Textbook Fundamentals of Financial Management Concise Edition Eugene F Brigham Ebook All Chapter PDF

Fundamentals of Financial Management
Concise Edition Eugene F. Brigham

Visit to download the full and correct content document:
https://textbookfull.com/product/fundamentals-of-financial-management-concise-editio
n-eugene-f-brigham/
More products digital (pdf, epub, mobi) instant
download maybe you interests ...
Fundamentals of Financial Management, Concise 10th

Edition Eugene F. Brigham
https://textbookfull.com/product/fundamentals-of-financial-
management-concise-10th-edition-eugene-f-brigham/
Fundamentals of Financial Management Eugene F. Brigham
management-eugene-f-brigham/
Intermediate Financial Management Eugene F. Brigham
https://textbookfull.com/product/intermediate-financial-
management-eugene-f-brigham/
Financial Management: Theory & Practice Eugene F.

Brigham
https://textbookfull.com/product/financial-management-theory-
practice-eugene-f-brigham/
Financial Management Theory Practice 16th Edition
Brigham Eugene F Ehrhardt Michael C
https://textbookfull.com/product/financial-management-theory-
practice-16th-edition-brigham-eugene-f-ehrhardt-michael-c/
Financial Management Theory and Practice 14th Edition

Eugene F Brigham Michael C Ehrhardt
https://textbookfull.com/product/financial-management-theory-and-
practice-14th-edition-eugene-f-brigham-michael-c-ehrhardt/
Financial management theory and practice Third Canadian

Edition Brigham
https://textbookfull.com/product/financial-management-theory-and-
practice-third-canadian-edition-brigham/
Fundamentals of financial accounting Libby
accounting-libby/
Fundamentals of Pediatric Imaging 2nd Edition Lane F.

Donnelly
https://textbookfull.com/product/fundamentals-of-pediatric-
imaging-2nd-edition-lane-f-donnelly/
FREQUENTLY USED SYMBOLS/ABBREVIATIONS
ACP Average collection period
ADR American depository receipt
AFN Additional funds needed
AMT Alternative minimum tax
APR Annual percentage rate
b Beta coefficient, a measure of an asset’s riskiness
bL Levered beta
bU Unlevered beta
BEP Basic earning power
BVPS Book value per share
CAPEX Capital expenditures
CAPM Capital Asset Pricing Model
CCC Cash conversion cycle
CF Cash flow; CFt is the cash flow in Period t
CV Coefficient of variation
Dp Dividend of preferred stock
Dt Dividend in Period t
DCF Discounted cash flow
D/E Debt-to-equity ratio
DEP Depreciation
D1/P0 Expected dividend yield
DPS Dividends per share
DRIP Dividend reinvestment plan
DRP Default risk premium
DSO Days sales outstanding
EAR Effective annual rate, EFF%
EBIT Earnings before interest and taxes; operating income
EBITDA Earnings before interest, taxes, depreciation, and amortization
EPS Earnings per share
EVA Economic value added
F (1) Fixed operating costs
(2) Flotation cost
FCF Free cash flow
FVN Future value for Year N
FVAN Future value of an annuity for N years
g Growth rate in earnings, dividends, and stock prices
GAAP U.S. Generally Accepted Accounting Principles
HVN Firm’s horizon value at t N
I Interest rate; also referred to as r
IFRS International Financial Reporting Standards
IPER Periodic interest rate
I/YR Interest rate key on some calculators
INT Interest payment in dollars
IP Inflation premium
IPO Initial public offering
IRR Internal rate of return
LIBOR London Interbank Offered Rate
LP Liquidity premium
M Maturity value of a bond
M/B Market-to-book ratio
MIRR Modified internal rate of return
MRP Maturity risk premium
MVA Market value added
N Calculator key denoting number of periods
NOPAT Net operating profit after taxes, EBIT(1 − T)
NOWC Net operating working capital
NPV Net present value
P Sales price per unit of product sold
Pf Price of good in foreign country
Ph Price of good in home country
Pt Price of a share of stock in Period t; P0 price of the stock today
P/E Price-to-earnings ratio
Copyright 2017 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).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
PMT Payment of an annuity
PPP Purchasing power parity
PV Present value
PVAN Present value of an annuity for N years
Q Quantity produced or sold
QBE Break-even quantity
r (1) A percentage discount rate, or cost of capital; also referred to as I
(2) Nominal risk-adjusted required rate of return
r̄ “r bar,” historic, or realized, rate of return
r^ “r hat,” an expected rate of return
r* Real risk-free rate of return
rd Before-tax cost of debt
rd(1 − T) After-tax cost of debt
re Cost of new common stock (external equity)
rf Interest rate in foreign country
rh Interest rate in home country
ri Required return for an individual firm or security
rM Return on “the market,” or on an “average” stock
rNOM Nominal rate of interest; also referred to as INOM
rp (1) Cost of preferred stock
(2) Portfolio’s return
rRF Rate of return on a risk-free security, equal to r* IP
rs (1) Cost of retained earnings
(2) Required return on common stock
Correlation coefficient; also denoted as R when using historical data
ROA Return on assets
ROE Return on equity
ROIC Return on invested capital
RP Risk premium
RPM Market risk premium
S (1) Sales
(2) Estimated standard deviation for sample data
SML Security Market Line
∑ Summation sign
Standard deviation
t Time period
T Marginal income tax rate
TIE Times interest earned
V (1) Variable cost per unit
(2) Current value of a call option
VB Bond value
Vp Value of preferred stock
VC Total variable costs
WACC Weighted average cost of capital
wc Percentage of common stock in capital structure
wd Percentage of debt in capital structure
wp Percentage of preferred stock in capital structure
YTC Yield to call
YTM Yield to maturity
Fundamentals of
FINANCIAL
MANAGEMENT
CONCISE
9e
EUGENE F. BRIGHAM
University of Florida
JOEL F. HOUSTON
University of Florida
Australia • Brazil • Japan • Korea • Mexico • Singapore • Spain • United Kingdom • United States
This is an electronic version of the print textbook. Due to electronic rights restrictions,
some third party content may be suppressed. Editorial review has deemed that any suppressed
content does not materially affect the overall learning experience. The publisher reserves the right
to remove content from this title at any time if subsequent rights restrictions require it. For
valuable information on pricing, previous editions, changes to current editions, and alternate
formats, please visit www.cengage.com/highered to search by ISBN#, author, title, or keyword for
materials in your areas of interest.
Important Notice: Media content referenced within the product description or the product
text may not be available in the eBook version.
© 2017, 2015 Cengage Learning®
Fundamentals of Financial Management:
Concise, Ninth Edition WCN: 02-200-203
Eugene F. Brigham and Joel F. Houston ALL RIGHTS RESERVED. No part of this work covered by the copyright herein may be
reproduced or distributed in any form or by any means, except as permitted by U.S.
Vice President, General Manager: Science, copyright law, without the prior written permission of the copyright owner.
Math and Quantitative Business: Balraj
Kalsi
For product information and technology assistance, contact us at
Product Director: Mike Schenk Cengage Learning Customer & Sales Support, 1-800-354-9706
Product Team Manager: Joe Sabatino For permission to use material from this text or product,
Senior Product Manager: Michael Reynolds submit all requests online at www.cengage.com/permissions
Further permissions questions can be emailed to
Senior Product Assistant: Adele Scholtz
permissionrequest@cengage.com
Associate Content Developer: Brad Sullender
Senior Marketing Manager: Nathan Anderson
Unless otherwise noted, all images are © Cengage Learning.
Content Project Manager: Jana Lewis
Library of Congress Control Number: 2015943331
Manufacturing Planner: Kevin Kluck
ISBN 13: 978-1-305-63593-7
Marketing Coordinator: Eileen Corcoran
Media Developer: Mark Hopkinson Cengage Learning
Production Service: Integra Software Services 20 Channel Center Street
Pvt. Ltd. Boston, MA 02210
Senior Art Director: Michelle Kunkler USA
Internal Designer: Imbue Design/Kim Torbeck

Cover Designer: Imbue Design/Kim Torbeck Cengage Learning is a leading provider of customized learning solutions with
employees residing in nearly 40 different countries and sales in more than 125
Cover Image: olaser/Getty Images
countries around the world. Find your local representative at www.cengage.com.
Intellectual Property Analyst: Brittani Morgan
Project Manager: Erika Mugavin Cengage Learning products are represented in Canada by Nelson Education, Ltd.
To learn more about Cengage Learning Solutions, visit

www.cengage.com
Purchase any of our products at your local college store or at our preferred online
store www.cengagebrain.com
Printed in Canada
Print Number: 01 Print Year: 2015
Brief Contents
PREFACE xii
PART 1 INTRODUCTION TO FINANCIAL MANAGEMENT 1

Chapter 1 An Overview of Financial Management 2
Chapter 2 Financial Markets and Institutions 26
PART 2 FUNDAMENTAL CONCEPTS IN FINANCIAL MANAGEMENT 57

Chapter 3 Financial Statements, Cash Flow, and Taxes 58
Chapter 4 Analysis of Financial Statements 101
Chapter 5 Time Value of Money 142
PART 3 FINANCIAL ASSETS 187

Chapter 6 Interest Rates 188
Chapter 7 Bonds and Their Valuation 222
Chapter 8 Risk and Rates of Return 263
Chapter 9 Stocks and Their Valuation 308
PART 4 INVESTING IN LONG-TERM ASSETS: CAPITAL BUDGETING 347

Chapter 10 The Cost of Capital 348
Chapter 11 The Basics of Capital Budgeting 378
Chapter 12 Cash Flow Estimation and Risk Analysis 410
PART 5 CAPITAL STRUCTURE AND DIVIDEND POLICY 451

Chapter 13 Capital Structure and Leverage 452
Chapter 14 Distributions to Shareholders: Dividends
and Share Repurchases 495
PART 6 WORKING CAPITAL MANAGEMENT, FORECASTING, AND MULTINATIONAL

FINANCIAL MANAGEMENT 527
Chapter 15 Working Capital Management 528
Chapter 16 Financial Planning and Forecasting 568
Chapter 17 Multinational Financial Management 594
APPENDIXES
Appendix A Solutions to Self-Test Questions A-1
and Problems
Appendix B Answers to Selected End-of-Chapter B-1
Problems
Appendix C Selected Equations and Tables C-1
INDEX I-1
III
Contents
PREFACE xii 2-1 The Capital Allocation Process 28
2-2 Financial Markets 30
2-2a Types of Markets 30
2-2b Recent Trends 31
PART 1
2-3 Financial Institutions 35
Introduction to Financial Securitization Has Dramatically Transformed
Management 1 the Banking Industry 40
2-4 The Stock Market 41

CHAPTER 1 2-4a Physical Location Stock Exchanges 41
2-4b Over-the-Counter (OTC) and the
An Overview of Financial NASDAQ Stock Markets 42
Management 2 Global Perspectives: The NYSE and NASDAQ
Striking the Right Balance 2 Go Global 42
2-5 The Market for Common Stock 43

PUTTING THINGS IN PERSPECTIVE 4
2-5a Types of Stock Market Transactions 43
1-1 What Is Finance? 4 Initial Buzz Surrounding IPOs Doesn’t Always
1-1a Areas of Finance 4 Translate Into Long-Lasting Success 45
1-1b Finance within an Organization 5
1-1c Finance versus Economics and 2-6 Stock Markets and Returns 46
Accounting 5 2-6a Stock Market Reporting 46
1-2 Jobs in Finance 6 2-6b Stock Market Returns 47
Measuring the Market 48
1-3 Forms of Business Organization 7
2-7 Stock Market Efficiency 49
1-4 The Main Financial Goal: Creating
2-7a Behavioral Finance Theory 51
Value for Investors 9 2-7b Conclusions about Market Efficiency 53
1-4a Determinants of Value 9
1-4b Intrinsic Value 10 TYING IT ALL TOGETHER 54
1-4c Consequences of Having a Short-Run INTEGRATED CASE Smyth Barry & Company 55
Focus 12
1-5 Stockholder–Manager Conflicts 13
1-5a Compensation Packages 13 PART 2
1-5b Direct Stockholder Intervention 13
Are CEOs Overpaid? 14 Fundamental Concepts in
1-5c Managers’ Response 15 Financial Management 57
1-6 Stockholder–Debtholder Conflicts 16
1-7 Balancing Shareholder Interests and the CHAPTER 3
Interests of Society 17 Financial Statements, Cash Flow, and
Investing in Socially Responsible Funds 18 Taxes 58
1-8 Business Ethics 20 Unlocking the Valuable Information in Financial
1-8a What Companies Are Doing 20 Statements 58
1-8b Consequences of Unethical Behavior 21
1-8c How Should Employees Deal with PUTTING THINGS IN PERSPECTIVE 59
Unethical Behavior? 22
3-1 Financial Statements and Reports 60
TYING IT ALL TOGETHER 23 Global Perspectives: Global Accounting
Standards: Will It Ever Happen? 61
CHAPTER 2 3-2 The Balance Sheet 61
Financial Markets and Institutions 26 3-2a Allied’s Balance Sheet 63
The Economy Depends on a Strong Financial Cash Holdings and Net Operating Working
Capital: A Closer Look 67
System 26
The Balance Sheet of an Average American
PUTTING THINGS IN PERSPECTIVE 27 Household 68
IV
Contents v
3-3 The Income Statement 69 4-9 Using Financial Ratios to Assess

3-4 Statement of Cash Flows 71 Performance 122
4-9a Comparison to Industry Average 122
Massaging the Cash Flow Statement 74 4-9b Benchmarking 122
4-9c Trend Analysis 124
3-5 Statement of Stockholders’ Equity 75
4-10 Uses and Limitations of Ratios 125
3-6 Uses and Limitations of Financial
Looking for Warning Signs within the Financial
Statements 76 Statements 127
3-7 Free Cash Flow 77
4-11 Looking Beyond the Numbers 127
Free Cash Flow Is Important for Businesses
Both Small and Large 79 TYING IT ALL TOGETHER 129
3-8 MVA and EVA 80 INTEGRATED CASE D’Leon Inc., Part II 138
Taking a Closer Look
3-9 Income Taxes 82
Conducting a Financial Ratio Analysis on Hewlett
3-9a Individual Taxes 82
Packard Co. 141
3-9b Corporate Taxes 85
TYING IT ALL TOGETHER 89 WEB APPENDIX 4A
Common Size and Percent Change Analyses
INTEGRATED CASE D’Leon Inc., Part I 96
Exploring Whole Foods’ Financial Statements 100
CHAPTER 5
Time Value of Money 142
Will You Be Able to Retire? 142
CHAPTER 4
Analysis of Financial Statements 101 PUTTING THINGS IN PERSPECTIVE 143
Can You Make Money Analyzing Stocks? 101 5-1 Time Lines 144
PUTTING THINGS IN PERSPECTIVE 102 5-2 Future Values 145
5-2a Step-by-Step Approach 145
4-1 Ratio Analysis 103 5-2b Formula Approach 146
4-2 Liquidity Ratios 104 Simple versus Compound Interest 146
4-2a Current Ratio 104 5-2c Financial Calculators 147
Financial Analysis on the Internet 105 5-2d Spreadsheets 147
4-2b Quick, or Acid Test, Ratio 106 5-2e Graphic View of the Compounding
Process 149
4-3 Asset Management Ratios 106
5-3 Present Values 151
4-3a Inventory Turnover Ratio 107
4-3b Days Sales Outstanding 107 5-3a Graphic View of the Discounting
4-3c Fixed Assets Turnover Ratio 108 Process 153
4-3d Total Assets Turnover Ratio 109 5-4 Finding the Interest Rate, I 154
4-4 Debt Management Ratios 109 5-5 Finding the Number of Years, N 155
4-4a Total Debt to Total Capital 111
4-4b Times-Interest-Earned Ratio 112 5-6 Annuities 155
4-5 Profitability Ratios 113 5-7 Future Value of an Ordinary
4-5a Operating Margin 113 Annuity 156
4-5b Profit Margin 113
4-5c Return on Total Assets 114 5-8 Future Value of an Annuity Due 159
4-5d Return on Common Equity 114 5-9 Present Value of an Ordinary
4-5e Return on Invested Capital 114
Annuity 160
4-5f Basic Earning Power (BEP) Ratio 115
4-6 Market Value Ratios 116 5-10 Finding Annuity Payments, Periods,
4-6a Price/Earnings Ratio 116 and Interest Rates 162
4-6b Market/Book Ratio 117 5-10a Finding Annuity Payments, PMT 162
5-10b Finding the Number of Periods, N 163
4-7 Tying the Ratios Together: The DuPont 5-10c Finding the Interest Rate, I 163
Equation 118
5-11 Perpetuities 164
Microsoft Excel: A Truly Essential Tool 119
5-12 Uneven Cash Flows 165
4-8 Potential Misuses of ROE 120
Economic Value Added (EVA) versus Net 5-13 Future Value of an Uneven Cash Flow
Income 121 Stream 167
vi Contents
5-14 Solving for I with Uneven Cash Flows 168 6-7c International Factors 212
6-7d Business Activity 212
5-15 Semiannual and Other Compounding
Periods 169 6-8 Interest Rates and Business Decisions 213
5-16 Comparing Interest Rates 171 TYING IT ALL TOGETHER 214

INTEGRATED CASE Morton Handley &
5-17 Fractional Time Periods 174
Company 220
5-18 Amortized Loans 175 Taking a Closer Look
TYING IT ALL TOGETHER 176 Using Yahoo! Finance’s Bonds Center to Understand
Interest Rates 221
INTEGRATED CASE First National Bank 184
WEB APPENDIX 5A
CHAPTER 7
Continuous Compounding and Discounting
Bonds and Their Valuation 222
WEB APPENDIX 5B
Sizing Up Risk in the Bond Market 222
Growing Annuities
PART 3 7-1 Who Issues Bonds? 224
Financial Assets 187 7-2 Key Characteristics of Bonds 225

7-2a Par Value 225
7-2b Coupon Interest Rate 225
CHAPTER 6 7-2c Maturity Date 226
7-2d Call Provisions 226
Interest Rates 188 7-2e Sinking Funds 227
The Fed Contemplates an Increase in Interest Rates 7-2f Other Features 228
as the U.S. Economy Shows Signs of a Strong 7-3 Bond Valuation 229
Rebound 188 7-4 Bond Yields 232
7-4a Yield to Maturity 233
PUTTING THINGS IN PERSPECTIVE 189 7-4b Yield to Call 234
6-1 The Cost of Money 190 7-5 Changes in Bond Values over Time 236
6-2 Interest Rate Levels 191 7-6 Bonds with Semiannual Coupons 239
6-3 The Determinants of Market Interest 7-7 Assessing a Bond’s Riskiness 241
7-7a Price Risk 242
Rates 195
7-7b Reinvestment Risk 243
6-3a The Real Risk-Free Rate of Interest, r* 195 7-7c Comparing Price Risk and
Global Perspectives: European Banks Confront Reinvestment Risk 244
the Reality of Negative Interest Rates 196
7-8 Default Risk 246
6-3b The Nominal, or Quoted, Risk-Free Rate 7-8a Various Types of Corporate Bonds 246
of Interest, rRF = r* + IP 197 7-8b Bond Ratings 247
6-3c Inflation Premium (IP) 197 7-8c Bankruptcy and Reorganization 252
6-3d Default Risk Premium (DRP) 198
6-3e Liquidity Premium (LP) 199 7-9 Bond Markets 253
6-3f Interest Rate Risk and the Maturity Risk Accrued Interest and the Pricing of Coupon
Premium (MRP) 199 Bonds 253
An Almost Riskless Treasury Bond 200
6-4 The Term Structure of Interest Rates 202 TYING IT ALL TOGETHER 255
INTEGRATED CASE Western Money
6-5 What Determines the Shape of the Yield
Management Inc. 261
Curve? 204
The Links between Expected Inflation and Taking a Closer Look
Interest Rates: A Closer Look 206 Using Yahoo! Finance’s Bonds Center to Understand
The Impact of Interest Rates on Bond Valuation 262
6-6 Using the Yield Curve to Estimate
WEB APPENDIX 7A
Future Interest Rates 208
Zero Coupon Bonds
6-7 Macroeconomic Factors That Influence WEB APPENDIX 7B
Interest Rate Levels 211 Bond Risk and Duration
6-7a Federal Reserve Policy 211
6-7b Federal Budget Deficits or WEB APPENDIX 7C
Surpluses 212 Bankruptcy and Reorganization
Contents vii
CHAPTER 8 9-1 Legal Rights and Privileges of Common

Risk and Rates of Return 263 Stockholders 310
9-1a Control of the Firm 310
Managing Risk in Difficult Times 263 9-1b The Preemptive Right 311
PUTTING THINGS IN PERSPECTIVE 264 9-2 Types of Common Stock 312
8-1 The Risk-Return Trade-Off 265 9-3 Stock Price versus Intrinsic Value 312
Are “Smart Beta” Funds a Smart Idea? 313
8-2 Stand-Alone Risk 267
8-2a Statistical Measures of Stand-Alone 9-3a Why Do Investors and Companies Care
Risk 268 about Intrinsic Value? 314
8-2b Measuring Stand-Alone Risk: The 9-4 The Discounted Dividend Model 315
Standard Deviation 270 9-4a Expected Dividends as the Basis for
8-2c Using Historical Data to Measure Stock Values 317
Risk 272
8-2d Measuring Stand-Alone Risk: The 9-5 Constant Growth Stocks 318
Coefficient of Variation 273 9-5a Illustration of a Constant Growth
8-2e Risk Aversion and Required Stock 319
Returns 273 9-5b Dividends versus Growth 320
The Historical Trade-Off between Risk and 9-5c Which Is Better: Current Dividends or
Return 274 Growth? 322
8-3 Risk in a Portfolio Context: The 9-5d Required Conditions for the Constant
Growth Model 322
CAPM 275
8-3a Expected Portfolio Returns, ^r p 276 9-6 Valuing Nonconstant Growth
8-3b Portfolio Risk 277 Stocks 323
8-3c Risk in a Portfolio Context: The Beta Evaluating Stocks That Don’t Pay
Coefficient 281 Dividends 327
Adding More Stocks Doesn’t Always Reduce
the Risk of Your Portfolio 281 9-7 Enterprise-Based Approach to
Valuation 327
Global Perspectives: The Benefits of
9-7a The Corporate Valuation Model 328
Diversifying Overseas 286
9-7b Comparing the Corporate Valuation
8-4 The Relationship between Risk and and Discounted Dividend Models 330
Rates of Return 288 Other Approaches to Valuing Common
Stocks 331
Estimating the Market Risk Premium 290
8-4a The Impact of Expected Inflation 291 9-8 Preferred Stock 332
8-4b Changes in Risk Aversion 292 TYING IT ALL TOGETHER 333
8-4c Changes in a Stock’s Beta
Coefficient 294 INTEGRATED CASE Mutual of Chicago
Insurance Company 339
8-5 Some Concerns about Beta and the
CAPM 295 Taking a Closer Look
Estimating Exxon Mobil Corporation’s Intrinsic Stock
8-6 Some Concluding Thoughts: Value 340
Implications for Corporate Managers
and Investors 296 APPENDIX 9A
Stock Market Equilibrium 342
TYING IT ALL TOGETHER 297
INTEGRATED CASE Merrill Finch Inc. 304
PART 4
Using Past Information to Estimate Required Investing in Long-Term Assets:
Returns 306
Capital Budgeting 347
WEB APPENDIX 8A
Calculating Beta Coefficients
CHAPTER 10
The Cost of Capital 348
CHAPTER 9 Creating Value at Disney 348
Stocks and Their Valuation 308
Searching for the Right Stock 308
10-1 An Overview of the Weighted Average
PUTTING THINGS IN PERSPECTIVE 309 Cost of Capital (WACC) 350
viii Contents
10-2 Basic Definitions 351 11-8 Payback Period 398

10-3 Cost of Debt, rd(1 – T) 353 11-9 Conclusions on Capital Budgeting
10-4 Cost of Preferred Stock, rp 354 Methods 400
11-10 Decision Criteria Used in Practice 401
10-5 Cost of Retained Earnings, rs 355
10-5a CAPM Approach 356 TYING IT ALL TOGETHER 402
10-5b Bond-Yield-Plus-Risk-Premium
Approach 357 INTEGRATED CASE Allied Components
10-5c Dividend-Yield-Plus-Growth-Rate, or Company 408
Discounted Cash Flow (DCF),
Approach 358
10-5d Averaging the Alternative
Estimates 359 CHAPTER 12
10-6 Cost of New Common Stock, re 360 Cash Flow Estimation and Risk
10-6a Add Flotation Costs to a Project’s Analysis 410
Cost 360
10-6b Increase the Cost of Capital 361 Home Depot Carefully Evaluates New
10-6c When Must External Equity Be Investments 410
Used? 362
10-7 Composite, or Weighted Average, Cost
of Capital, WACC 363 12-1 Conceptual Issues in Cash Flow
Estimation 411
10-8 Factors That Affect the WACC 363 12-1a Free Cash Flow versus Accounting
10-8a Factors the Firm Cannot Control 363 Income 412
Some Real-World Estimates of the WACC 364 12-1b Timing of Cash Flows 413
10-8b Factors the Firm Can Control 365 12-1c Incremental Cash Flows 413
12-1d Replacement Projects 413
10-9 Adjusting the Cost of Capital for 12-1e Sunk Costs 413
Risk 365 12-1f Opportunity Costs Associated with
10-10 Some Other Problems with Cost of Assets the Firm Owns 414
Capital Estimates 367 12-1g Externalities 414
TYING IT ALL TOGETHER 368 12-2 Analysis of an Expansion Project 416

12-2a Effect of Different Depreciation
INTEGRATED CASE Coleman Technologies Rates 418
Inc. 375 12-2b Cannibalization 419
Taking a Closer Look 12-2c Opportunity Costs 419
Calculating 3M’s Cost of Capital 376 12-2d Sunk Costs 419
12-2e Other Changes to the Inputs 419
WEB APPENDIX 10A
12-3 Replacement Analysis 420
The Cost of New Common Stock and WACC
12-4 Risk Analysis in Capital Budgeting 422
CHAPTER 11 12-5 Measuring Stand-Alone Risk 423
The Basics of Capital Budgeting 378 12-5a Sensitivity Analysis 424
12-5b Scenario Analysis 425
Competition in the Aircraft Industry: Airbus versus 12-5c Monte Carlo Simulation 426
Boeing 378 Global Perspectives: Capital Budgeting
Practices in the Asian/Pacific Region 428
12-6 Within-Firm and Beta Risk 429
11-1 An Overview of Capital Budgeting 379
12-7 Real Options 430
11-2 Net Present Value (NPV) 381 12-7a Types of Real Options 430
11-3 Internal Rate of Return (IRR) 385 12-7b Abandonment Options 430
Why NPV Is Better Than IRR 388 Global Perspectives: Google Puts a Time Limit
on Its R&D Projects 432
11-4 Multiple Internal Rates of Return 388
12-8 The Optimal Capital Budget 433
11-5 Reinvestment Rate Assumptions 390
12-9 The Post-Audit 434
11-6 Modified Internal Rate of Return
(MIRR) 391 TYING IT ALL TOGETHER 435
11-7 NPV Profiles 395 INTEGRATED CASE Allied Food Products 444
Contents ix
APPENDIX 12A TYING IT ALL TOGETHER 484

Tax Depreciation 448 INTEGRATED CASE Campus Deli Inc. 491
WEB APPENDIX 12B Taking a Closer Look
Refunding Operations Exploring the Capital Structures for Four Restaurant
WEB APPENDIX 12C Companies 494
Using the CAPM to Estimate the Risk-Adjusted Cost of WEB APPENDIX 13A
Capital Degree of Leverage
WEB APPENDIX 12D
Techniques for Measuring Beta Risk
CHAPTER 14
WEB APPENDIX 12E
Distributions to Shareholders:
Comparing Mutually Exclusive Projects with Unequal
Lives Dividends and Share Repurchases 495
WEB APPENDIX 12F Apple Shifts Gears and Begins to Unload Part of Its
Real Options: Investment Timing, Growth, and Vast Cash Hoard 495
Flexibility
14-1 Dividends versus Capital Gains: What
PART 5 Do Investors Prefer? 497
Capital Structure and Dividend 14-1a Dividend Irrelevance Theory 497
14-1b Reasons Some Investors Prefer
Policy 451 Dividends 498
14-1c Reasons Some Investors Prefer Capital
CHAPTER 13 Gains 498
Capital Structure and Leverage 452 14-2 Other Dividend Policy Issues 499
14-2a Information Content, or Signaling,
Debt: Rocket Booster or Anchor? Caterpillar Inc. 452 Hypothesis 499
PUTTING THINGS IN PERSPECTIVE 453 14-2b Clientele Effect 500
13-1 Book, Market, or “Target” 14-3 Establishing the Dividend Policy in

Weights? 453 Practice 501
13-1a Measuring the Capital Structure 454 14-3a Setting the Target Payout Ratio: The
13-1b Capital Structure Changes over Residual Dividend Model 501
Time 456 14-3b Earnings, Cash Flows, and
Dividends 506
13-2 Business and Financial Risk 456 Global Perspectives: Dividend Yields around
13-2a Business Risk 457 the World 507
13-2b Factors That Affect Business Risk 458
13-2c Operating Leverage 459 14-3c Payment Procedures 508
13-2d Financial Risk 463 14-4 Dividend Reinvestment Plans 510
13-3 Determining the Optimal Capital 14-5 Summary of Factors Influencing
Structure 468 Dividend Policy 511
13-3a WACC and Capital Structure 14-5a Constraints 511
Changes 468 14-5b Investment Opportunities 512
13-3b The Hamada Equation 468 14-5c Alternative Sources of Capital 512
13-3c The Optimal Capital Structure 472 14-5d Effects of Dividend Policy on rs 512
13-4 Capital Structure Theory 473 14-6 Stock Dividends and Stock Splits 513
Yogi Berra on the MM Proposition 474 14-6a Stock Splits 513
13-4a The Effect of Taxes 475 14-6b Stock Dividends 513
13-4b The Effect of Potential Bankruptcy 476 14-6c Effect on Stock Prices 514
13-4c Trade-Off Theory 476 14-7 Stock Repurchases 515
13-4d Signaling Theory 477 14-7a The Effects of Stock Repurchases 516
13-4e Using Debt Financing to Constrain 14-7b Advantages of Repurchases 517
Managers 478 14-7c Disadvantages of Repurchases 518
13-4f Pecking Order Hypothesis 479 14-7d Conclusions on Stock
13-4g Windows of Opportunity 480 Repurchases 518
13-5 Checklist for Capital Structure TYING IT ALL TOGETHER 519
Decisions 480
INTEGRATED CASE Southeastern Steel
13-6 Variations in Capital Structures 483 Company 525
x Contents
Taking a Closer Look 15-12 Accruals (Accrued Liabilities) 558

Apple’s Dividend Policy 526
15-13 Use of Security in Short-Term
WEB APPENDIX 14A Financing 558
The Residual Dividend Model: An Example TYING IT ALL TOGETHER 559
INTEGRATED CASE SKI Equipment Inc. 565
WEB APPENDIX 15A
PART 6 Inventory Management
Working Capital Management, WEB APPENDIX 15B
Forecasting, and Multinational Short-Term Loans and Bank Financing
Financial Management 527 CHAPTER 16

Financial Planning and Forecasting 568
CHAPTER 15 Effective Forecasting Is Even More Important during
Working Capital Management 528 Volatile Times 568
Successful Firms Efficiently Manage Their Working PUTTING THINGS IN PERSPECTIVE 569
Capital 528
16-1 Strategic Planning 569
PUTTING THINGS IN PERSPECTIVE 529 16-2 The Sales Forecast 571
15-1 Background on Working Capital 529 16-3 The AFN Equation 572
15-2 Current Assets Investment Policies 530 16-3a Excess Capacity Adjustments 575
15-3 Current Assets Financing Policies 532 16-4 Forecasted Financial Statements 578
15-3a Maturity Matching, or “Self- 16-4a Part I. Inputs 580
Liquidating,” Approach 532 16-4b Part II. Forecasted Income
15-3b Aggressive Approach 532 Statement 580
15-3c Conservative Approach 534 16-4c Part III. Forecasted Balance Sheet 581
15-3d Choosing between the 16-4d Part IV. Ratios and EPS 581
Approaches 534 16-4e Using the Forecast to Improve
Operations 582
15-4 The Cash Conversion Cycle 535
16-5 Using Regression to Improve
15-4a Calculating the Targeted CCC 535
15-4b Calculating the CCC from Financial Forecasts 582
Statements 536 16-6 Analyzing the Effects of Changing
Some Real-World Examples of the Cash Ratios 583
Conversion Cycle 537 16-6a Modifying Accounts Receivable 584
16-6b Modifying Inventories 584
15-5 The Cash Budget 539
16-6c Other “Special Studies” 584
15-6 Cash and Marketable Securities 543 TYING IT ALL TOGETHER 585
15-6a Currency 543
15-6b Demand Deposits 543 INTEGRATED CASE New World Chemicals
15-6c Marketable Securities 544 Inc. 591
15-7 Inventories 546 Taking a Closer Look
Forecasting the Future Performance of Abercrombie &
15-8 Accounts Receivable 547 Fitch 593
15-8a Credit Policy 547
15-8b Setting and Implementing the Credit WEB APPENDIX 16A
Policy 548 Forecasting Financial Requirements When Financial
15-8c Monitoring Accounts Receivable 549 Ratios Change
15-9 Accounts Payable (Trade Credit) 550
A Difficult Balancing Act 552 CHAPTER 17
15-10 Bank Loans 553 Multinational Financial
15-10a Promissory Note 553 Management 594
15-10b Line of Credit 554 U.S. Firms Look Overseas to Enhance Shareholder
15-10c Revolving Credit Agreement 555
15-10d Costs of Bank Loans 555 Value 594
15-11 Commercial Paper 557 PUTTING THINGS IN PERSPECTIVE 595
Contents xi
17-1 Multinational, or Global, 17-9 International Money and Capital

Corporations 595 Markets 616
Corporate Inversions Have Attracted Increased 17-9a International Credit Markets 617
Criticism 599 17-9b International Stock Markets 617
Stock Market Indexes around the World 618
17-2 Multinational versus Domestic
Financial Management 599 17-10 Investing Overseas 619
Global Perspectives: Measuring Country Risk 619
17-3 The International Monetary
System 601 Global Perspectives: Investing in International
Stocks 620
17-3a International Monetary
Terminology 601 17-11 International Capital Budgeting 622
17-3b Current Monetary
Arrangements 602 17-12 International Capital Structures 623
The Debt Crisis Hits Europe 603 TYING IT ALL TOGETHER 625
17-4 Foreign Exchange Rate Quotations 605 INTEGRATED CASE Citrus Products Inc. 629
17-4a Cross Rates 606 Taking a Closer Look
17-4b Interbank Foreign Currency Using the Internet to Follow Exchange Rates and
Quotations 607 International Indexes 630
17-5 Trading in Foreign Exchange 608
17-5a Spot Rates and Forward
APPENDIXES
Rates 608 APPENDIX A Solutions to Self-Test
17-6 Interest Rate Parity 609 Questions and Problems A-1
17-7 Purchasing Power Parity 612 APPENDIX B Answers to Selected
End-of-Chapter Problems B-1
Hungry for a Big Mac? Go to
Russia! 614 APPENDIX C Selected Equations and
Tables C-1
17-8 Inflation, Interest Rates, and Exchange
Rates 616 INDEX I-1
Preface
When the first edition of Fundamentals was published 38 years ago, we wanted to
provide an introductory text that students would find interesting and easy to
understand. Fundamentals immediately became the leading undergraduate finance
text, and it has maintained that position ever since. However, over the years as
Fundamentals got larger and larger, we heard more and more often that it was
difficult to cover the entire book in a single term. These concerns led us to create
Fundamentals of Financial Management Concise 21 years ago. When designing
Concise, we had in mind those instructors who wanted to retain Fundamentals’
depth and level but eliminate some less essential topics. As is the case with
Fundamentals, our continuing goal is to produce a book and ancillary package
that sets a new standard for finance textbooks.
Finance is an exciting and continually changing field. Since the last edition,
many important changes have occurred within the global financial environment.
In the midst of this changing environment, it is certainly an interesting time to be a
finance student. In this latest edition, we highlight and analyze the events leading
to these changes from a financial perspective. Although the financial environment
is ever changing, the tried-and-true principles that the book has emphasized for
nearly four decades are now more important than ever.
Structure of the Book

Our target audience is a student taking his or her first, and perhaps only, finance
course. Some of these students will decide to major in finance and go on to take
courses in investments, money and capital markets, and advanced corporate
finance. Others will choose marketing, management, or some other nonfinance
business major. Still others will major in areas other than business and take
finance plus a few other business courses to gain information that will help them
in law, real estate, or other fields.
Our challenge has been to provide a book that serves all of these audiences
well. We concluded that we should focus on the core principles of finance,
including the basic topics of time value of money, risk analysis, and valuation.
Moreover, we concluded that we should address these topics from two points of
view: (1) that of an investor who is seeking to make intelligent investment choices
and (2) that of a business manager trying to maximize the value of his or her firm’s
stock. Both investors and managers need to understand the same set of principles,
so the core topics are important to students regardless of what they choose to do
after they finish the course.
In planning the book’s structure, we first listed the core topics in finance that
are important to virtually everyone. Included were an overview of financial
markets, methods used to estimate the cash flows that determine asset values,
the time value of money, the determinants of interest rates, the basics of risk
analysis, and the basics of bond and stock valuation procedures. We cover these
core topics in the first nine chapters. Next, because most students in the course
will probably work for a business firm, we want to show them how the core ideas
are implemented in practice. Therefore, we go on to discuss cost of capital, capital
budgeting, capital structure, dividend policy, working capital management, finan-
cial forecasting, and international operations.
Nonfinance majors sometimes wonder why they need to learn finance. As we
have structured the book, it quickly becomes obvious to everyone why they need
to understand time value, risk, markets, and valuation. Virtually all students
enrolled in the basic course expect at some point to have money to invest, and
XII
Preface xiii
they quickly realize that the knowledge gained from Chapters 1 through 9 will
help them make better investment decisions. Moreover, students who plan to go
into the business world soon realize that their own success requires that their firms
be successful, and the topics covered in Chapters 10 through 17 will be helpful
here. For example, good capital budgeting decisions require accurate forecasts
from people in sales, marketing, production, and human resources, and nonfinan-
cial people need to understand how their actions affect the firm’s profits and
future performance.
Organization of the Chapters: A Valuation

Focus
As we discuss in Chapter 1, in an enterprise system such as that of the United
States, the primary goal of financial management is to maximize their firms’
values. At the same time, we stress that managers should not do “whatever it
takes” to increase the firm’s stock price. Managers have a responsibility to behave
ethically, and when striving to maximize value, they must abide by constraints
such as not polluting the environment, not engaging in unfair labor practices, not
breaking the antitrust laws, and the like. In Chapter 1, we discuss the concept of
valuation, explain how it depends on future cash flows and risk, and show why
value maximization is good for society in general. This valuation theme runs
throughout the text.
Stock and bond values are determined in the financial markets, so an under-
standing of those markets is essential to anyone involved with finance. Therefore,
Chapter 2 covers the major types of financial markets, the rates of return that
investors have historically earned on different types of securities, and the risks
inherent in these securities. This information is important for anyone working in
finance, and it is also important for anyone who has or hopes to own any financial
assets. In this chapter, we also highlight how this environment has changed in the
aftermath of the financial crisis.
Asset values depend in a fundamental way on earnings and cash flows as
reported in the accounting statements. Therefore, we review those statements in
Chapter 3 and then, in Chapter 4, show how accounting data can be analyzed and
used to measure how well a company has operated in the past and how well it is
likely to perform in the future.
Chapter 5 covers the time value of money (TVM), perhaps the most funda-
mental concept in finance. The basic valuation model, which ties together cash
flows, risk, and interest rates, is based on TVM concepts, and these concepts are
used throughout the remainder of the book. Therefore, students should allocate
plenty of time to studying Chapter 5.
Chapter 6 deals with interest rates, a key determinant of asset values. We
discuss how interest rates are affected by risk, inflation, liquidity, the supply of
and demand for capital in the economy, and the actions of the Federal Reserve.
The discussion of interest rates leads directly to the topics of bonds in Chapter 7
and stocks in Chapters 8 and 9, where we show how these securities (and all other
financial assets) are valued using the basic TVM model.
The background material provided in Chapters 1 through 9 is essential to both
investors and corporate managers. These are “Finance” topics, not “Business” or
“Corporate Finance” topics as those terms are commonly used. Thus, Chapters 1
through 9 concentrate on the concepts and models used to establish values,
whereas Chapters 10 through 17 focus on specific actions managers can take to
maximize their firms’ values.
Because most business students don’t plan to specialize in finance, they might
think the “business finance” chapters are not particularly relevant to them. This is
xiv Preface
most decidedly not true, and in the later chapters we show that all really impor-
tant business decisions involve every one of a firm’s departments—marketing,
accounting, production, and so on. Thus, although a topic such as capital budget-
ing can be thought of as a financial issue, marketing people provide inputs on
likely unit sales and sales prices; manufacturing people provide inputs on costs;
and so on. Moreover, capital budgeting decisions influence the size of the firm, its
products, its profits, and its stock price, and those factors affect all of the firm’s
employees, from the CEO to the mail room staff.
Innovations for the Ninth Edition

A great deal has happened in the financial markets and corporate America since
the 8th edition was published. In this 9th edition, we have made several important
changes to reflect this dynamic environment. Below, we provide a brief summary
of the more significant changes.
1. Today’s students are tomorrow’s business and government leaders, and it is
essential that they understand the key principles of finance, and the important
role that financial markets and institutions have on our economy. Since the last
edition, a number of key events have significantly influenced the financial
markets and finance in general. Over the last few years, we have witnessed
continued weakness in the economy following the global financial crisis of 2007
through 2009, the European debt crisis, Greece’s continued financial difficulties,
and growing unrest overseas. At the same time, the Federal Reserve’s aggressive
policy of quantitative easing (resulting in the injection of $4.5 trillion into the
economy over a 5-year period) pushed interest rates to the lowest levels in years
and is partially responsible for the dramatic run-up in the U.S. stock market that
began in 2009. Throughout the 9th edition, we discuss these events and their
implications for financial markets and corporate managers, and we use these
examples to illustrate the importance of the key concepts covered in Concise for
investors, businesses, and even government officials.
2. In the 9th edition, we also continue to highlight the important influences of
increased globalization and changing technology. These influences have
created new opportunities, but they have also generated new sources of risk
for individuals and businesses. Since the last edition, we have seen, for
example, Facebook, Twitter, Shake Shack, Uber, and Alibaba’s initial public
offerings, the rise of Bitcoin, several high-profile mergers, and the rise of
corporate inversions—where U.S. companies pursue strategies to move their
headquarters to lower-tax countries.
3. Instructors and students continually impress upon us the importance of
having interesting and relevant real-world examples. Throughout the 9th
edition, we have added several new examples where recent events help
illustrate the key concepts covered in the text. We have added a number of
new boxes discussing chapter concepts impacting real-world companies, such
as: Chapter 2: “Initial Buzz Surrounding IPOs Doesn’t Always Translate into
Long-Lasting Success”; Chapter 6: “European Banks Confront the Reality of
Negative Interest Rates”; Chapter 9: “Are ‘Smart Beta’ Funds a Smart Idea?”;
and Chapter 12: “Google Puts a Time Limit on Its R&D Projects.” We have
also expanded and updated the many tables where we present real-world
data, and we have revised the old Thomson One problems so that they can
now be used with general Internet financial websites. To reflect this change,
these problems are now called Taking a Closer Look. New Internet problems
have been added in Chapters 6, 7, and 17. Finally, as is always the case, we
have also made significant changes to many of the opening vignettes that
precede each chapter.
Preface xv
4. We updated the tax discussion in Chapter 3 to reflect 2015 tax rates and tax
law changes for tax returns due April 15, 2016. Impacts of these changes are
discussed throughout the text, especially in the capital structure and dividend
chapters. In addition, we have added discussion on Traditional and Roth
IRAs. Finally, we added a few end-of-chapter problems on personal taxes.
5. To better reflect current market conditions, the interest rates in Section 8-4
(Relationship between Risk and Return) and in Section 9-6 (Valuing
Nonconstant Growth Stocks) have been lowered, so the accompanying figures
in those sections have been updated accordingly.
6. In Chapter 14, we added some current discussion on DRIPS for companies
comprising the Dow Jones Industrial Average. In addition, we updated the
discussion regarding the current stock repurchasing activity.
7. We updated the exchange rate data in Chapter 17 to reflect what’s currently
going on in the world. All figures and text discussion have been updated
accordingly including “The Debt Crisis Hits Europe,” “Hungry for a Big
Mac?,” “Measuring Country Risk,” and “Investing in International Stocks”
boxes.
8. Instructors and students have impressed upon us the importance of revising
the end-of-chapter problems to facilitate the learning process. To this end, we
have revised over 40%–50% of the end-of-chapter problems throughout the
text. In addition, we revised the Integrated Cases for Chapters 8 and 9 to
reflect lower returns currently existing in the market.
When revising the text, we always rely heavily on a team of reviewers who
offer suggestions for making the text more readable and relevant to students. We
give special thanks to these reviewers later in the preface; their comments and
recommendations certainly helped us improve this 9th edition.
Digital Solutions for the Ninth Edition

Changing technology and new ideas have had an exciting and dramatic influ-
ence on the ways we teach finance. Innovative instructors are developing and
utilizing different classroom strategies, and new technology has allowed us to
present key material in a more interesting and interactive fashion. As textbook
authors, we think these new developments are tremendously exciting, and we
have worked closely with our publisher’s top team of innovative content and
media developers, who have created a whole new set of revolutionary products
for the 9th edition.
MINDTAP™
MindTap™, Cengage Learning’s fully online, highly personalized learning experi-
ence combines readings, multimedia activities, and assessments into a singular
Learning Path. MindTap™ guides students through their course with ease and
engagement with a Learning Path that includes an Interactive Chapter Reading,
Problem Demonstrations, Blueprint Problems, and the Online Homework Assign-
ment. Instructors can personalize the Learning Path for their students by custo-
mizing the robust suite of the Concise Ninth Edition resources and adding their
own content via apps that integrate into the MindTap™ framework seamlessly
with Learning Management Systems.
BLUEPRINT PROBLEMS
Written by the authors and located within CengageNOW™, Aplia™, and Mind-
Tap™, Blueprints teach students the fundamental finance concepts and their
associated building blocks—going beyond memorization. By going through the
xvi Preface
problem step by step, they reinforce foundational concepts and allow students to
demonstrate their understanding of the problem-solving process and business
impact of each topic. Blueprints include rich feedback and explanations, providing
students with an excellent learning resource to solidify their understanding.
CONCEPTCLIPS
Embedded throughout the new interactive eReader, finance ConceptClips present
fundamental key topics to students in an entertaining and memorable way
via short animated video clips. Developed by Mike Brandl of The Ohio State
University, these vocabulary animations provide students with a memorable
auditory and visual representation of the important terminology for the course.
PROBLEM WALK-THROUGHS
More than 100 Problem Walk-Through videos are embedded in the new inter-
active MindTap eReader and online homework. Each video walks students
through solving a problem from start to finish, and students can play and replay
the tutorials as they work through homework assignments or prepare for quizzes
and tests, almost as though they had an instructor by their side the whole time.
APLIA™
Engage, prepare, and educate your students with this ideal online learning solu-
tion. Aplia™ Finance improves comprehension and outcomes by increasing stu-
dent effort and engagement. Students stay on top of coursework with regularly
scheduled homework assignments while automatic grading provides detailed,
immediate feedback. Aplia™ assignments match the language, style, and struc-
ture of the text, which allows your students to apply what they learn directly to
homework. Some of the features of Aplia™ include:
• MindTap™ eReader
• Auto-Graded Problem Sets
• Grade It Now
• Preparing for Finance Tutorials
• Finance in Action Modules
• Access to End-of-Chapter Problems, Blueprint Problems, and Test Bank
• Course Management System
• My Practice Reviews
For more information on how Aplia™ could benefit you, visit www.aplia
.com/finance today!
CENGAGENOW™
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 goals. With Cen-
gageNOW™, you can:
• Plan student assignments with an easy online homework management
component.
• Manage your grade book with ease.
• Reinforce student comprehension with Personalized Study.
• Grade automatically for seamless, immediate results.
Preface xvii
COGNERO™ TESTING SOFTWARE

Cengage Learning Testing Powered by Cognero™ is a flexible, online system that
allows you to author, edit, and manage test bank content from multiple Cengage
Learning solutions; create multiple test versions in an instant; and deliver tests
from your LMS, your classroom, or wherever you want. Revised to reflect con-
cepts covered in the Concise Ninth Edition, the Cognero™ Test Bank is tagged
according to Tier I (AACSB Business Program Interdisciplinary Learning Out-
comes) and Tier II (Finance specific) topic, Bloom’s Taxonomy, and difficulty level.
In addition to these changes, we have also significantly updated and improved
our more traditional ancillary package, which includes the Instructor’s Manual,
Test Bank, Study Guide, Excel Chapter Models, Excel Chapter Integrated Case
Models, Excel Spreadsheet Problem Models, and PowerPoints for Chapter Inte-
grated Cases.
Acknowledgments
The book reflects the efforts of a great many people, both those who worked on
Concise and our related books in the past and those who worked specifically on
this 9th edition. First, we would like to thank Dana Aberwald Clark, who worked
closely with us at every stage of the revision—her assistance was absolutely
invaluable. Second, Susan Whitman provided great typing and logistical support.
Our colleagues John Banko, Roy Crum, Jim Keys, Andy Naranjo, M. Nima-
lendran, Jay Ritter, Mike Ryngaert, Craig Tapley, and Carolyn Takeda Brown
have given us many useful suggestions over the years regarding the ancillaries
and many parts of the book, including the integrated cases. We also benefited
from the work of Mike Ehrhardt and Phillip Daves of the University of Tennessee,
who worked with us on companion books.
We would also like to thank the following professors, whose reviews and
comments on this and our earlier books contributed to this edition:
Rebecca Abraham Charles Barngrover Waldo Born Charles Chan
Robert Abraham Sam Basu Brian Boscaljon Don Chance
Joe Adamo Deborah Bauer Steven Bouchard Antony Chang
Robert Adams Greg Bauer Kenneth Boudreaux Susan Chaplinsky
Mike Adler Laura A. Beal Rick Boulware K. C. Chen
Cyrus Aleseyed David Becher Helen Bowers Jay Choi
Sharif Ahkam Bill Beedles Oswald Bowlin S. K. Choudhary
Syed Ahmad Brian Belt Don Boyd Lal Chugh
Ed Altman Moshe Ben-Horim G. Michael Boyd Peter Clarke
Bruce Anderson Gary Benesh Pat Boyer Maclyn Clouse
Ron Anderson Bill Beranek Joe Brandt Thomas S. Coe
Tom Anderson Tom Berry Elizabeth Brannigan Bruce Collins
John Andrews Al Berryman Mary Broske Mitch Conover
Bob Angell Will Bertin Christopher Brown Margaret Considine
Vince Apilado Scott Besley David T. Brown Phil Cooley
Harvey Arbalaez Dan Best Kate Brown Joe Copeland
Kavous Ardalan Mark S. Bettner Larry Brown David Cordell
Henry Arnold Roger Bey Todd A. Brown Marsha Cornett
Tom Arnold Gilbert W. Bickum Bill Brueggeman M. P. Corrigan
Bob Aubey Dalton Bigbee Paul Bursik John Cotner
Gil Babcock John Bildersee Alva Butcher Charles Cox
Peter Bacon Kenneth G. Bishop Bill Campsey David Crary
Chung Baek Laurence E. Blose W. Thomas Carls John Crockett Jr.
Bruce Bagamery Russ Boisjoly Bob Carlson Julie Dahlquist
Kent Baker Bob Boldin Severin Carlson Brent Dalrymple
Robert J. Balik Keith Boles David Cary Bill Damon
Tom Bankston Michael Bond Steve Celec Morris Danielson
Babu Baradwaj Elizabeth Booth Mary Chaffin Joel Dauten
Les Barenbaum Geof Booth Rajesh Chakrabarti Steve Dawson
xviii Preface
Sankar De Rudyard Goode Manuel Jose Chris Manning

Fred Dellva Raymond Gorman Sally Joyner Surendra
Jim DeMello Walt Goulet Alfred Kahl Mansinghka
Chad Denson Bernie Grablowsky Gus Kalogeras Timothy Manuel
James Desreumaux Theoharry Rajiv Kalra Barry Marchman
Thomas Devaney Grammatikos Ravi Kamath Brian Maris
Bodie Dickerson Georg Grassmueck John Kaminarides Terry Martell
Bernard Dill Greg Gregoriou Ashok Kapoor David Martin
Gregg Dimkoff Owen Gregory Howard Keen D. J. Masson
Les Dlabay Ed Grossnickle Michael Keenan John Mathys
Nathan Dong John Groth Bill Kennedy Ralph May
Mark Dorfman Alan Grunewald Peppi M. Kenny John McAlhany
Tom Downs Manak Gupta Carol Kiefer Andy McCollough
Frank Draper Darryl Gurley Joe Kiernan Ambrose McCoy
Anne M. Drougas Sam Hadaway Richard Kish Thomas McCue
Gene Drzycimski Don Hakala Robert Kleiman Bill McDaniel
David A. Dubofsky Gerald Hamsmith Erich Knehans John McDowell
Dean Dudley Mahfuzul Haque Don Knight Charles McKinney
David Durst William Hardin Ladd Kochman Robyn McLaughlin
Ed Dyl John Harris Dorothy Koehl James McNulty
Fred J. Ebeid Mary Hartman Jaroslaw Jeanette Medewitz-
Daniel Ebels Paul Hastings Komarynsky Diamond
Richard Edelman Bob Haugen Duncan Kretovich Jamshid Mehran
Charles Edwards Steve Hawke Harold Krogh Larry Merville
Scott Ehrhorn Stevenson Hawkey Charles Kroncke Rick Meyer
U. Elike Del Hawley Don Kummer Jim Millar
John Ellis Eric M. Haye Robert A. Kunkel Ed Miller
George Engler Robert Hehre Reinhold Lamb John Miller
Suzanne Erickson Brian Henderson Christopher J. Jill Misuraca
Dave Ewert Kath Henebry Lambert John Mitchell
John Ezzell David Heskel Joan Lamm Carol Moerdyk
Olubunmi Faleye George Hettenhouse Larry Lang Bob Moore
L. Franklin Fant Hans Heymann David Lange Scott B. Moore
John Farns Kendall Hill P. Lange Jose F. Moreno
John Farris Roger Hill Howard Lanser Matthew Morey
David Feller Tom Hindelang Edward Lawrence Barry Morris
Richard J. Fendler Linda Hittle Martin Lawrence Gene Morris
Michael Ferri Ralph Hocking Jerry M. Leabman Dianne R. Morrison
Jim Filkins Robert P. Hoffman Rick LeCompte John K. Mullen
John Finnerty J. Ronald Hoffmeister Alice Lee Chris Muscarella
Robert Fiore Robert Hollinger Wayne Lee David Nachman
Susan Fischer Jim Horrigan Jim LePage Tim Nantell
Peggy Fletcher John Houston Vance Lesseig Don Nast
Steven Flint John Howe David E. LeTourneau Edward Nelling
Russ Fogler Keith Howe Denise Letterman Bill Nelson
Jennifer Foo Stephen Huffman Jules Levine Bob Nelson
Jennifer Frazier Steve Isberg John Lewis Tom C. Nelson
Dan French Jim Jackson Jason Lin William Nelson
Harry Gallatin Kevin T. Jacques Chuck Linke Duong Nguyen
Partha Keith Jakob Yi Liu Bob Niendorf
Gangopadhyay Vahan Janjigian Bill Lloyd Bruce Niendorf
John Garfinkel Narayanan Susan Long Ben Nonnally Jr.
Michael Garlington Jayaraman Robert L. Losey Tom O’Brien
David Garraty Benjamas Nancy L. Lumpkin William O’Connell
Sharon H. Garrison Jirasakuldech Yulong Ma Dennis O’Connor
Jim Garven Zhenhn Jin Fraser MacHaffie John O’Donnell
Adam Gehr Jr. Kose John Judy Maese Jim Olsen
Jim Gentry Craig Johnson Bob Magee Robert Olsen
Sudip Ghosh Keith Johnson Ileen Malitz Dean Olson
Wafica Ghoul Ramon Johnson Bob Malko Napoleon Overton
Erasmo Giambona Steve Johnson Phil Malone R. Daniel Pace
Armand Gilinsky Jr. Ray Jones Abbas Mamoozadeh Darshana Palkar
Philip Glasgo Frank Jordan Terry Maness Jim Pappas
Preface xix
Stephen Parrish John Rozycki Kenneth Stanton Howard Van Auken

Helen Pawlowski Arlyn R. Rubash Ed Stendardi Pretorious Van den
Barron Peake Marjorie Rubash Alan Stephens Dool
Michael Pescow Bob Ryan Don Stevens Pieter Vandenberg
Glenn Petry Jim Sachlis Glenn L. Stevens Paul Vanderheiden
Jim Pettijohn Abdul Sadik Jerry Stevens David O. Vang
Rich Pettit Travis Sapp Lowell E. Stockstill JoAnn Vaughan
Dick Pettway Salil Sarkar Glen Strasburg Jim Verbrugge
Aaron Phillips Thomas Scampini David Suk Patrick Vincent
Hugo Phillips Kevin Scanlon Katherine Sullivan Steve Vinson
Michael Phillips Frederick Schadeler Kathie Sullivan Susan Visscher
H. R. Pickett Patricia L. Schaeff Timothy G. Sullivan John Wachowicz
John Pinkerton David Schalow Philip Swensen John Walker
Gerald Pogue Mary Jane Scheuer Bruce Swenson Joe Walker
Eugene Poindexter David Schirm Ernest Swift Mike Walker
R. Potter Harold Schleef Paul Swink Elizabeth J. Wark
Franklin Potts Tom Schmidt Eugene Swinnerton Sam Weaver
R. Powell Oliver Schnusenberg Gary Tallman Marsha Weber
Dianna Preece Robert Schwebach Dular Talukdar Al Webster
Chris Prestopino Carol Schweser Dennis Tanner Shelton Weeks
John Primus John Settle T. Craig Tapley Kuo-Chiang Wei
Jerry Prock Alan Severn Russ Taussig Bill Welch
Howard Puckett James Sfiridis John Teall Fred Weston
Herbert Quigley Sol Shalit Richard Teweles Richard Whiston
George Racette Eliot H. Sherman Ted Teweles Jeffrey Whitworth
Bob Radcliffe Frederic Shipley Madeline Thimmes Norm Williams
David Rakowski Dilip Shome Samantha Thapa Frank Winfrey
Narendar V. Rao Ron Shrieves Francis D. Thomas Tony Wingler
Allen Rappaport Neil Sicherman Andrew Thompson Ed Wolfe
Charles R. Rayhorn J. B. Silvers John Thompson Criss Woodruff
Bill Rentz Sudhir Singh Thomas H. Don Woods
Thomas Rhee Clay Singleton Thompson Yangru Wu
Ken Riener Amit Sinha Arlene Thurman Robert Wyatt
Charles Rini Joe Sinkey Dogan Tirtirogu Steve Wyatt
John Ritchie Stacy Sirmans Janet Todd Sheng Yang
Bill Rives Greg Smersh Holland J. Toles Elizabeth Yobaccio
Pietra Rivoli Jaye Smith William Tozer Michael Yonan
Antonio Rodriguez Patricia Smith Emery Trahan David Zalewski
James Rosenfeld Patricia Matisz Smith George Trivoli John Zietlow
Stuart Rosenstein Dean S. Sommers Eric Tsai Dennis Zocco
E. N. Roussakis Don Sorensen George Tsetsekos Sijing Zong
Dexter Rowell David Speairs David Tufte Kent Zumwalt
Saurav Michal Spivey David Upton
Roychoudhury Ken Stanley Lloyd Valentine
Special thanks are due to Shirley Love, Idaho State University, who wrote
some chapter boxes relating to small-business issues; to Emery Trahan and Paul
Bolster, Northeastern University, for their contributions; to Dilip Shome, Virginia
Polytechnic Institute, who helped greatly with the capital structure chapter; to
Dave Brown and Mike Ryngaert, University of Florida, who helped us with the
bankruptcy material; to Roy Crum, Andy Naranjo, and Subu Venkataraman, who
worked with us on the international materials; to Scott Below, East Carolina
University, who developed the website information and references; to Laurie
and Stan Eakins of East Carolina, who developed the Excel tutorial materials on
the website; to Larry Wolken, Texas A&M University, who offered his hard work
and advice for the development of the Lecture Presentation Software; and to
Christopher Buzzard who helped us develop the Excel models, the website, and
the PowerPoint presentations. Finally, we also want to acknowledge the contribu-
tions of the late Chris Barry, who wrote some of the chapter boxes in earlier
editions.
xx Preface
Finally, the Cengage Learning staff, especially Mike Reynolds, Jana Lewis,
Jessica Robbe, Scott Fidler, Adele Scholtz, Brad Sullender, and Heather Mooney,
helped greatly with all phases of the book’s development and production.
Errors in the Textbook

At this point, most authors make a statement such as this: “We appreciate all the
help we received from the people listed above; but any remaining errors are, of
course, our own responsibility.” And generally there are more than enough
remaining errors! Having experienced difficulties with errors ourselves, both as
students and instructors, we resolved to avoid this problem in Concise. As a result
of our detection procedures, we are convinced that few errors remain, but pri-
marily because we want to detect any errors that may have slipped by so that we
can 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 the purpose of this reward, errors
are defined as misspelled words, nonrounding numerical errors, incorrect state-
ments, and any other error that inhibits comprehension. Typesetting problems
such as irregular spacing and differences of opinion regarding grammatical or
punctuation conventions do not qualify for this reward. Given the ever-changing
nature of the World Wide Web, changes in web addresses also do not qualify as
errors, although we would like to learn about them. Finally, any qualifying error
that has follow-through effects is counted as two errors only. Please report any
errors to Joel Houston through e-mail at Concise@joelhouston.com or by regular
mail at the address below.
Conclusion
Finance is, in a real sense, the cornerstone of the enterprise system—good financial
management is vitally important to the economic health of all firms and hence to
the nation and the world. Because of its importance, finance should be widely and
thoroughly understood, but this is easier said than done. The field is complex, and
it undergoes constant change due to shifts in economic conditions. All of this
makes finance stimulating and exciting, but challenging and sometimes perplex-
ing. We sincerely hope that this 9th Edition of Concise will meet its own challenge
by contributing to a better understanding of our financial system.
EUGENE F. BRIGHAM
JOEL F. HOUSTON
4723 N.W. 53rd Ave., Suite A
Gainesville, Florida 32653
Concise@joelhouston.com
November 2015
About the Authors
Eugene F. Brigham University of Florida
Dr. Eugene F. Brigham is Graduate Research Professor Emeritus at the University

of Florida, where he has taught since 1971. Dr. Brigham received his MBA and
PhD from the University of California–Berkeley and his undergraduate degree
from the University of North Carolina. Prior to joining the University of Florida,
Dr. Brigham held teaching positions at the University of Connecticut, the Uni-
versity of Wisconsin, and the University of California–Los Angeles. Dr. Brigham
has served as president of the Financial Management Association and has written
many journal articles on the cost of capital, capital structure, and other aspects of
financial management. He has authored or co-authored 10 textbooks on manage-
rial finance and managerial economics that are used at more than 1,000 univer-
sities in the United States and have been translated into 11 languages worldwide.
He has testified as an expert witness in numerous electric, gas, and telephone rate
cases at both federal and state levels. He has served as a consultant to many
corporations and government agencies, including the Federal Reserve Board, the
Federal Home Loan Bank Board, the U.S. Office of Telecommunications Policy,
and the RAND Corporation. He spends his spare time on the golf course, enjoying
time with his family and dogs, and tackling outdoor adventure activities, such as
biking through Alaska.
Joel F. Houston University of Florida
Joel F. Houston is the John B. Hall Professor of Finance at the University of

Florida. He received his MA and PhD from the Wharton School at the University
of Pennsylvania, and his undergraduate degree from Franklin and Marshall
College. Prior to his appointment at the University of Florida, Dr. Houston was
an economist at the Federal Reserve Bank of Philadelphia. His research is primar-
ily in the areas of corporate finance and financial institutions, and his work has
been published in a number of top journals including the Journal of Finance, Journal
of Financial Economics, Journal of Business, Journal of Financial and Quantitative
Analysis, and Financial Management. Professor Houston also currently serves as
an associate editor for the Journal of Money, Credit and Banking, The Journal of
Financial Services Research, and The Journal of Financial Economic Policy. Since arriv-
ing at the University of Florida in 1987, he has received 20 teaching awards and
has been actively involved in both undergraduate and graduate education. In
addition to co-authoring leading textbooks in financial management, Dr. Houston
has participated in management education programs for the PURC/World Bank
Program, Southern Company, Exelon Corporation, and Volume Services America.
He enjoys playing golf, working out, and spending time with his wife (Sherry),
two children (Chris and Meredith), and daughter-in-law (Renae). He is an avid
sports fan who follows the Florida Gators and the Pittsburgh Steelers, Pirates, and
Penguins.
XXI
part
Introduction to Financial
Management
1
CHAPTER
1 An Overview of Financial
Management
2 Financial Markets and
Institutions
olaser/Getty Images
An Overview of Financial Management
CHAPTER
Helen Sessions/Alamy
Striking the Right Balance

In 1776, Adam Smith described how an “invisible • A firm’s principal financial goal should be to
hand” guides companies as they strive for profits, maximize the wealth of its stockholders, which
and that hand leads them to decisions that benefit means maximizing the value of its stock.
society. Smith’s insights led him to conclude that • Free enterprise is still the best economic system
profit maximization is the right goal for a business for society as a whole. Under the free enterprise
and that the free enterprise system is best for framework, companies develop products and
society. But the world has changed since 1776. services that people want and that benefit
Firms today are much larger, they operate globally, society.
they have thousands of employees, and they are • However, some constraints are needed—
owned by millions of stockholders. This makes firms should not be allowed to pollute the
us wonder if the “invisible hand” still provides air and water, to engage in unfair employment
reliable guidance: Should companies still try to practices, or to create monopolies that exploit
maximize profits, or should they take a broader consumers.
view and more balanced actions designed to ben-
efit customers, employees, suppliers, and society as These constraints take a number of different
a whole? forms. The first set of constraints is the costs that
Many academics and finance professionals are assessed on companies if they take actions
today subscribe to the following modified version that harm society. Another set of constraints arises
of Adam Smith’s theory: through the political process, where society
Chapter 1 An Overview of Financial Management 3
imposes a wide range of regulations that are designed to keep dients, along with better cooking techniques to prepare and
companies from engaging in practices that are harmful to society. serve the best tasting food possible. And our special people
culture, which focuses on attracting and building teams of
Properly imposed, these costs fairly transfer value to suffering
top performers empowered to achieve high standards, allows
parties and help create incentives that help prevent similar events us to create an extraordinary dining experience for our cus-
from occurring in the future. tomers and internally develop our future leaders to sustain
The recent financial crisis dramatically illustrates these our growth. Not coincidentally, these characteristics of our
points. We witnessed many Wall Street firms engaging in extre- business are the primary drivers of our success and helped us
mely risky activities that pushed the financial system to the brink deliver very strong results in 2013.
of collapse in 2007 and 2008. Saving the financial system Later in the letter, Ells and Moran highlight the com-
required a bailout of the banks and other financial companies, pany’s mission to provide “Food with Integrity”—this refers in
and that bailout imposed huge costs on taxpayers and helped part to their efforts to rely on organic food and sources where
push the economy into a deep recession. Apart from the huge animals are treated respectfully. They also emphasize the high
costs imposed on society, the financial firms also paid a heavy value they place on their employees and the efforts they
price—a number of leading financial institutions saw a huge impose to create a desirable work environment.
drop in their stock price, some failed and went out of business, Over the past several years, consumers and investors
and many Wall Street executives lost their jobs. alike have flocked to Chipotle. Between 2010 and 2014, the
Arguably, these costs are not enough to prevent another company’s sales more than doubled and they now exceed
financial crisis from occurring. Many maintain that the events $4 billion. Likewise, the company’s stock price went from
surrounding the financial crisis illustrate that markets don’t around $90 a share in early 2010 to above $700 a share in
always work the way they should and that there is a need for January 2015.
stronger regulation of the financial sector. For example, in his However, there have been some recent bumps in the
recent books, Nobel Laureate Joseph Stiglitz makes a strong road. Chipotle’s stock price fell nearly 7% in February 2015,
case for enhanced regulation. At the same time, others with a after the company reported weaker than expected sales
different political persuasion continue to express concerns growth for the fourth quarter of 2014. Some investors are
about the costs of excessive regulation. also concerned that higher food prices and the company’s
Beyond the financial crisis, there is a broader question of push for quality ingredients have driven up their costs of
whether laws and regulations are enough to compel firms to production. So far, at least, Chipotle has been able to pass
act in society’s interest. An increasing number of companies along some (but not all) of these costs to their customers in
continue to recognize the need to maximize shareholder the form of higher prices.
value, but they also see their mission as more than just Despite this recent setback, the company’s outstanding
making money for shareholders. Google’s well-known corpo- performance during the last few years suggests that Chipotle’s
rate motto is “Don’t Be Evil.” Consistent with this mission, the efforts to improve the welfare of its customers, employees, and
company has its own in-house foundation that has made surrounding communities has not compromised its ability to
large investments in a wide range of philanthropic ventures also increase shareholder value. Realistically, however, there
worldwide. will still be cases where companies face conflicts between
Looking at another industry, Chipotle Mexican Grill has their various constituencies—for example, a company may
sought to balance societal and shareholder objectives. In the enhance shareholder value by laying off some workers, or a
first paragraph of the company’s letter to shareholders in its change in policy may improve the environment but reduce
2013 annual report, the company’s co-CEOs Steve Ells and shareholder value. In these instances, managers have to bal-
Monty Moran stated the company’s mission: ance these competing interests and different managers will
Chipotle’s mission is to change the way people think about clearly make different choices. At the end of the day, all
and eat fast food. At the heart of this lofty goal are two deeply companies struggle to find the right balance. Enlightened
held commitments. Our unique food culture results in our managers recognize that there is more to life than money,
constant effort to find higher quality, more sustainable ingre- but it often takes money to do good things.
Sources: Kevin J. Delaney, “Google: From ‘Don’t Be Evil’ to How to Do Good,” The Wall Street Journal, January 18, 2008, pp. B1–B2; Joseph E.
Stiglitz, FreeFall: America, Free Markets, and the Sinking of the World Economy (New York: W.W. Norton & Company, 2010); Joseph E. Stiglitz, The
Price of Inequality (New York: W.W. Norton & Company, 2012); Spencer Jakab, “Ahead of the Tape: Chipotle Is an Expensive Burrito,” The Wall
Street Journal (online.wsj.com), February 2, 2015; and Chipotle Mexican Grill 2013 Annual Report and Proxy Statement (ir.chipotle.com/phoenix.
zhtml?c=194775&p=irol-reportsAnnual).
Another random document with
no related content on Scribd:
is a mile or more above sea level, and if we should fly too high in
order to avoid the heat gusts, we may have trouble with our engines
in the rarefied air. Below us are dense forests and rocky hillsides,
and natural landing places hardly exist. As we go down the eastern
shore of Lake Victoria we see new sights. These are the water-
spouts, great spiral columns whirled up from the lake into the air by
the eddying winds.
Swamps, huge anthills, scrub bush, outcroppings of rock; and stretches of tall,
rank elephant grass combine to make natural landing places exceedingly rare on
the second stage of the airplane journey, which is most difficult and dangerous.
The flight from Cairo to the Cape takes the aviator over clusters of native huts,
dwarfed to the size of anthills, through which run the signs of civilization—ribbons
of well-constructed road.
Fuad I, who became the first king when Egypt was declared a sovereign nation,
came of the same family as the khedives of the last hundred years. He gave Egypt
its flag, three white crescents and stars on a red field.
Our route from Kisumu, on Lake Victoria, is to the southwest, and

we land at Mwanza, on the south shore. This is one of the outposts
of the white man’s civilization in “darkest Africa,” From Mwanza we
continue southwest across Tanganyika Territory to Abercorn at the
lower end of Lake Tanganyika, and then fly on to Broken Hill in
northern Rhodesia, where once more we see a railroad.
Preparing landing places in this part of Africa was a big job in
itself. Not only were thousands of trees cut down to make clear
spaces, but they were dug up by the roots to prevent them from
sprouting again. Many of the native chieftains take great interest in
keeping clear these airdromes, which would soon be gobbled up by
the jungles if left to themselves. They have also broken up and
carried away from these spaces the giant ant hills that cover the land
of Central Africa like freckles on a boy’s face. These hills, which are
often twenty-five or thirty feet high, and forty or fifty feet thick, are the
home of the white ant. To make one airdrome in northern Rhodesia a
force of seven hundred natives worked five months taking out
twenty-five thousand tons of the heavy, rock-like clay with which the
ants, grain by grain, had built their African apartment houses. Were
our airplane to strike an ant hill in landing, it would surely be
wrecked.
From northern Rhodesia down into Cape Colony our flight is not
quite so difficult. The country is lower, and there are more open
spaces. At Livingstone we begin the third stage of the journey, and
there cross the Zambesi, looking down upon its wonderful falls,
larger than Niagara. From Bulawayo, the next important stop, we
bear to the east as we go south, passing over the Transvaal, with its
diamonds and gold mines. We stop at Johannesburg and then fly to
the westward on down to Bloemfontein. Our last flight takes us to
Table Mountain, with Cape Town and the Atlantic Ocean at its foot.
We are at the end of the continent, and have completed our fifty-two
hundred miles through the air.
Those who know best the conditions in Africa believe that the
establishment of a regular air service along the Cape-to-Cairo route
will be difficult. During the rainy season dense fogs are common,
making flying uncertain and dangerous, while at times the smoke
from forest fires causes great trouble. On account of the rapid
evaporation, the storage of gasoline in the tropical belt is extremely
difficult. Sudden changes in atmospheric conditions form another
serious danger; but with the development of wireless stations along
the route, and the use of the radio telephone, aviators can be
warned while in flight of the weather conditions ahead and shape
their courses accordingly.
Meantime, that all-British line that Cecil Rhodes planned comes
nearer to completion each year.
In thinking of the famous Cape-to-Cairo route most people
consider it as a continuous railway trip, or as an iron track spanning
Africa from south to north. This it will perhaps never be. We shall go
by steam from Cairo to the Cape of Good Hope, but almost one third
of the way will be over navigable rivers and lakes. This was
Rhodes’s idea, and it is also that of every practical engineer who has
examined the country and its traffic possibilities.
The journey from Cairo to the Cape is now made by rail, boat, and
ground transport. These overland gaps are the ones which will one
day be filled with railways, but the water sections will remain as a
part of the completed route.
The railroad from Cairo has been extended two hundred and forty
miles south from Khartum to Sennar, on the Blue Nile, where a great
new dam, which is to furnish more water for irrigating Egypt and the
Sudan, is now under construction. The British have also built a
railway from Sennar west to El Obeid, in Khordofan. This line
crosses the Blue Nile at Kosti. From Sennar, the fourteen hundred
miles to Lake Albert is covered by Nile steamers and by ground
transport, which may be automobile, horseback, or bullock wagon.
From the southern shore of Lake Albert is another gap which must
be covered with ground transport to gain the shores of Lake Victoria,
and after Victoria is crossed by steamer, Lake Tanganyika must be
reached overland. From Lake Tanganyika to Broken Hill is a gap of
four hundred and fifty miles which will soon be bridged by railroad
construction. From Broken Hill we have the railway to Cape Town. A
railroad extends northward from Broken Hill to Bukama in the Congo
copper-mining district of Katanga, but it does not fit into the scheme
of an all-British steam route to Cairo.
Another important railway development, also the work of the
British, resulted from the World War. The Turks had organized an
army to capture control of the Suez Canal, and to meet this attack
the British pushed a great expeditionary force into Palestine. They
did this by building a swinging railroad bridge across the canal at
Kantara and laying a railroad two hundred and fifty-six miles through
the Sinai and Palestine deserts to Haifa. During these operations,
Kantara, normally a small garrisoned railroad town, mostly sand and
cinders, became the greatest military base in all history. Besides the
soldiers, brought from all corners of the British Empire, the British
organized the Egyptian Labour Corps, for which more than twelve
hundred thousand Egyptian natives were recruited. This vast army of
workers built the railway, and kept the stream of men and supplies
moving on to meet the attack of the Turks. The Egyptians did not like
this service much better than the Children of Israel liked toiling
without wages for the Pharaohs nearly four thousand years ago.
These operations resulted in the defeat of the Turks and saved the
canal. Moreover, they linked Africa and Asia by rail and one may now
go on comfortable cars all the way from Cairo to Constantinople, and
on to Paris. In reality, three continents have been joined together by
the Kantara bridge and the Palestine Military Railway. This new link
in the chain of the world’s railway systems was part of the Kaiser’s
dream of empire. But he had no part in making it come true, and it
now adds to the glory and strength of the very nations he hoped to
conquer.
The mails are carefully guarded on all trains, a soldier with rifle and sword
always being present when the sacks are loaded or unloaded. Armed guards also
travel with the mail on the Nile steamers.
Far up in the Sudan American engines are found pulling British trains, while the
famous bridge at Atbara, which Kitchener said he must have in less time than the
English could manufacture it, was made in the United States.
While the British have established first-class railroad service from Cairo and
lower Egypt up into the Sudan, there also remain in this region some of the light
military railways built during the wars with the Mahdi.
CHAPTER XX
KHARTUM
After the intensely hot and dust-filled six-hundred-mile journey

across the desert from Wady Halfa it is good to be here amid the
palm gardens and the lime trees of Khartum. I am in the flourishing
capital of the Sudan, once, and not so long ago at that, the centre of
an exceedingly prosperous slave trade and later the scene of the
massacre of General Gordon and of Kitchener’s fierce fights with the
Mohammedan fanatics.
Khartum lies at the junction of two of the chief rivers of North
Africa, giving it navigable highways to Abyssinia and to the rich lands
along the watershed of the Belgian Congo. It has railroads
connecting it with the Mediterranean, and with the exception of one
stretch of less than six hundred miles, where the cataracts are, it has
the main stream of the Nile to give it cheap freight rates to Europe. It
has opened a railroad to Suakim, on the Red Sea, and in time it will
undoubtedly be one of the great stations on the principal route by
steamer and rail from Cairo to the Cape.
I called upon the Governor of Khartum this afternoon and asked
him to tell me the story of the city. Said he: “The buildings which you
see here are all new, but the town is older than some of the
mushroom cities of the United States. It was born before Chicago,
being founded by Mehemet Ali a century ago. It grew remarkably
fast, so that at ten years of age it was made the seat of the
government of the Sudan and became an important commercial
centre. It was here that Gordon made his effort to break up the slave
trade and here that he was killed. He was butchered on the steps of
a building on the site of the present Governor-General’s palace.
Then the Mahdist leader declared that Khartum should be wiped out.
He destroyed all the houses and made the inhabitants come to his
new capital, Omdurman, which he had laid out on the other side of
the White Nile about five miles to the south. When the people left
they tore off the roofs and pulled out the doors of their houses and
carried them along to use in their new houses at Omdurman.
“After that, for years, and until Kitchener came, Khartum was
nothing but a brick pile and a dust heap. Omdurman had swallowed
up not only its whole population, but that of a great part of the
Sudan; for the Khalifa forced the tribes to come there to live, in order
that he might have their men ready for his army in times of war. The
result was that Omdurman had more than a half million inhabitants
while Khartum had none.
“Then we had the war with the Khalifa, whom we finally
conquered,” the Governor continued. “After we had reduced the
greater part of Omdurman to ruins, we began planning the building
of a great city. The idea at first was to force the people to move from
Omdurman to Khartum, but it was finally decided that it would be far
better to have a native city there, and to make this place the
government and foreign centre, with a manufacturing and
commercial town at Halfaya, or Khartum, North, on the northern
bank of the Blue Nile.
“The Khartum of to-day was laid out after somewhat the same plan
as your capital at Washington; at least the reasons that determined
the plans were the same. As I recall it, Washington was plotted at
about the time of the French Revolution by a French engineer. Major
L’Enfant laid out the city so that it could be easily defended in case of
a rebellion and at the same time be beautiful. For that reason the
streets were made to cut one another at right angles with avenues
running diagonally through them, forming squares and circles, where
one cannon could command many streets. Lord Kitchener had the
same idea as to Khartum. He directed his architects to make the
streets wide, with several large squares, and to have the whole so
arranged that guns placed at the chief crossings could command the
whole city. The result is Khartum as you now see it.
“The town is laid out in three great sections, and all building plans
must be submitted to the government architects before permits of
construction can be issued. The section along the Nile is devoted to
the government buildings and the residences of the officials and
others who can afford good houses. Back of that there are streets
where less pretentious houses may be built, while farther back still
and more to the south is a third section of houses for natives. The
town is so planned that it can grow along these lines, and we believe
it will some day be one of the largest and most beautiful of the cities
of interior Africa.”
I have now been in Khartum over a week and find it most
interesting. In coming to it, I rode for hours and hours through the
sands and rocks of Nubia, and it was not until I was within a few
miles of Halfaya that I saw signs of vegetation. The train then
entered a region of thorn bushes ten or fifteen feet high; farther on
patches of grass bleached by the sun were to be seen, and closer
still other evidences of cultivation. The Arabs were digging out the
thorn bushes on the edge of the desert and stacking them up in piles
for fuel. There were a few animals grazing on the scanty grass.
Out of such dull and cheerless desert surroundings rises a city of
green. All along the river, for a distance of more than two miles, runs
a wide avenue shaded by trees and backed by buildings and private
houses in beautiful gardens. From one end of it to the other this
avenue is a succession of parks. It begins with the botanical and
zoölogical gardens, where all the trees of the tropical and sub-
tropical regions grow luxuriantly and where one may see the soap
tree, the monkey-bread tree, and other curious examples of
Sudanese flora. There are several lions and tigers in the garden, and
there is also a mighty giraffe which I photographed this afternoon as
he was taking a bite out of a branch at the height of a two-story
house.
Next to the zoölogical garden is the Grand Hotel, a long,
bungalow-shaped structure shaded by date palms, while beyond are
the two-story homes of many officials, all well shaded. The first
public building on this avenue is the post and telegraph office.
Beyond it are the offices of the Military Bureaus with public gardens
behind them. Directly on the river and in front of a wonderful garden
is the great white palace in which the Governor-General of the
Sudan lives and has his offices. Farther along the avenue are the
Sudan Club and the hospital. Away at the south rise the large
buildings of the Gordon Memorial College, with the British barracks
at the end of the street. On the edge of the river are the inevitable
sakiehs raising the water to the tune of their monotonous creakings.
They start at seven o’clock every morning. Their wheels are never
greased and as they move they screech and groan and sigh. There
is one in front of the Grand Hotel which serves as my alarm clock, for
sleep is murdered at the moment it begins.
In Khedive Avenue, which runs parallel with the embankment, is a
statue by E. Onslow Ford, of General Gordon on an Indian camel.
So far as I know this is the world’s only camelestrian statue. It is a
work of fine art and full of the spirit of the famous hero it represents.
The business parts of Khartum are on the streets back from the
river. There is one great square devoted to the markets. This must
cover ten or more acres, and the Abbas Square, a little farther west,
in which the mosque stands, is fully twice as large. The business
section has two banks and a large number of stores managed chiefly
by Greeks. There are more Greeks here than any other foreigners,
and next to them come the Italians, some of whom have important
establishments. One of the biggest of all is the house of Angelo
Capato, a man who might be called the Marshall Field of the Sudan,
for he has a large business here, with branches all over the country
and desert stores far up the Nile. The stores have covered porches
in front of them or they face arcades which keep off the sun.
The mosque of Khartum is one of the most beautiful buildings in
Africa. It is a great two-story structure of white stone with minarets
rising high above it. The galleries of the minarets have a lacework of
stone around them and the towers are covered with Arabic carvings.
The building is named after Khedive Abbas Hilmi who, I am told,
furnished much of the money for its erection.
Khartum has also a big Coptic church as well as one built by the
Church of England and the schools and chapels of the United
Presbyterian Mission of our country. So, you see, notwithstanding its
position on this far-away part of the globe, it has abundant religious
facilities.
I have been interested in watching the women doing construction
work here in Khartum. Wherever new houses and business blocks
are going up, the masons and mechanics have their women helpers.
The labourers come from all parts of the Sudan, so that the women
of a half-dozen tribes may be working on the same building. The
wages are far beyond those of the past, and, although they are still
but a few cents a day, here in Central Africa they mean riches.
These women labourers are strapping black girls, straight and
plump, and so lightly dressed that one can see all the outlines of
their forms. Some have but a thin sheet of blue cotton wrapped
loosely around the shoulders with another wound about the waist so
that it falls to the feet. The upper garment is off half the time, leaving
the girl bare to the waist. Her plump bust shows out in the bright sun
as she raises her arms high to steady the load on her head. These
African natives, both men and women, pull out all the hair on their
bodies, going over them once a month for this purpose. This custom
is common in many parts of the world. It is done among some of the
Indians of the Amazon, among the Jewesses of Tunis, who are
shaved from head to foot just before marriage, and among the Moros
of our Philippine Islands, who carry along little tweezers to jerk out
the hairs.
The wages these women receive are pitifully low. Ten or fifteen
cents a day is big money for a woman, while even a man can be
hired for twenty cents or less. For such sums the women unload the
stone boats on the Nile, wading out into the river and coming back
up the banks with two or three great rocks piled high on their heads.
They carry sand in baskets, and spread it over the stones on the
highways, and sit down on the roadsides and break stones for
macadamizing. They carry the mortar up the scaffolding to the
masons, and quite an army of them is employed in bringing water in
five-gallon kerosene oil cans from the Nile. Some of the streets are
sprinkled with this water, and many of the gardens of Khartum are
kept moist in this way. At the Grand Hotel we have a half-dozen
women who carry water all day long to irrigate the garden. Some of
the girls are tall. To-day I had a photograph taken of myself standing
beside one who overtopped me some inches. She objected to my
having her picture, and as she was a husky young negress it was for
a time undecided whether I should succeed.
I have asked some questions here as to labour. The builders tell
me it is almost impossible to get what they want, and that the more
wages they pay the greater the danger of a labour famine. The
trouble is that the natives will not work if they have money, and when
wages are high they work so much the less. All they need is their
food, and a family can live on five cents and less per day. The food
consists chiefly of boiled dura or sorghum meal and the drink is a
native beer which costs almost nothing. A man can get a suit of
clothes for a dollar, while a woman can be outfitted for less. When
food is cheap, the prices of labour rise, and when it is dear, they fall.
The native reasons that he ought to be paid more for his work when
the food prices are low, for in such a case he can easily get food
ahead, and why should he work at the ordinary wage when he has
all he wants? When the food goes up the labourers need the work to
pay for it and their competition brings wages down.
The British believe Khartum will some day be one of the largest and most
beautiful cities of Africa. They have made along the river front a boulevard and
park, in which are the government offices and the residences of officials and
others.
From Khartum, where the Blue and the White Nile come together, navigable
waterways extend into Abyssinia and the rich lands of the watershed of the
Belgian Congo, while to the north flows the main stream of the Nile.
Founded only one hundred years ago, Khartum rapidly became a slave-trade
centre but was utterly wiped out by the Mahdists who killed Gordon. Not until
Kitchener came was the city built anew on modern plans.
CHAPTER XXI
EMPIRE BUILDING IN THE SUDAN
I am just back from the palace at Khartum where I have had a long
talk with Sir Francis Reginald Wingate, the Sirdar of the Egyptian
army and the Governor-General of the Sudan. He is the ruler of a
land one fourth as large as all Europe and four times the size of any
country in it excepting Russia. He has great power and can do
almost anything he likes with this country and people. One of the
chief officers in the wars with the Mahdi and the Khalifa, he won
decoration after decoration for his bravery and military services, and
was in command of the operations which finally resulted in the death
of the Khalifa. It was in that year that he became Sirdar, and since
then he has been bringing order out of the chaos of this part of
Africa. He has pacified the warring tribes, has turned their lances
and guns into ploughshares and shepherds’ crooks, and is now
creating civilized conditions where before have been barbarism,
injustice, slavery, and war. An explorer of note before he became
Governor-General, he has his prospectors travelling through every
part of this vast region, and is laying out and starting the railroad,
canal, irrigation, and other projects which will open it up to trade and
progressive development.
The Sirdar is now in his prime. He has seen perhaps fifty years of
hard-working life, but he does not look over forty-five, and were it not
that his hair and moustache are mixed with silver, one would think
him much younger. His face is free from wrinkles and his complexion
rosy, his eyes are full of light, and his whole appearance indicates
health and strength. A great part of his career has been spent in the
saddle. He has not only travelled over most of Egypt and the Sudan,
but has gone on diplomatic missions to Abyssinia. He spends a
portion of every year travelling by boat or on camels through his far-
away provinces, and has just recently returned from a long trip to
Kordofan. He talks freely about his country, which he knows so well
that what he says is of special interest.
During my conversations with His Excellency I asked him about
the possibilities of the Sudan, reminding him that most people looked
upon it as nothing more than a vast desert. He replied:[1]
“That idea comes largely from the desolate sands through which
the railroad takes travellers on their way to Khartum. They have also
read of the immense swamps of the Upper Nile, and, putting the two
together, they look upon the country as only swamp and desert. The
truth is the Sudan is an undeveloped empire so far as its natural
resources are concerned. It is a land of many climates and of all
sorts of soils. The desert stops not far from Khartum, beyond which
is a region where the rainfall is sufficient for regular crops. Still
farther south the country has more rain than is needed. In the west
are great areas fitted for stock raising.
“Take, for instance, the country along the Abyssinian border and
that which lies between the White and Blue Niles. Those regions
have been built up in the same manner as Egypt, and they contain
all the rich fertilizing materials which have made the Lower Nile
valley one of the great grain lands of the world. The only difference is
that the Egyptian soil, by the cultivation and the watering of
thousands of years, has been leached of its best fertilizing elements;
while the soil of the Gezirah, as the region I have referred to is
called, has hardly been touched. Indeed, the plain between the
White and Blue Niles is so rich that, if water is put upon it, it will
produce four or five crops every year, and that for many years in
succession. We have millions of acres of such soil awaiting only the
hand of man to bring them into the world’s markets as live
commercial factors.”
“What kind of crops can be raised in that country, your
Excellency?” I asked.
“Almost anything that is now produced in Egypt,” was the reply.
“The Gezirah is already growing a great deal of dura, or millet. It
produces an excellent wheat and also maize. In fact, that plain is
now the chief granary of this part of the world. It raises so much that,
when the season is good, the crops are more than the people
consume, so the grain is stored away in great pits. I have seen dura
pits forty feet deep and about fifty feet in diameter. They are to be
found about almost every village. At ordinary times they are kept full
of grain for fear of a famine, but while the Mahdi reigned, his soldiers
used to rob them. The result was that whole communities were
wiped out by starvation.”
“But if the bad years eat up the good ones, where is the Sudan to
get its grain for export?” I inquired.
“That will come by irrigation and better transportation. Until the
Upper Nile irrigation projects can be put through the people must
rely, as they do now, upon the rainfall, which is uncertain. When
those plans have been carried out the country can be irrigated by the
two Niles without diminishing the supply of water required for Egypt.
Then the land will have water all the year round. Improved methods
of cultivation will enormously increase the crops. At present the
native merely walks over the ground after a rain and stirs it up with a
stick while his wife or children follow behind dropping the seeds and
covering them with their feet. Nothing more is done until two months
later, when the crop is ready for reaping.”
“How about cotton?”
“I see no reason why the Sudan should not eventually be one of
the big cotton countries of the globe. We are experimenting with it in
all the provinces and are meeting with success. The land between
the White and Blue Niles might be made one great cotton plantation,
and the quality of the crop would be excellent. We are now raising
fine cotton on the Red Sea near Suakim, and the crop is a profitable
one. Plantations are also being set out by foreigners near Khartum.
The cotton raised is fully equal to the best Egyptian.”
“But how about your labour, your Excellency; have you the
workmen necessary to cultivate such crops?”
“That is a problem which only the future can solve,” replied the
Sirdar. “We have all kinds of natives here, representing the different
stages of savagery and semi-civilization. While there are a great
many tribes whose people can be taught to work, others will need
many years of training before they can be made into such farmers as
we have in Egypt and India. We have some who will work only long
enough to get food and supplies for their immediate needs and who,
when a little ahead, will spend their time in dancing and drinking the
native beer until they become poor again. We have also a large
admixture of Arabs and other races who are of a far higher character
and of whom we expect much.”

Textbook Fundamentals of Financial Management Concise Edition Eugene F Brigham Ebook All Chapter PDF

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Textbook Fundamentals of Financial Management Concise Edition Eugene F Brigham Ebook All Chapter PDF

Uploaded by

Copyright:

Available Formats

Fundamentals of Financial Management

Concise Edition Eugene F. Brigham

Fundamentals of Financial Management, Concise 10th

Fundamentals of Financial Management Eugene F. Brigham

Intermediate Financial Management Eugene F. Brigham

Financial Management: Theory & Practice Eugene F.

Financial Management Theory and Practice 14th Edition

Financial management theory and practice Third Canadian

Fundamentals of financial accounting Libby

Fundamentals of Pediatric Imaging 2nd Edition Lane F.

Internal Designer: Imbue Design/Kim Torbeck

To learn more about Cengage Learning Solutions, visit

PART 1 INTRODUCTION TO FINANCIAL MANAGEMENT 1

PART 2 FUNDAMENTAL CONCEPTS IN FINANCIAL MANAGEMENT 57

PART 3 FINANCIAL ASSETS 187

PART 4 INVESTING IN LONG-TERM ASSETS: CAPITAL BUDGETING 347

PART 5 CAPITAL STRUCTURE AND DIVIDEND POLICY 451

PART 6 WORKING CAPITAL MANAGEMENT, FORECASTING, AND MULTINATIONAL

2-4 The Stock Market 41

2-5 The Market for Common Stock 43

3-3 The Income Statement 69 4-9 Using Financial Ratios to Assess

5-16 Comparing Interest Rates 171 TYING IT ALL TOGETHER 214

Financial Assets 187 7-2 Key Characteristics of Bonds 225

CHAPTER 8 9-1 Legal Rights and Privileges of Common

10-2 Basic Definitions 351 11-8 Payback Period 398

TYING IT ALL TOGETHER 368 12-2 Analysis of an Expansion Project 416

APPENDIX 12A TYING IT ALL TOGETHER 484

13-1 Book, Market, or “Target” 14-3 Establishing the Dividend Policy in

Taking a Closer Look 15-12 Accruals (Accrued Liabilities) 558

Financial Management 527 CHAPTER 16

17-1 Multinational, or Global, 17-9 International Money and Capital

Structure of the Book

Organization of the Chapters: A Valuation

Innovations for the Ninth Edition

Digital Solutions for the Ninth Edition

COGNERO™ TESTING SOFTWARE

Sankar De Rudyard Goode Manuel Jose Chris Manning

Stephen Parrish John Rozycki Kenneth Stanton Howard Van Auken

Errors in the Textbook

Dr. Eugene F. Brigham is Graduate Research Professor Emeritus at the University

Joel F. Houston University of Florida

Joel F. Houston is the John B. Hall Professor of Finance at the University of

Striking the Right Balance

Our route from Kisumu, on Lake Victoria, is to the southwest, and

After the intensely hot and dust-filled six-hundred-mile journey

You might also like