions of this text.
The following professors and professionals, who are experts on specific
topics, provided extensive feedback on this edition. We are grateful for their
insights.
Thomas J. Alexander George Hachey Kenneth Roskelley
Z. Ayca Altintig Thomas Hall Atul Saxena
Onur Arugaslan Tim Jares Mark Sipper
Steve Beach Young Kim Stephen V. Smith
Kevin K. Boeh Merouane Lakehal-Ayat G. Kevin Spellman
Mary R. Brown Richard N. LaRocca Tom Stuckey
James J. Cordeiro Yingchou Lin Diane Rizzuto Suhler
Tony Crawford Barbara MacLeod Qian Sun
Ross Dickens Ohaness Paskelian Denver Swaby
David A. Dumpe Bruce Payne A. Tessmer
Theodore Engel Edward Pyatt Manish Tewari
John Griffith Howard Qi
Axel Grossmann Alicia Rodriguez
Preface xxvii
In addition, we would like to thank the following people, whose reviews and
comments on prior editions and companion books have contributed to this edition:
Mike Adler, Syed Ahmad, Sadhana M. Alangar, Edward I. Altman, Mary Schary
Amram, Bruce Anderson, Ron Anderson, Bob Angell, Vince Apilado, Henry Arnold,
Nasser Arshadi, Bob Aubey, Abdul Aziz, Gil Babcock, Peter Bacon, Kent Baker,
Tom Bankston, Les Barenbaum, Charles Barngrover, John R. Becker-Blease, Bill
Beedles, Moshe Ben-Horim, William (Bill) Beranek, Tom Berry, Bill Bertin, Roger Bey,
Dalton Bigbee, John Bildersee, Lloyd P. Blenman, Russ Boisjoly, Keith Boles, Gordon
R. Bonner, Geof Booth, Kenneth Boudreaux, Helen Bowers, Lyle Bowlin, Oswald
Bowlin, Don Boyd, G. Michael Boyd, Pat Boyer, Ben S. Branch, Joe Brandt, Elizabeth
Brannigan, Greg Brauer, Mary Broske, Dave Brown, David T. Brown, Kate Brown,
Bill Brueggeman, Kirt Butler, Robert Button, Julie Cagle, Bill (B. J.) Campsey, Bob
Carleson, Severin Carlson, David Cary, Steve Celec, Don Chance, Antony Chang,
Susan Chaplinsky, Jay Choi, S. K. Choudhury, Lal Chugh, Maclyn Clouse, Margaret
Considine, Phil Cooley, Joe Copeland, David Cordell, John Cotner, Charles Cox,
David Crary, John Crockett, Roy Crum, Brent Dalrymple, Bill Damon, William H.
Dare, Joel Dauten, Steve Dawson, Sankar De, Miles Delano, Fred Dellva, Anand
Desai, Bernard Dill, Greg Dimkoff, Les Dlabay, Mark Dorfman, Gene Drycimski, Dean
Dudley, David Durst, Ed Dyl, Dick Edelman, Charles Edwards, John Ellis, Dave Ewert,
John Ezzell, Richard Fendler, Michael Ferri, Jim Filkins, John Finnerty, Susan Fischer,
Mark Flannery, Steven Flint, Russ Fogler, Jennifer Foo, E. Bruce Frederickson,
Dan French, Tina Galloway, Phil Gardial, Michael Garlington, Jim Garvin,
Adam Gehr, Jim Gentry, Philip Glasgo, Rudyard Goode, Myron Gordon, Walt Goulet,
Bernie Grablowsky, Theoharry Grammatikos, Ed Grossnickle, John Groth, Alan
Grunewald, Manak Gupta, Sam Hadaway, Don Hakala, Sally Hamilton, Gerald
Hamsmith, William Hardin, Joel Harper, John Harris, Paul Hastings, Bob Haugen,
Steve Hawkey, Del Hawley, Hal Heaton, Robert Hehre, John Helmuth, K. L. Henebry,
George Hettenhouse, Hans Heymann, Kendall Hill, Roger Hill, Tom Hindelang,
Linda Hittle, Ralph Hocking, J. Ronald Hoffmeister, Jim Horrigan, John Houston,
John Howe, Keith Howe, Jim Hsieh, Hugh Hunter, Steve Isberg, James E. Jackson,
Jim Jackson, Vahan Janjigian, Kose John, Craig Johnson, Keith H. Johnson, Ramon
Johnson, Ken Johnston, Ray Jones, Manuel Jose, Tejendra Kalia, Gus Kalogeras,
Mike Keenan, Bill Kennedy, Joe Kiernan, Robert Kieschnick, Rick Kish, Linda Klein,
Don Knight, Dorothy Koehl, Raj K. Kohli, Jaroslaw Komarynsky, Duncan Kretovich,
Harold Krogh, Charles Kroncke, Joan Lamm, P. Lange, Howard Lanser, Martin Laurence,
Ed Lawrence, Richard LeCompte, Wayne Lee, Jim LePage, Ilene Levin, Jules
Levine, John Lewis, Kartono Liano, James T. Lindley, Chuck Linke, Bill Lloyd, Susan
Long, Judy Maese, Bob Magee, Ileen Malitz, Phil Malone, Terry Maness, Chris Manning,
Terry Martell, D. J. Masson, John Mathys, John McAlhany, Andy McCollough, Bill
McDaniel, Robin McLaughlin, Tom McCue, Jamshid Mehran, Ilhan Meric, Larry
Merville, Rick Meyer, Stuart Michelson, Jim Millar, Ed Miller, John Mitchell, Carol
Moerdyk, Bob Moore, Barry Morris, Gene Morris, Fred Morrissey, Chris Muscarella,
David Nachman, Tim Nantell, Don Nast, Bill Nelson, Bob Nelson, Bob Niendorf,
Tom O’Brien, Dennis O’Connor, John O’Donnell, Jim Olsen, Robert Olsen, R. Daniel
Pace, Coleen Pantalone, Jim Pappas, Stephen Parrish, Glenn Petry, Jim Pettijohn,
Rich Pettit, Dick Pettway, Hugo Phillips, John Pinkerton, Gerald Pogue, Ralph A.
Pope, R. Potter, Franklin Potts, R. Powell, Chris Prestopino, Jerry Prock, Howard
Puckett, Herbert Quigley, George Racette, Bob Radcliffe, Allen Rappaport, Bill Rentz,
Ken Riener, Charles Rini, John Ritchie, Jay Ritter, Pietra Rivoli, Fiona Robertson,
Antonio Rodriguez, E. M. Roussakis, Dexter Rowell, Michael Ryngaert,
Jim Sachlis, Abdul Sadik, Thomas Scampini, Kevin Scanlon, Frederick Schadler,
xxviii Preface
James Schallheim, Mary Jane Scheuer, Carl Schweser, John Settle, Alan Severn, Sol
Shalit, Frederic Shipley, Dilip Shome, Ron Shrieves, Neil Sicherman, J. B. Silvers, Clay
Singleton, Joe Sinkey, Stacy Sirmans, Jaye Smith, Steve Smith, Don Sorenson, David
Speairs, Andrew Spieler, Ken Stanly, Ed Stendardi, Alan Stephens, Don Stevens,
Jerry Stevens, G. Bennett Stewart, Glen Strasburg, Robert Strong, Philip Swensen,
Ernie Swift, Paul Swink, Eugene Swinnerton, Robert Taggart, Gary Tallman, Dennis
Tanner, Russ Taussig, Richard Teweles, Ted Teweles, Andrew Thompson, Jonathan
Tiemann, Sheridan Titman, George Trivoli, George Tsetsekos, Alan L. Tucker, Mel
Tysseland, David Upton, Howard Van Auken, Pretorious Van den Dool, Pieter
Vanderburg, Paul Vanderheiden, David Vang, Jim Verbrugge, Patrick Vincent, Steve
Vinson, Susan Visscher, John Wachowicz, Joe Walker, Mike Walker, Sam Weaver,
Kuo Chiang Wei, Bill Welch, Gary R. Wells, Fred Weston, Norm Williams, Tony
Wingler, Ed Wolfe, Larry Wolken, Annie Wong, Bob G. Wood, Jr., Don Woods,
Thomas Wright, Michael Yonan, Miranda Zhang, Zhong-guo Zhou, David Ziebart,
Dennis Zocco, and Kent Zumwalt.
Special thanks are due to Fred Weston, Myron Gordon, Merton Miller, and
Franco Modigliani, who have done much to help develop the field of financial
management and who provided us with instruction and inspiration; to Roy Crum,
who coauthored the multinational finance chapter; to Jay Ritter, who helped us
with the materials on financial markets and IPOs; to Larry Wolken, who offered
his hard work and advice for the development of the PowerPoint slides; to Dana
Aberwald Clark, Susan Ball, and Chris Buzzard, who helped us develop the spread-
sheet models; and to Susan Whitman, Amelia Bell, Stephanie Hodge, and Kirsten
Benson, who provided editorial support.
Both our colleagues and our students at the Universities of Florida and Tennessee
gave us many useful suggestions, and the Cengage Learning and Cenveo Publisher
Services staffs—especially Scott Dillon, Jaci Featherly, Lori Hazzard, Kendra Brown,
Nate Anderson, Michelle Kunkler, Scott Fidler, Adele Scholtz, Suellen Ruttkay,
and Mike Reynolds of Cengage Learning—helped greatly with all phases of text
development, production, and marketing.
Errors in the Text

At this point, authors generally say something like this: “We appreciate all the help
we received from the people listed above, but any remaining errors are, of course,
our own responsibility.” And in many books, there are plenty of remaining errors.
Having experienced difficulties with errors ourselves, both as students and as in-
structors, we resolved to avoid this problem in Intermediate Financial Management.
As a result of our error detection procedures, we are convinced that the book is
relatively free of mistakes.
Partly because of our confidence that few such errors remain, but primarily
because we want to detect those errors that may have slipped by to correct them
in subsequent printings, we decided to offer a reward of $10 per error to the first
person who reports it to us. For purposes of this reward, errors are defined as mis-
spelled words, nonrounding numerical errors, incorrect statements, and any other
error that inhibits comprehension. Typesetting problems such as irregular spacing
and differences in opinion regarding grammatical or punctuation conventions do
not qualify for this reward. Finally, any qualifying error that has follow-through
effects is counted as two errors only. Please report any errors to Phillip Daves at the
following email address: pdaves@utk.edu.
Preface xxix
Conclusion
Finance is, in a real sense, the cornerstone of the free enterprise system. Good finan-
cial management is therefore vitally important to the economic health of business
firms, hence to the nation and the world. Because of its importance, financial man-
agement should be thoroughly understood. However, this is easier said than done.
The field is relatively complex, and it is undergoing constant change in response to
shifts in economic conditions. All of this makes financial management stimulating
and exciting, but also challenging and sometimes perplexing. We sincerely hope
that the Eleventh Edition of Intermediate Financial Management will help you un-
derstand the financial problems faced by businesses today, as well as the best ways
to solve those problems.
Eugene F. Brigham
College of Business Administration
University of Florida
Gainesville, Florida 32611-7167
gene.brigham@cba.ufl.edu
Phillip R. Daves
College of Business Administration
University of Tennessee
Knoxville, Tennessee 37996-0540
pdaves@utk.edu
March 2012
Intermediate Financial
Management
PART I
Fundamental Concepts
of Corporate Finance
Chapter 1
an Overview Of finanCial ManageMent and the finanCial envirOnMent
Chapter 2
risk and return: part i
Chapter 3
risk and return: part ii
Chapter 4
BOnd valuatiOn
Chapter 5
BasiC stOCk valuatiOn
Chapter 6
finanCial OptiOns
Chapter 7
aCCOunting fOr finanCial ManageMent
Chapter 8
analysis Of finanCial stateMents
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DANCE ON STILTS AT THE GIRLS’ UNYAGO, NIUCHI
Newala, too, suffers from the distance of its water-supply—at least

the Newala of to-day does; there was once another Newala in a lovely
valley at the foot of the plateau. I visited it and found scarcely a trace
of houses, only a Christian cemetery, with the graves of several
missionaries and their converts, remaining as a monument of its
former glories. But the surroundings are wonderfully beautiful. A
thick grove of splendid mango-trees closes in the weather-worn
crosses and headstones; behind them, combining the useful and the
agreeable, is a whole plantation of lemon-trees covered with ripe
fruit; not the small African kind, but a much larger and also juicier
imported variety, which drops into the hands of the passing traveller,
without calling for any exertion on his part. Old Newala is now under
the jurisdiction of the native pastor, Daudi, at Chingulungulu, who,
as I am on very friendly terms with him, allows me, as a matter of
course, the use of this lemon-grove during my stay at Newala.
FEET MUTILATED BY THE RAVAGES OF THE “JIGGER”
(Sarcopsylla penetrans)
The water-supply of New Newala is in the bottom of the valley,

some 1,600 feet lower down. The way is not only long and fatiguing,
but the water, when we get it, is thoroughly bad. We are suffering not
only from this, but from the fact that the arrangements at Newala are
nothing short of luxurious. We have a separate kitchen—a hut built
against the boma palisade on the right of the baraza, the interior of
which is not visible from our usual position. Our two cooks were not
long in finding this out, and they consequently do—or rather neglect
to do—what they please. In any case they do not seem to be very
particular about the boiling of our drinking-water—at least I can
attribute to no other cause certain attacks of a dysenteric nature,
from which both Knudsen and I have suffered for some time. If a
man like Omari has to be left unwatched for a moment, he is capable
of anything. Besides this complaint, we are inconvenienced by the
state of our nails, which have become as hard as glass, and crack on
the slightest provocation, and I have the additional infliction of
pimples all over me. As if all this were not enough, we have also, for
the last week been waging war against the jigger, who has found his
Eldorado in the hot sand of the Makonde plateau. Our men are seen
all day long—whenever their chronic colds and the dysentery likewise
raging among them permit—occupied in removing this scourge of
Africa from their feet and trying to prevent the disastrous
consequences of its presence. It is quite common to see natives of
this place with one or two toes missing; many have lost all their toes,
or even the whole front part of the foot, so that a well-formed leg
ends in a shapeless stump. These ravages are caused by the female of
Sarcopsylla penetrans, which bores its way under the skin and there
develops an egg-sac the size of a pea. In all books on the subject, it is
stated that one’s attention is called to the presence of this parasite by
an intolerable itching. This agrees very well with my experience, so
far as the softer parts of the sole, the spaces between and under the
toes, and the side of the foot are concerned, but if the creature
penetrates through the harder parts of the heel or ball of the foot, it
may escape even the most careful search till it has reached maturity.
Then there is no time to be lost, if the horrible ulceration, of which
we see cases by the dozen every day, is to be prevented. It is much
easier, by the way, to discover the insect on the white skin of a
European than on that of a native, on which the dark speck scarcely
shows. The four or five jiggers which, in spite of the fact that I
constantly wore high laced boots, chose my feet to settle in, were
taken out for me by the all-accomplished Knudsen, after which I
thought it advisable to wash out the cavities with corrosive
sublimate. The natives have a different sort of disinfectant—they fill
the hole with scraped roots. In a tiny Makua village on the slope of
the plateau south of Newala, we saw an old woman who had filled all
the spaces under her toe-nails with powdered roots by way of
prophylactic treatment. What will be the result, if any, who can say?
The rest of the many trifling ills which trouble our existence are
really more comic than serious. In the absence of anything else to
smoke, Knudsen and I at last opened a box of cigars procured from
the Indian store-keeper at Lindi, and tried them, with the most
distressing results. Whether they contain opium or some other
narcotic, neither of us can say, but after the tenth puff we were both
“off,” three-quarters stupefied and unspeakably wretched. Slowly we
recovered—and what happened next? Half-an-hour later we were
once more smoking these poisonous concoctions—so insatiable is the
craving for tobacco in the tropics.
Even my present attacks of fever scarcely deserve to be taken
seriously. I have had no less than three here at Newala, all of which
have run their course in an incredibly short time. In the early
afternoon, I am busy with my old natives, asking questions and
making notes. The strong midday coffee has stimulated my spirits to
an extraordinary degree, the brain is active and vigorous, and work
progresses rapidly, while a pleasant warmth pervades the whole
body. Suddenly this gives place to a violent chill, forcing me to put on
my overcoat, though it is only half-past three and the afternoon sun
is at its hottest. Now the brain no longer works with such acuteness
and logical precision; more especially does it fail me in trying to
establish the syntax of the difficult Makua language on which I have
ventured, as if I had not enough to do without it. Under the
circumstances it seems advisable to take my temperature, and I do
so, to save trouble, without leaving my seat, and while going on with
my work. On examination, I find it to be 101·48°. My tutors are
abruptly dismissed and my bed set up in the baraza; a few minutes
later I am in it and treating myself internally with hot water and
lemon-juice.
Three hours later, the thermometer marks nearly 104°, and I make
them carry me back into the tent, bed and all, as I am now perspiring
heavily, and exposure to the cold wind just beginning to blow might
mean a fatal chill. I lie still for a little while, and then find, to my
great relief, that the temperature is not rising, but rather falling. This
is about 7.30 p.m. At 8 p.m. I find, to my unbounded astonishment,
that it has fallen below 98·6°, and I feel perfectly well. I read for an
hour or two, and could very well enjoy a smoke, if I had the
wherewithal—Indian cigars being out of the question.
Having no medical training, I am at a loss to account for this state
of things. It is impossible that these transitory attacks of high fever
should be malarial; it seems more probable that they are due to a
kind of sunstroke. On consulting my note-book, I become more and
more inclined to think this is the case, for these attacks regularly
follow extreme fatigue and long exposure to strong sunshine. They at
least have the advantage of being only short interruptions to my
work, as on the following morning I am always quite fresh and fit.
My treasure of a cook is suffering from an enormous hydrocele which
makes it difficult for him to get up, and Moritz is obliged to keep in
the dark on account of his inflamed eyes. Knudsen’s cook, a raw boy
from somewhere in the bush, knows still less of cooking than Omari;
consequently Nils Knudsen himself has been promoted to the vacant
post. Finding that we had come to the end of our supplies, he began
by sending to Chingulungulu for the four sucking-pigs which we had
bought from Matola and temporarily left in his charge; and when
they came up, neatly packed in a large crate, he callously slaughtered
the biggest of them. The first joint we were thoughtless enough to
entrust for roasting to Knudsen’s mshenzi cook, and it was
consequently uneatable; but we made the rest of the animal into a
jelly which we ate with great relish after weeks of underfeeding,
consuming incredible helpings of it at both midday and evening
meals. The only drawback is a certain want of variety in the tinned
vegetables. Dr. Jäger, to whom the Geographical Commission
entrusted the provisioning of the expeditions—mine as well as his
own—because he had more time on his hands than the rest of us,
seems to have laid in a huge stock of Teltow turnips,[46] an article of
food which is all very well for occasional use, but which quickly palls
when set before one every day; and we seem to have no other tins
left. There is no help for it—we must put up with the turnips; but I
am certain that, once I am home again, I shall not touch them for ten
years to come.
Amid all these minor evils, which, after all, go to make up the
genuine flavour of Africa, there is at least one cheering touch:
Knudsen has, with the dexterity of a skilled mechanic, repaired my 9
× 12 cm. camera, at least so far that I can use it with a little care.
How, in the absence of finger-nails, he was able to accomplish such a
ticklish piece of work, having no tool but a clumsy screw-driver for
taking to pieces and putting together again the complicated
mechanism of the instantaneous shutter, is still a mystery to me; but
he did it successfully. The loss of his finger-nails shows him in a light
contrasting curiously enough with the intelligence evinced by the
above operation; though, after all, it is scarcely surprising after his
ten years’ residence in the bush. One day, at Lindi, he had occasion
to wash a dog, which must have been in need of very thorough
cleansing, for the bottle handed to our friend for the purpose had an
extremely strong smell. Having performed his task in the most
conscientious manner, he perceived with some surprise that the dog
did not appear much the better for it, and was further surprised by
finding his own nails ulcerating away in the course of the next few
days. “How was I to know that carbolic acid has to be diluted?” he
mutters indignantly, from time to time, with a troubled gaze at his
mutilated finger-tips.
Since we came to Newala we have been making excursions in all
directions through the surrounding country, in accordance with old
habit, and also because the akida Sefu did not get together the tribal
elders from whom I wanted information so speedily as he had
promised. There is, however, no harm done, as, even if seen only
from the outside, the country and people are interesting enough.
The Makonde plateau is like a large rectangular table rounded off
at the corners. Measured from the Indian Ocean to Newala, it is
about seventy-five miles long, and between the Rovuma and the
Lukuledi it averages fifty miles in breadth, so that its superficial area
is about two-thirds of that of the kingdom of Saxony. The surface,
however, is not level, but uniformly inclined from its south-western
edge to the ocean. From the upper edge, on which Newala lies, the
eye ranges for many miles east and north-east, without encountering
any obstacle, over the Makonde bush. It is a green sea, from which
here and there thick clouds of smoke rise, to show that it, too, is
inhabited by men who carry on their tillage like so many other
primitive peoples, by cutting down and burning the bush, and
manuring with the ashes. Even in the radiant light of a tropical day
such a fire is a grand sight.
Much less effective is the impression produced just now by the
great western plain as seen from the edge of the plateau. As often as
time permits, I stroll along this edge, sometimes in one direction,
sometimes in another, in the hope of finding the air clear enough to
let me enjoy the view; but I have always been disappointed.
Wherever one looks, clouds of smoke rise from the burning bush,
and the air is full of smoke and vapour. It is a pity, for under more
favourable circumstances the panorama of the whole country up to
the distant Majeje hills must be truly magnificent. It is of little use
taking photographs now, and an outline sketch gives a very poor idea
of the scenery. In one of these excursions I went out of my way to
make a personal attempt on the Makonde bush. The present edge of
the plateau is the result of a far-reaching process of destruction
through erosion and denudation. The Makonde strata are
everywhere cut into by ravines, which, though short, are hundreds of
yards in depth. In consequence of the loose stratification of these
beds, not only are the walls of these ravines nearly vertical, but their
upper end is closed by an equally steep escarpment, so that the
western edge of the Makonde plateau is hemmed in by a series of
deep, basin-like valleys. In order to get from one side of such a ravine
to the other, I cut my way through the bush with a dozen of my men.
It was a very open part, with more grass than scrub, but even so the
short stretch of less than two hundred yards was very hard work; at
the end of it the men’s calicoes were in rags and they themselves
bleeding from hundreds of scratches, while even our strong khaki
suits had not escaped scatheless.
NATIVE PATH THROUGH THE MAKONDE BUSH, NEAR

MAHUTA
I see increasing reason to believe that the view formed some time
back as to the origin of the Makonde bush is the correct one. I have
no doubt that it is not a natural product, but the result of human
occupation. Those parts of the high country where man—as a very
slight amount of practice enables the eye to perceive at once—has not
yet penetrated with axe and hoe, are still occupied by a splendid
timber forest quite able to sustain a comparison with our mixed
forests in Germany. But wherever man has once built his hut or tilled
his field, this horrible bush springs up. Every phase of this process
may be seen in the course of a couple of hours’ walk along the main
road. From the bush to right or left, one hears the sound of the axe—
not from one spot only, but from several directions at once. A few
steps further on, we can see what is taking place. The brush has been
cut down and piled up in heaps to the height of a yard or more,
between which the trunks of the large trees stand up like the last
pillars of a magnificent ruined building. These, too, present a
melancholy spectacle: the destructive Makonde have ringed them—
cut a broad strip of bark all round to ensure their dying off—and also
piled up pyramids of brush round them. Father and son, mother and
son-in-law, are chopping away perseveringly in the background—too
busy, almost, to look round at the white stranger, who usually excites
so much interest. If you pass by the same place a week later, the piles
of brushwood have disappeared and a thick layer of ashes has taken
the place of the green forest. The large trees stretch their
smouldering trunks and branches in dumb accusation to heaven—if
they have not already fallen and been more or less reduced to ashes,
perhaps only showing as a white stripe on the dark ground.
This work of destruction is carried out by the Makonde alike on the
virgin forest and on the bush which has sprung up on sites already
cultivated and deserted. In the second case they are saved the trouble
of burning the large trees, these being entirely absent in the
secondary bush.
After burning this piece of forest ground and loosening it with the
hoe, the native sows his corn and plants his vegetables. All over the
country, he goes in for bed-culture, which requires, and, in fact,
receives, the most careful attention. Weeds are nowhere tolerated in
the south of German East Africa. The crops may fail on the plains,
where droughts are frequent, but never on the plateau with its
abundant rains and heavy dews. Its fortunate inhabitants even have
the satisfaction of seeing the proud Wayao and Wamakua working
for them as labourers, driven by hunger to serve where they were
accustomed to rule.
But the light, sandy soil is soon exhausted, and would yield no
harvest the second year if cultivated twice running. This fact has
been familiar to the native for ages; consequently he provides in
time, and, while his crop is growing, prepares the next plot with axe
and firebrand. Next year he plants this with his various crops and
lets the first piece lie fallow. For a short time it remains waste and
desolate; then nature steps in to repair the destruction wrought by
man; a thousand new growths spring out of the exhausted soil, and
even the old stumps put forth fresh shoots. Next year the new growth
is up to one’s knees, and in a few years more it is that terrible,
impenetrable bush, which maintains its position till the black
occupier of the land has made the round of all the available sites and
come back to his starting point.
The Makonde are, body and soul, so to speak, one with this bush.
According to my Yao informants, indeed, their name means nothing
else but “bush people.” Their own tradition says that they have been
settled up here for a very long time, but to my surprise they laid great
stress on an original immigration. Their old homes were in the
south-east, near Mikindani and the mouth of the Rovuma, whence
their peaceful forefathers were driven by the continual raids of the
Sakalavas from Madagascar and the warlike Shirazis[47] of the coast,
to take refuge on the almost inaccessible plateau. I have studied
African ethnology for twenty years, but the fact that changes of
population in this apparently quiet and peaceable corner of the earth
could have been occasioned by outside enterprises taking place on
the high seas, was completely new to me. It is, no doubt, however,
correct.
The charming tribal legend of the Makonde—besides informing us
of other interesting matters—explains why they have to live in the
thickest of the bush and a long way from the edge of the plateau,
instead of making their permanent homes beside the purling brooks
and springs of the low country.
“The place where the tribe originated is Mahuta, on the southern
side of the plateau towards the Rovuma, where of old time there was
nothing but thick bush. Out of this bush came a man who never
washed himself or shaved his head, and who ate and drank but little.
He went out and made a human figure from the wood of a tree
growing in the open country, which he took home to his abode in the
bush and there set it upright. In the night this image came to life and
was a woman. The man and woman went down together to the
Rovuma to wash themselves. Here the woman gave birth to a still-
born child. They left that place and passed over the high land into the
valley of the Mbemkuru, where the woman had another child, which
was also born dead. Then they returned to the high bush country of
Mahuta, where the third child was born, which lived and grew up. In
course of time, the couple had many more children, and called
themselves Wamatanda. These were the ancestral stock of the
Makonde, also called Wamakonde,[48] i.e., aborigines. Their
forefather, the man from the bush, gave his children the command to
bury their dead upright, in memory of the mother of their race who
was cut out of wood and awoke to life when standing upright. He also
warned them against settling in the valleys and near large streams,
for sickness and death dwelt there. They were to make it a rule to
have their huts at least an hour’s walk from the nearest watering-
place; then their children would thrive and escape illness.”
The explanation of the name Makonde given by my informants is
somewhat different from that contained in the above legend, which I
extract from a little book (small, but packed with information), by
Pater Adams, entitled Lindi und sein Hinterland. Otherwise, my
results agree exactly with the statements of the legend. Washing?
Hapana—there is no such thing. Why should they do so? As it is, the
supply of water scarcely suffices for cooking and drinking; other
people do not wash, so why should the Makonde distinguish himself
by such needless eccentricity? As for shaving the head, the short,
woolly crop scarcely needs it,[49] so the second ancestral precept is
likewise easy enough to follow. Beyond this, however, there is
nothing ridiculous in the ancestor’s advice. I have obtained from
various local artists a fairly large number of figures carved in wood,
ranging from fifteen to twenty-three inches in height, and
representing women belonging to the great group of the Mavia,
Makonde, and Matambwe tribes. The carving is remarkably well
done and renders the female type with great accuracy, especially the
keloid ornamentation, to be described later on. As to the object and
meaning of their works the sculptors either could or (more probably)
would tell me nothing, and I was forced to content myself with the
scanty information vouchsafed by one man, who said that the figures
were merely intended to represent the nembo—the artificial
deformations of pelele, ear-discs, and keloids. The legend recorded
by Pater Adams places these figures in a new light. They must surely
be more than mere dolls; and we may even venture to assume that
they are—though the majority of present-day Makonde are probably
unaware of the fact—representations of the tribal ancestress.
The references in the legend to the descent from Mahuta to the
Rovuma, and to a journey across the highlands into the Mbekuru
valley, undoubtedly indicate the previous history of the tribe, the
travels of the ancestral pair typifying the migrations of their
descendants. The descent to the neighbouring Rovuma valley, with
its extraordinary fertility and great abundance of game, is intelligible
at a glance—but the crossing of the Lukuledi depression, the ascent
to the Rondo Plateau and the descent to the Mbemkuru, also lie
within the bounds of probability, for all these districts have exactly
the same character as the extreme south. Now, however, comes a
point of especial interest for our bacteriological age. The primitive
Makonde did not enjoy their lives in the marshy river-valleys.
Disease raged among them, and many died. It was only after they
had returned to their original home near Mahuta, that the health
conditions of these people improved. We are very apt to think of the
African as a stupid person whose ignorance of nature is only equalled
by his fear of it, and who looks on all mishaps as caused by evil
spirits and malignant natural powers. It is much more correct to
assume in this case that the people very early learnt to distinguish
districts infested with malaria from those where it is absent.
This knowledge is crystallized in the
ancestral warning against settling in the
valleys and near the great waters, the
dwelling-places of disease and death. At the
same time, for security against the hostile
Mavia south of the Rovuma, it was enacted
that every settlement must be not less than a
certain distance from the southern edge of the
plateau. Such in fact is their mode of life at the
present day. It is not such a bad one, and
certainly they are both safer and more
comfortable than the Makua, the recent
intruders from the south, who have made USUAL METHOD OF
good their footing on the western edge of the CLOSING HUT-DOOR
plateau, extending over a fairly wide belt of
country. Neither Makua nor Makonde show in their dwellings
anything of the size and comeliness of the Yao houses in the plain,
especially at Masasi, Chingulungulu and Zuza’s. Jumbe Chauro, a
Makonde hamlet not far from Newala, on the road to Mahuta, is the
most important settlement of the tribe I have yet seen, and has fairly
spacious huts. But how slovenly is their construction compared with
the palatial residences of the elephant-hunters living in the plain.
The roofs are still more untidy than in the general run of huts during
the dry season, the walls show here and there the scanty beginnings
or the lamentable remains of the mud plastering, and the interior is a
veritable dog-kennel; dirt, dust and disorder everywhere. A few huts
only show any attempt at division into rooms, and this consists
merely of very roughly-made bamboo partitions. In one point alone
have I noticed any indication of progress—in the method of fastening
the door. Houses all over the south are secured in a simple but
ingenious manner. The door consists of a set of stout pieces of wood
or bamboo, tied with bark-string to two cross-pieces, and moving in
two grooves round one of the door-posts, so as to open inwards. If
the owner wishes to leave home, he takes two logs as thick as a man’s
upper arm and about a yard long. One of these is placed obliquely
against the middle of the door from the inside, so as to form an angle
of from 60° to 75° with the ground. He then places the second piece
horizontally across the first, pressing it downward with all his might.
It is kept in place by two strong posts planted in the ground a few
inches inside the door. This fastening is absolutely safe, but of course
cannot be applied to both doors at once, otherwise how could the
owner leave or enter his house? I have not yet succeeded in finding
out how the back door is fastened.
MAKONDE LOCK AND KEY AT JUMBE CHAURO

This is the general way of closing a house. The Makonde at Jumbe
Chauro, however, have a much more complicated, solid and original
one. Here, too, the door is as already described, except that there is
only one post on the inside, standing by itself about six inches from
one side of the doorway. Opposite this post is a hole in the wall just
large enough to admit a man’s arm. The door is closed inside by a
large wooden bolt passing through a hole in this post and pressing
with its free end against the door. The other end has three holes into
which fit three pegs running in vertical grooves inside the post. The
door is opened with a wooden key about a foot long, somewhat
curved and sloped off at the butt; the other end has three pegs
corresponding to the holes, in the bolt, so that, when it is thrust
through the hole in the wall and inserted into the rectangular
opening in the post, the pegs can be lifted and the bolt drawn out.[50]
MODE OF INSERTING THE KEY
With no small pride first one householder and then a second

showed me on the spot the action of this greatest invention of the
Makonde Highlands. To both with an admiring exclamation of
“Vizuri sana!” (“Very fine!”). I expressed the wish to take back these
marvels with me to Ulaya, to show the Wazungu what clever fellows
the Makonde are. Scarcely five minutes after my return to camp at
Newala, the two men came up sweating under the weight of two
heavy logs which they laid down at my feet, handing over at the same
time the keys of the fallen fortress. Arguing, logically enough, that if
the key was wanted, the lock would be wanted with it, they had taken
their axes and chopped down the posts—as it never occurred to them
to dig them out of the ground and so bring them intact. Thus I have
two badly damaged specimens, and the owners, instead of praise,
come in for a blowing-up.
The Makua huts in the environs of Newala are especially
miserable; their more than slovenly construction reminds one of the
temporary erections of the Makua at Hatia’s, though the people here
have not been concerned in a war. It must therefore be due to
congenital idleness, or else to the absence of a powerful chief. Even
the baraza at Mlipa’s, a short hour’s walk south-east of Newala,
shares in this general neglect. While public buildings in this country
are usually looked after more or less carefully, this is in evident
danger of being blown over by the first strong easterly gale. The only
attractive object in this whole district is the grave of the late chief
Mlipa. I visited it in the morning, while the sun was still trying with
partial success to break through the rolling mists, and the circular
grove of tall euphorbias, which, with a broken pot, is all that marks
the old king’s resting-place, impressed one with a touch of pathos.
Even my very materially-minded carriers seemed to feel something
of the sort, for instead of their usual ribald songs, they chanted
solemnly, as we marched on through the dense green of the Makonde
bush:—
“We shall arrive with the great master; we stand in a row and have
no fear about getting our food and our money from the Serkali (the
Government). We are not afraid; we are going along with the great
master, the lion; we are going down to the coast and back.”
With regard to the characteristic features of the various tribes here
on the western edge of the plateau, I can arrive at no other
conclusion than the one already come to in the plain, viz., that it is
impossible for anyone but a trained anthropologist to assign any
given individual at once to his proper tribe. In fact, I think that even
an anthropological specialist, after the most careful examination,
might find it a difficult task to decide. The whole congeries of peoples
collected in the region bounded on the west by the great Central
African rift, Tanganyika and Nyasa, and on the east by the Indian
Ocean, are closely related to each other—some of their languages are
only distinguished from one another as dialects of the same speech,
and no doubt all the tribes present the same shape of skull and
structure of skeleton. Thus, surely, there can be no very striking
differences in outward appearance.
Even did such exist, I should have no time
to concern myself with them, for day after day,
I have to see or hear, as the case may be—in
any case to grasp and record—an
extraordinary number of ethnographic
phenomena. I am almost disposed to think it
fortunate that some departments of inquiry, at
least, are barred by external circumstances.
Chief among these is the subject of iron-
working. We are apt to think of Africa as a
country where iron ore is everywhere, so to
speak, to be picked up by the roadside, and
where it would be quite surprising if the
inhabitants had not learnt to smelt the
material ready to their hand. In fact, the
knowledge of this art ranges all over the
continent, from the Kabyles in the north to the
Kafirs in the south. Here between the Rovuma
and the Lukuledi the conditions are not so
favourable. According to the statements of the
Makonde, neither ironstone nor any other
form of iron ore is known to them. They have
not therefore advanced to the art of smelting
the metal, but have hitherto bought all their
THE ANCESTRESS OF
THE MAKONDE
iron implements from neighbouring tribes.
Even in the plain the inhabitants are not much
better off. Only one man now living is said to
understand the art of smelting iron. This old fundi lives close to
Huwe, that isolated, steep-sided block of granite which rises out of
the green solitude between Masasi and Chingulungulu, and whose
jagged and splintered top meets the traveller’s eye everywhere. While
still at Masasi I wished to see this man at work, but was told that,
frightened by the rising, he had retired across the Rovuma, though
he would soon return. All subsequent inquiries as to whether the
fundi had come back met with the genuine African answer, “Bado”
(“Not yet”).
BRAZIER
Some consolation was afforded me by a brassfounder, whom I

came across in the bush near Akundonde’s. This man is the favourite
of women, and therefore no doubt of the gods; he welds the glittering
brass rods purchased at the coast into those massive, heavy rings
which, on the wrists and ankles of the local fair ones, continually give
me fresh food for admiration. Like every decent master-craftsman he
had all his tools with him, consisting of a pair of bellows, three
crucibles and a hammer—nothing more, apparently. He was quite
willing to show his skill, and in a twinkling had fixed his bellows on
the ground. They are simply two goat-skins, taken off whole, the four
legs being closed by knots, while the upper opening, intended to
admit the air, is kept stretched by two pieces of wood. At the lower
end of the skin a smaller opening is left into which a wooden tube is
stuck. The fundi has quickly borrowed a heap of wood-embers from
the nearest hut; he then fixes the free ends of the two tubes into an
earthen pipe, and clamps them to the ground by means of a bent
piece of wood. Now he fills one of his small clay crucibles, the dross
on which shows that they have been long in use, with the yellow
material, places it in the midst of the embers, which, at present are
only faintly glimmering, and begins his work. In quick alternation
the smith’s two hands move up and down with the open ends of the
bellows; as he raises his hand he holds the slit wide open, so as to let
the air enter the skin bag unhindered. In pressing it down he closes
the bag, and the air puffs through the bamboo tube and clay pipe into
the fire, which quickly burns up. The smith, however, does not keep
on with this work, but beckons to another man, who relieves him at
the bellows, while he takes some more tools out of a large skin pouch
carried on his back. I look on in wonder as, with a smooth round
stick about the thickness of a finger, he bores a few vertical holes into
the clean sand of the soil. This should not be difficult, yet the man
seems to be taking great pains over it. Then he fastens down to the
ground, with a couple of wooden clamps, a neat little trough made by
splitting a joint of bamboo in half, so that the ends are closed by the
two knots. At last the yellow metal has attained the right consistency,
and the fundi lifts the crucible from the fire by means of two sticks
split at the end to serve as tongs. A short swift turn to the left—a
tilting of the crucible—and the molten brass, hissing and giving forth
clouds of smoke, flows first into the bamboo mould and then into the
holes in the ground.
The technique of this backwoods craftsman may not be very far
advanced, but it cannot be denied that he knows how to obtain an
adequate result by the simplest means. The ladies of highest rank in
this country—that is to say, those who can afford it, wear two kinds
of these massive brass rings, one cylindrical, the other semicircular
in section. The latter are cast in the most ingenious way in the
bamboo mould, the former in the circular hole in the sand. It is quite
a simple matter for the fundi to fit these bars to the limbs of his fair
customers; with a few light strokes of his hammer he bends the
pliable brass round arm or ankle without further inconvenience to
the wearer.
SHAPING THE POT
SMOOTHING WITH MAIZE-COB
CUTTING THE EDGE

FINISHING THE BOTTOM
LAST SMOOTHING BEFORE

BURNING
FIRING THE BRUSH-PILE

LIGHTING THE FARTHER SIDE OF
THE PILE
TURNING THE RED-HOT VESSEL
NYASA WOMAN MAKING POTS AT MASASI

Pottery is an art which must always and everywhere excite the
interest of the student, just because it is so intimately connected with
the development of human culture, and because its relics are one of
the principal factors in the reconstruction of our own condition in
prehistoric times. I shall always remember with pleasure the two or
three afternoons at Masasi when Salim Matola’s mother, a slightly-
built, graceful, pleasant-looking woman, explained to me with
touching patience, by means of concrete illustrations, the ceramic art
of her people. The only implements for this primitive process were a
lump of clay in her left hand, and in the right a calabash containing
the following valuables: the fragment of a maize-cob stripped of all
its grains, a smooth, oval pebble, about the size of a pigeon’s egg, a
few chips of gourd-shell, a bamboo splinter about the length of one’s
hand, a small shell, and a bunch of some herb resembling spinach.
Nothing more. The woman scraped with the
shell a round, shallow hole in the soft, fine
sand of the soil, and, when an active young
girl had filled the calabash with water for her,
she began to knead the clay. As if by magic it
gradually assumed the shape of a rough but
already well-shaped vessel, which only wanted
a little touching up with the instruments
before mentioned. I looked out with the
MAKUA WOMAN closest attention for any indication of the use
MAKING A POT. of the potter’s wheel, in however rudimentary
SHOWS THE a form, but no—hapana (there is none). The
BEGINNINGS OF THE embryo pot stood firmly in its little
POTTER’S WHEEL
depression, and the woman walked round it in
a stooping posture, whether she was removing
small stones or similar foreign bodies with the maize-cob, smoothing
the inner or outer surface with the splinter of bamboo, or later, after
letting it dry for a day, pricking in the ornamentation with a pointed
bit of gourd-shell, or working out the bottom, or cutting the edge
with a sharp bamboo knife, or giving the last touches to the finished
vessel. This occupation of the women is infinitely toilsome, but it is
without doubt an accurate reproduction of the process in use among
our ancestors of the Neolithic and Bronze ages.
There is no doubt that the invention of pottery, an item in human
progress whose importance cannot be over-estimated, is due to
women. Rough, coarse and unfeeling, the men of the horde range
over the countryside. When the united cunning of the hunters has
succeeded in killing the game; not one of them thinks of carrying
home the spoil. A bright fire, kindled by a vigorous wielding of the
drill, is crackling beside them; the animal has been cleaned and cut
up secundum artem, and, after a slight singeing, will soon disappear
under their sharp teeth; no one all this time giving a single thought
to wife or child.
To what shifts, on the other hand, the primitive wife, and still more
the primitive mother, was put! Not even prehistoric stomachs could
endure an unvarying diet of raw food. Something or other suggested
the beneficial effect of hot water on the majority of approved but
indigestible dishes. Perhaps a neighbour had tried holding the hard
roots or tubers over the fire in a calabash filled with water—or maybe
an ostrich-egg-shell, or a hastily improvised vessel of bark. They
became much softer and more palatable than they had previously
been; but, unfortunately, the vessel could not stand the fire and got
charred on the outside. That can be remedied, thought our
ancestress, and plastered a layer of wet clay round a similar vessel.
This is an improvement; the cooking utensil remains uninjured, but
the heat of the fire has shrunk it, so that it is loose in its shell. The
next step is to detach it, so, with a firm grip and a jerk, shell and
kernel are separated, and pottery is invented. Perhaps, however, the
discovery which led to an intelligent use of the burnt-clay shell, was
made in a slightly different way. Ostrich-eggs and calabashes are not
to be found in every part of the world, but everywhere mankind has
arrived at the art of making baskets out of pliant materials, such as
bark, bast, strips of palm-leaf, supple twigs, etc. Our inventor has no
water-tight vessel provided by nature. “Never mind, let us line the
basket with clay.” This answers the purpose, but alas! the basket gets
burnt over the blazing fire, the woman watches the process of
cooking with increasing uneasiness, fearing a leak, but no leak
appears. The food, done to a turn, is eaten with peculiar relish; and
the cooking-vessel is examined, half in curiosity, half in satisfaction
at the result. The plastic clay is now hard as stone, and at the same
time looks exceedingly well, for the neat plaiting of the burnt basket
is traced all over it in a pretty pattern. Thus, simultaneously with
pottery, its ornamentation was invented.
Primitive woman has another claim to respect. It was the man,
roving abroad, who invented the art of producing fire at will, but the
woman, unable to imitate him in this, has been a Vestal from the
earliest times. Nothing gives so much trouble as the keeping alight of
the smouldering brand, and, above all, when all the men are absent
from the camp. Heavy rain-clouds gather, already the first large
drops are falling, the first gusts of the storm rage over the plain. The
little flame, a greater anxiety to the woman than her own children,
flickers unsteadily in the blast. What is to be done? A sudden thought
occurs to her, and in an instant she has constructed a primitive hut
out of strips of bark, to protect the flame against rain and wind.
This, or something very like it, was the way in which the principle
of the house was discovered; and even the most hardened misogynist
cannot fairly refuse a woman the credit of it. The protection of the
hearth-fire from the weather is the germ from which the human
dwelling was evolved. Men had little, if any share, in this forward
step, and that only at a late stage. Even at the present day, the
plastering of the housewall with clay and the manufacture of pottery
are exclusively the women’s business. These are two very significant
survivals. Our European kitchen-garden, too, is originally a woman’s
invention, and the hoe, the primitive instrument of agriculture, is,
characteristically enough, still used in this department. But the
noblest achievement which we owe to the other sex is unquestionably
the art of cookery. Roasting alone—the oldest process—is one for
which men took the hint (a very obvious one) from nature. It must
have been suggested by the scorched carcase of some animal
overtaken by the destructive forest-fires. But boiling—the process of
improving organic substances by the help of water heated to boiling-
point—is a much later discovery. It is so recent that it has not even
yet penetrated to all parts of the world. The Polynesians understand
how to steam food, that is, to cook it, neatly wrapped in leaves, in a
hole in the earth between hot stones, the air being excluded, and
(sometimes) a few drops of water sprinkled on the stones; but they
do not understand boiling.
To come back from this digression, we find that the slender Nyasa
woman has, after once more carefully examining the finished pot,
put it aside in the shade to dry. On the following day she sends me
word by her son, Salim Matola, who is always on hand, that she is
going to do the burning, and, on coming out of my house, I find her
already hard at work. She has spread on the ground a layer of very
dry sticks, about as thick as one’s thumb, has laid the pot (now of a
yellowish-grey colour) on them, and is piling brushwood round it.
My faithful Pesa mbili, the mnyampara, who has been standing by,
most obligingly, with a lighted stick, now hands it to her. Both of
them, blowing steadily, light the pile on the lee side, and, when the
flame begins to catch, on the weather side also. Soon the whole is in a
blaze, but the dry fuel is quickly consumed and the fire dies down, so
that we see the red-hot vessel rising from the ashes. The woman
turns it continually with a long stick, sometimes one way and
sometimes another, so that it may be evenly heated all over. In
twenty minutes she rolls it out of the ash-heap, takes up the bundle
of spinach, which has been lying for two days in a jar of water, and
sprinkles the red-hot clay with it. The places where the drops fall are
marked by black spots on the uniform reddish-brown surface. With a
sigh of relief, and with visible satisfaction, the woman rises to an
erect position; she is standing just in a line between me and the fire,
from which a cloud of smoke is just rising: I press the ball of my
camera, the shutter clicks—the apotheosis is achieved! Like a
priestess, representative of her inventive sex, the graceful woman
stands: at her feet the hearth-fire she has given us beside her the
invention she has devised for us, in the background the home she has
built for us.
At Newala, also, I have had the manufacture of pottery carried on
in my presence. Technically the process is better than that already
described, for here we find the beginnings of the potter’s wheel,
which does not seem to exist in the plains; at least I have seen
nothing of the sort. The artist, a frightfully stupid Makua woman, did
not make a depression in the ground to receive the pot she was about
to shape, but used instead a large potsherd. Otherwise, she went to
work in much the same way as Salim’s mother, except that she saved
herself the trouble of walking round and round her work by squatting
at her ease and letting the pot and potsherd rotate round her; this is
surely the first step towards a machine. But it does not follow that
the pot was improved by the process. It is true that it was beautifully
rounded and presented a very creditable appearance when finished,
but the numerous large and small vessels which I have seen, and, in
part, collected, in the “less advanced” districts, are no less so. We
moderns imagine that instruments of precision are necessary to
produce excellent results. Go to the prehistoric collections of our
museums and look at the pots, urns and bowls of our ancestors in the
dim ages of the past, and you will at once perceive your error.
MAKING LONGITUDINAL CUT IN
BARK
DRAWING THE BARK OFF THE LOG
REMOVING THE OUTER BARK

BEATING THE BARK
WORKING THE BARK-CLOTH AFTER BEATING, TO MAKE IT

SOFT
MANUFACTURE OF BARK-CLOTH AT NEWALA

To-day, nearly the whole population of German East Africa is
clothed in imported calico. This was not always the case; even now in
some parts of the north dressed skins are still the prevailing wear,
and in the north-western districts—east and north of Lake
Tanganyika—lies a zone where bark-cloth has not yet been
superseded. Probably not many generations have passed since such
bark fabrics and kilts of skins were the only clothing even in the
south. Even to-day, large quantities of this bright-red or drab
material are still to be found; but if we wish to see it, we must look in
the granaries and on the drying stages inside the native huts, where
it serves less ambitious uses as wrappings for those seeds and fruits
which require to be packed with special care. The salt produced at
Masasi, too, is packed for transport to a distance in large sheets of
bark-cloth. Wherever I found it in any degree possible, I studied the
process of making this cloth. The native requisitioned for the
purpose arrived, carrying a log between two and three yards long and
as thick as his thigh, and nothing else except a curiously-shaped
mallet and the usual long, sharp and pointed knife which all men and
boys wear in a belt at their backs without a sheath—horribile dictu!
[51]
Silently he squats down before me, and with two rapid cuts has
drawn a couple of circles round the log some two yards apart, and
slits the bark lengthwise between them with the point of his knife.
With evident care, he then scrapes off the outer rind all round the
log, so that in a quarter of an hour the inner red layer of the bark
shows up brightly-coloured between the two untouched ends. With
some trouble and much caution, he now loosens the bark at one end,
and opens the cylinder. He then stands up, takes hold of the free
edge with both hands, and turning it inside out, slowly but steadily
pulls it off in one piece. Now comes the troublesome work of
scraping all superfluous particles of outer bark from the outside of
the long, narrow piece of material, while the inner side is carefully
scrutinised for defective spots. At last it is ready for beating. Having
signalled to a friend, who immediately places a bowl of water beside
him, the artificer damps his sheet of bark all over, seizes his mallet,
lays one end of the stuff on the smoothest spot of the log, and
hammers away slowly but continuously. “Very simple!” I think to
myself. “Why, I could do that, too!”—but I am forced to change my
opinions a little later on; for the beating is quite an art, if the fabric is
not to be beaten to pieces. To prevent the breaking of the fibres, the
stuff is several times folded across, so as to interpose several
thicknesses between the mallet and the block. At last the required
state is reached, and the fundi seizes the sheet, still folded, by both
ends, and wrings it out, or calls an assistant to take one end while he
holds the other. The cloth produced in this way is not nearly so fine
and uniform in texture as the famous Uganda bark-cloth, but it is
quite soft, and, above all, cheap.
Now, too, I examine the mallet. My craftsman has been using the
simpler but better form of this implement, a conical block of some
hard wood, its base—the striking surface—being scored across and
across with more or less deeply-cut grooves, and the handle stuck
into a hole in the middle. The other and earlier form of mallet is
shaped in the same way, but the head is fastened by an ingenious
network of bark strips into the split bamboo serving as a handle. The
observation so often made, that ancient customs persist longest in
connection with religious ceremonies and in the life of children, here
finds confirmation. As we shall soon see, bark-cloth is still worn
during the unyago,[52] having been prepared with special solemn
ceremonies; and many a mother, if she has no other garment handy,
will still put her little one into a kilt of bark-cloth, which, after all,
looks better, besides being more in keeping with its African
surroundings, than the ridiculous bit of print from Ulaya.
MAKUA WOMEN

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Financial Management 11th Edition

4 Bond Valuation 118 Box: Corporate Valuation and Stock

7 Accounting for Financial Tying the Ratios Together: The Du Pont

Own-Bond-Yield-Plus-Judgmental-Risk- Employee Stock Ownership Plans

Project Risk Conclusions 520 16 Capital Structure decisions:

Current Asset Holdings 791 The Payments Pattern Approach to

Issues Facing a Firm in Financial Holding Companies 1007

Glossary 1085 Web Extension 10-A The Required

The Next Level: Intermediate Financial

Now it is time to move on. In Intermediate Financial Management, we first re-

Corporate Valuation as a Unifying Theme

Design of the Book

Beginning of Chapter Questions

Major Changes in the Eleventh Edition

Significant Changes in Selected Chapters

Chapter 10: Determining the Cost of Capital

Chapter 21: Working Capital Management

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Errors in the Text

Newala, too, suffers from the distance of its water-supply—at least

The water-supply of New Newala is in the bottom of the valley,

NATIVE PATH THROUGH THE MAKONDE BUSH, NEAR

MAKONDE LOCK AND KEY AT JUMBE CHAURO

MODE OF INSERTING THE KEY

With no small pride first one householder and then a second

Some consolation was afforded me by a brassfounder, whom I

SMOOTHING WITH MAIZE-COB

CUTTING THE EDGE

LAST SMOOTHING BEFORE

FIRING THE BRUSH-PILE

TURNING THE RED-HOT VESSEL

NYASA WOMAN MAKING POTS AT MASASI

DRAWING THE BARK OFF THE LOG

REMOVING THE OUTER BARK

WORKING THE BARK-CLOTH AFTER BEATING, TO MAKE IT

MANUFACTURE OF BARK-CLOTH AT NEWALA

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