CHAPTER 1 AN INTRODUCTION TO FINANCIAL MANAGEMENT 5 weighted average profits. Whether one project is 6 PART 1 THE SCOPE. Editorial Reviews. About the Author. SHERIDAN TITMAN holds the McAllister Centennial Chair fatyfivythe.tk: Financial Management: Principles and Applications eBook: Sheridan Titman, Arthur J. Keown, John D. Martin: site Store. Editorial Reviews. About the Author. SHERIDAN TITMAN holds the McAllister Centennial Chair Financial Management: Principles and Applications (Pearson Series in Finance) eBook: Sheridan Titman, Arthur J. Keown: site Store.

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Financial Management: Principles and Applications (12th Edition) (Pearson Series in Finance). Sheridan Titman, Arthur J. Keown, John D. Martin. Contents: Part. Were you looking for the book with access to MyLab Finance? This product is the VitalSource eText alone, and does NOT come with access to. , English, Book, Illustrated edition: Financial management: principles and applications / Sheridan Titman, Tony Martin, Arthur J. Keown, John D. Martin. You will continue to access your digital ebook products whilst you have your.

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Physical Description xxx, pages: Check copyright status Cite this Title Financial management: Author Titman, Sheridan, author. Other Authors Martin, Tony, , author. Keown, Arthur J, author. Martin, John, author. Edition 8th Edition. Published Melbourne, VIC: Content Types still image text Carrier Types volume online resource Physical Description xxx, pages: Corporations -- Australia -- Finance.

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Australian Target Audience Specialized Summary The goal of the textbook is to provide students with an enduring understanding of the basic tools and fundamental principles upon which finance is based. Financial Management is a total learning package that reflects the vitality of an ever-expanding discipline, building on the foundations of economics and accounting. Adapted for the Australian market, students are presented with a cohesive, inter-related subject that they can use when approaching future, as yet unknown, problems.

Building on the strengths of the previous edition, the Eighth Edition sees consolidation and refining of content, creating a modern teaching approach. These principles are woven throughout the book, forming a rationalised, coherent, integrated and intuitive problem-solving approach.

The full text downloaded to your computer With eBooks you can: Upon download, you will receive via email the code and instructions on how to access this product. Time limit The eBooks products do not have an expiry date.

You will continue to access your digital ebook products whilst you have your Bookshelf installed. Notes For tertiary students. Ed Australia. Access Conditions National edeposit: View online Borrow download Freely available Show 0 more links With access conditions National edeposit: Onsite at State Library Victoria https: Onsite at State Library of Western Australia https: Onsite at National Library of Australia https: Ownership is reflected in common stock certificates, designating the number of shares owned by its holder.

The number of shares owned relative to the total number of shares outstanding determines the stockholders proportionate ownership in the business. Because the shares are transferable, ownership in a corporation may be changed by a shareholder simply remitting the shares to a new shareholder.

The investors liability is confined to the amount of the investment in the company, thereby preventing creditors from confiscating stockholders personal assets in settlement of unresolved claims. This is an extremely important advantage of a corporation.

After all, would you be willing to invest in General Electric if you would be liable in the event that one of their airplane engines malfunctions and people die in a crash?

Finally, the life of a corporation is not dependent on the status of the investors. The death or withdrawal of an investor does not affect the continuity of the corporation. Because of the limited liability, the ease of transferring ownership through the sale of common shares, and the flexibility in dividing the shares, the corporation is the ideal business entity in terms of attracting new capital.

In contrast, the unlimited liabili: Between the extremes, the limited partnership does provide limited liability for limited partners, which has a tendency to attract wealthy investors. Woodward, 4 Wheaton Enrons failure provides a sober warning to From the shareholders perspective one might ask what is employees and investors and a valuable set of lessons for wrong with achieving a higher stock price?

The problem is students of business. The lessons we offer below reach far that this can lead to a situation where investor expectations beyond corporate finance and touch on fundamental become detached from what is feasible for the firm.

Maximizing Share Value Is Not Always Thus, maximizing share value where the firms underlying the BeSt Thing to Do fundamentals do not support such valuations is dangerous If there is a disconnect between current market prices and business.

In fact, it is not clear which is worse, having an the intrinsic worth of a firm then attempts to manipulate over- or an undervalued stock price.

The problems associated with ma. These circumstances can economists.

Foundations of Finance, Global Edition eBook, 9th Edition

Therefore, when developing our decision models, we will assume that weare dealing with the corporate form. The taxes incorporated in these models will dealonly with the corporate tax codes. Because our goal is to develop an understanding of themanagement, measurement, and creation of wealth, and not to become tax experts, in thefollowing chapter we will only focus on those characteristics of the corporate tax codethat will affect our financial decisions.

In a smaller firm, the same person mayfill both roles, with just one office handling all the du. The Treasurer generally han-dles the firms financial activities, including cash and credit management, making capitalexpenditure decisions, raising funds, financial planning, and managing any foreign cur-rency received by the firm. The Controller is responsible for managing the firmsaccounting duties, including producing financial swtements, cost accounting, payingtaxes, and gathering and monitoring the data necessary to oversee the firms financialwell-being.

In this class, we focus on the duties generally associated with the Treasurerand on how investment decisions are made. Oversee financial planning Corporate strategic planning Control corporate cash flow Treasurer Controller Duties: What are the primary differences among a sole proprietorship, a partnership, and a corporation?

Explain why large and growing firms tend to choose the corporate I form. What are the duties of the Corporate Treasurer? Of the Corporate Controller? While we will look at the process of raising capital in some detail in Chapter 14, lets spend a moment looking at the flow of capital through the financial mar- kets among the corporation, individuals, and the government.

Figure examines these flows. The corporation receives cash in return for securities- stocks and debt. The Interaction1. Initially, the corporation raises funds in the financial markets by selling securities-stocks and bonds; 2. Thecorporation then invests this cash in return-generating assets-new project; 3. The cash flow from those assets is eitherreinvested in the corporation, given back to the investors, or paid to the government in the form of taxes.

Corporation Cash reinvested invests in the corporation in return- Securities traded generating 3. One distinction that is important to understand is the difference between primaryand secondary markets.

Again, we will reexamine raising capital and the differencebetween primary and secondary markets in some detail in Chapter To begin with, asecurities market is simply a place where you can download or sell securities. These markets cantake the form of anything from an actual building on Wall Street in New York City to anelectronic hookup among security dealers all over the world.

Securities markets aredivided into primary and secondary markets. Lets take a look at what these terms mean. A primary market is a market in which new, as opposed to previously issued, securi- Primary marketties are traded.

For example, if Nike issues a new batch of stock, this issue would be considered a securities are traded. In this case, Nike would issue new shares of stock and receive Initial public offering lPO money from investors.

An initial stock is sold to the public. Once the newly issued stock is in the pub- that already have commonlics hands, it then begins trading in the secondary market. Securities that have previ- stock traded. For example, if you Secondary marketbought shares of stock in an IPO and then wanted to resell them, you would be The market in which stock previously issued by the firmreselling them in the secondary markets.

The proceeds from the sale of a share of IBM trades. That isbecause the only time IBM ever receives money from the sale of one of its securities is inthe primary markets. In our interview with Mr. Bleustein, paid on the firms large amounts of debt. Much of what he had to say related directly to the and stay illYolved with the company.

At the end of , main topics of this book. Specifically, he talked about the we had nearly , members. We also began a pro- companys strategies in the areas of investment decisions, gram of carefully managing the licensing of the Harley- working-capital management, financing decisions, marketing Davidson name.

He employees. We needed to let everyone in the organization insists that there is more to business than crunching the num- know what was expected of him or her, which led us to the bers; it is people that make the difference.

Bleusteins development of our corporate vision and statement ofval- remarks can be summarized as follows: I strongly believe that the only sustainable corporate advantage a company can have is its people. The extremely high level of debt incurred Today our two unions participate fully with the firms to finance the download placed the company in a very frail management in a wide range of decision making, includ- financial condition.

The downturn in the economy, com- ing the firms strategies. To add to the prob- the use of a team structure at our vice president level of lems, the firms principal lender, Citibank, announced in management to make the decisions. As a result, we elim- that it wanted out of its creditor position for the inated a whole layer from top management. We established a management team ruptcy.

Specifically, they reflect nificant capital investments in new product lines, such as financing choices, investment decisions, and working- the Evolution engine, the Softail motorcycle, and most capital management. So, we invite you to join us in our study recently, the Twin Cam 88 engine, one of our current of finance and, in the process, learn about a company that engine designs. Also, in we invested in new manu- has accomplished in real terms what few others have been facturing facilities in Kansas City, Missouri, and able to eLl.

The firms value state- As Needed. Objective ! To the first-time student of finance, the subject matter may seem like a col- lection of unrelated decision rules.

This could not be further from the truth. In fact, our However, while it is not necessary to under-standfinance in order to understand these priluiples, it is necessary to understand these principlesin order to understand finance. Keep in mind that although these principles may at firstappear simple or even trivial, they will provide the driving force behind all that follows.

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These principles will weave together concepts and techniques presented in this text,thereby allowing us to focus on the logic underlying the practice of financial manage-ment. In order to make the learning process easier for you as a student, we will keepreturning to these principles throughout the book in the form of "Back to the Principles"boxes-tying the material together and letting you son the "forest from the trees.

Why have we done this? The answer issimple: We are able to invest those savings and earn a return on our dollarsbecause some people would rather forgo future consumption opportunities to consumemore now-maybe theyre borrowing money to open a new business or a company isborrowing money to build a new plant.

Assuming there are a lot of different people thatwould like to use our savings, how do we decide where to put our money? First, investors demand a minimum return for delaying conswnption that must begreater than the anticipated rate of inflation.

If they didnt receive enough to compensatefor anticipated inflation, investors would download whatever goods they desired ahead oftime or invest in assets that were subject to inflation and earn the rate of inflation onthose assets.

There isnt much incentive to postpone conswnption if your savings aregoing to decline in terms of downloading power. Investment alternatives have different amounts of risk and expected returns.

Investors sometimes choose to put their money in risky investments because theseinvestments offer higher expected returns. The more risk an investment has, the higherwill be its expected return. This relationship between risk and expected return is shownin Figure We may have expectations of what the returns from investing will be, but we cant peer into the future and see what those rerurns are actually going to be.

If investors could see into the future, no one would have invested money in the software maker Citrix, whose stock dropped 46 percent on June 13, Citrixs stock dropped when it announced that unexpected problems in its sales channels would cause second-quarter profits to be about half what Wall Street expected. Until after the fact, you are never sure what the return on an investment will be.

That is why General Motors bonds pay more interest than U. Treasury bonds of the same maturity. The additional interest convinces some investors to take on the added risk of downloading a General Motors bond.

This risk-return relationship will be a key concept as we value stocks, bonds, and proposed new projects throughout this text. We will also spend some time determining how to measure risk. Interestingly, much of the work for which the Nobel Prize for Economics was awarded centered on the graph in Figure and how to measure risk. Both the graph and the risk-return relationship it depicts will reappear often in this text.

A dol- lar received today is worth more than a dollar received a year from now. Because we can earn interest on money received today, it is better to receive money earlier rather than later. In your economics courses, this concept of the time value of money is referred to as the opporrunity cost of passing up the earning potential of a dollar today.

In this text, we focus on the creation and measurement of wealth. To measure wealth or value, we will use the concept of the time value of money to bring the future benefits and costs of a project back to the present. Then, if the benefits outweigh the costs, the project creates wealth and should be accepted; if the costs outweigh the benefits, the pro- ject does not create wealth and should be rejected.

Without recognizing the existence of the time value of money, it is impossible to evaluate projects with future benefits and costs in a meaningful way. To bring future benefits and costs of a project back to the present, we must assume a specific opportunity cost of money, or interest rate. Exactly what interest rate to use is determined by Principle 1: The Risk-Return Trade-Off, which states investors demand higher returns for taking on more risky projects.

Thus, when we determine the present value of future benefits and costs, we take into account that investors demand a higher return for taking on added risk. That is, we will be concerned with when the money hits our hand, when we can invest it and start earning interest on it, and when we can give it back to the shareholders in the form of dividends.

Financial Management: Principles and Applications, 7th Edition

Remember, it is the cash flows, not profits, that are actually received by the firm and can be reinvested. Accounting profits, however, appear when they are earned rather than when the money is actually in hand. As a result, a firms cash flows and accounting profits may not be the same. For example, a capital expense, such as the download of new equipment or a building, is depreciated over sev- eral years, wjth the annual depreciation subtracted from profits.

However, the cash flow, or actual dollars, associated with this expense generally occurs immediately. Therefore As a result, cash flows correctly reflect the timing of thebenefits and costs. Certainly some of the sales dollars that ended up with Cinna Crunch Pebbles wouldhave been spent on other Pebbles and Post products if Cinna Crunch Pebbles had notbeen available.

Although Post was targeting younger consumers with this sweetenedcereal, there is no question that Post sales bit into-actually cannibalized-sales fromPebbles and other Post lines. Realistically, theres only so much cereal anyone can eat. The difference between revenues Post generated after introducing Cinna Crunch Pebblesversus simply maintaining its existing line of cereals is the incremental cash flows. Thisdifference reflects the true impact of the decision.

In making business decisions, we are concerned with the results of those decisions: What happens if we say yes versus what happens if we say no? Principle 3 states that weshould use cash flows to measure the benefits that accrue from taking on a new project.

We are now fine tuning our evaluation process so that we only consider incremental cashflows. The incremental cash flow is the difference between the cash flows if the project istaken on versus what they will be if the project is not taken on. What is important is that we think incrementally. Our guiding rule in decidingwhether a cash flow is incremental is to look at the company with and without the newproduct.

In fact, we will take this incremental concept beyond cash flows and look at allconsequences from all decisions on an incremental basis. Therefore, we will look closely at themechanics of valuation and decision making. We will focus on estimating cash flows,determining what the investment earns, and valuing assets and new projects. But it will beeasy to get caught up in the mechanics of valuation and lose sight of the process of creat-ing wealth.If you have not received your delivery following the estimated timeframe, we advise you to contact your local post office first, as the parcel may be there awaiting your collection.

Financial Management: Pearson New International Edition

Delivery with Standard Australia Post usually happens within business days from time of dispatch. To include a comma in your tag, surround the tag with double quotes. Between the extremes, the limited partnership does provide limited liability for limited partners, which has a tendency to attract wealthy investors.

National edeposit VIC.

The taxes incorporated in these models will dealonly with the corporate tax codes. The end result is management effectively selects the directors, who then may have more allegiance to managers than to shareholders. Found at these bookshops Searching - please wait Building on the strengths of the previous edition, the Eighth Edition sees consolidation and refining of content, creating a modern teaching approach.