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Foundations of Finance, Global Edition

Foundations of Finance, Global Edition

Arthur J. Keown | John D. Martin | J. William Petty


Additional Information

Book Details


For undergraduate courses in Corporate Finance.


The Five Key Principles for the Foundations of Finance

Foundations of Finance retains its foundational approach to the key concepts of finance, bolstered by real-world vignettes, cases, and problem exercises. Utilizing five principles, which are presented at the beginning of the book and applied throughout, the authors introduce a multi-step approach to financial problem solving that appeals to students’ at all levels, math and numerical skills. As in previous editions, the Ninth Edition focuses on valuation and opens every chapter with a vignette based on financial decisions faced by contemporary, real-world companies and firms. Other highly useful features include mini cases, cautionary tales, lists of key terms, and a discussion of ethics. Revised and updated, the newest edition includes new lecture videos, financial thinking, user feedback, and lessons from the recent economic crisis.


MyFinanceLabnot included. Students, if MyFinanceLab is a recommended/mandatory component of the course, please ask your instructor for the correct ISBN and course ID. MyFinanceLab should only be purchased when required by an instructor. Instructors, contact your Pearson representative for more information.


MyFinanceLab is an online homework, tutorial, and assessment program designed to work with this text to engage students and improve results. Within its structured environment, students practice what they learn, test their understanding, and pursue a personalized study plan that helps them better absorb course material and understand difficult concepts.




Table of Contents

Section Title Page Action Price
Cover Cover
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Title Page 1
The Pearson Series in Finance 2
Copyright Page 4
About the Authors 5
Brief Contents 7
Contents 8
Preface 16
Acknowledgments 23
Part 1: The Scope and Environment of Financial Management 26
1. An Introduction to the Foundations of Financial Management 26
The Goal of the Firm 27
Five Principles That Form the Foundations of Finance 28
The Role of Finance in Business 36
The Legal Forms of Business Organization 38
Finance and the Multinational Firm: The New Role 41
Chapter Summaries 42
Review Questions 44
Mini Case 45
2. The Financial Markets and Interest Rates 46
Financing of Business: The Movement of Funds Through the Economy 48
Selling Securities to the Public 53
Rates of Return in the Financial Markets 58
Interest Rate Determinants in a Nutshell 62
Chapter Summaries 71
Review Questions 74
Study Problems 74
Mini Case 77
3. Understanding Financial Statements and Cash Flows 78
The Income Statement 80
The Balance Sheet 85
Measuring Cash Flows 93
GAAP and IFRS 103
Income Taxes and Finance 104
The Limitations of Financial Statements and Accounting Malpractice 107
Chapter Summaries 109
Review Questions 112
Study Problems 113
Mini Case 121
Appendix 3A: Free Cash Flows 124
Computing Free Cash Flows 124
Computing Financing Cash Flows 127
Study Problems 128
4. Evaluating a Firm’s Financial Performance 130
The Purpose of Financial Analysis 130
Measuring Key Financial Relationships 134
The Limitations of Financial Ratio Analysis 162
Chapter Summaries 163
Review Questions 166
Study Problems 166
Mini Case 174
Part 2: The Valuation of Financial Assets 176
5. The Time Value of Money 176
Compound Interest, Future Value, and Present Value 178
Annuities 192
Making Interest Rates Comparable 199
The Present Value of an Uneven Stream and Perpetuities 206
Chapter Summaries 208
Review Questions 211
Study Problems 211
Mini Case 219
6. The Meaning and Measurement of Risk and Return 220
Expected Return Defined and Measured 222
Risk Defined and Measured 225
Rates of Return: The Investor’s Experience 232
Risk and Diversification 233
The Investor’s Required Rate of Return 246
Chapter Summaries 249
Review Questions 253
Study Problems 253
Mini Case 258
7. The Valuation and Characteristics of Bonds 260
Types of Bonds 261
Terminology and Characteristics of Bonds 263
Defining Value 266
What Determines Value? 268
Valuation: The Basic Process 269
Valuing Bonds 270
Bond Yields 276
Bond Valuation: Three Important Relationships 279
Chapter Summaries 284
Review Questions 287
Study Problems 288
Mini Case 291
8. The Valuation and Characteristics of Stock 292
Preferred Stock 293
Valuing Preferred Stock 295
Common Stock 299
Valuing Common Stock 301
The Expected Rate of Return of Stockholders 306
Chapter Summaries 311
Review Questions 314
Study Problems 314
Mini Case 317
9. The Cost of Capital 318
The Cost of Capital: Key Definitions and Concepts 319
Determining the Costs of the Individual Sources of Capital 321
The Weighted Average Cost of Capital 331
Calculating Divisional Costs of Capital 335
Chapter Summaries 341
Review Questions 343
Study Problems 344
Mini Cases 348
Part 3: Investment in Long-Term Assets 350
10. Capital-Budgeting Techniques and Practice 350
Finding Profitable Projects 351
Capital-Budgeting Decision Criteria 352
Capital Rationing 372
Ranking Mutually Exclusive Projects 374
Chapter Summaries 380
Review Questions 383
Study Problems 383
Mini Case 390
11. Cash Flows and Other Topics in Capital Budgeting 392
Guidelines for Capital Budgeting 393
Calculating a Project’s Free Cash Flows 396
Options in Capital Budgeting 406
Risk and the Investment Decision 409
Chapter Summaries 418
Review Questions 420
Study Problems 420
Mini Case 426
Appendix 11A: The Modified Accelerated Cost Recovery System 428
What Does All This Mean? 429
Study Problems 429
Part 4: Capital Structure and Dividend Policy 430
12. Determining the Financing Mix 430
Understanding the Difference Between Business and Financial Risk 432
Break-Even Analysis 433
Sources of Operating Leverage 438
Capital Structure Theory 444
The Basic Tools of Capital Structure Management 453
Chapter Summaries 460
Review Questions 463
Study Problems 463
Mini Cases 466
13. Dividend Policy and Internal Financing 468
Key Terms 469
Does Dividend Policy Matter to Stockholders? 470
The Dividend Decision in Practice 476
Stock Dividends and Stock Splits 478
Stock Repurchases 479
Chapter Summaries 483
Review Questions 485
Study Problems 486
Mini Case 489
Part 5: Working-Capital Management and International Business Finance 490
14. Short-Term Financial Planning 490
Financial Forecasting 491
Limitations of the Percent of Sales Forecasting Method 497
Constructing and Using a Cash Budget 498
Chapter Summaries 501
Review Questions 502
Study Problems 503
Mini Case 508
15. Working-Capital Management 510
Managing Current Assets and Liabilities 511
Determining the Appropriate Level of Working Capital 513
The Cash Conversion Cycle 516
Estimating the Cost of Short-Term Credit Using the Approximate Cost-of-Credit Formula 518
Sources of Short-Term Credit 520
Chapter Summaries 530
Review Questions 533
Study Problems 534
16. International Business Finance 538
The Globalization of Product and Financial Markets 539
Foreign Exchange Markets and Currency Exchange Rates 540
Interest Rate Parity 550
Purchasing-Power Parity and the Law of One Price 551
Capital Budgeting for Direct Foreign Investment 552
Chapter Summaries 554
Review Questions 556
Study Problems 557
Mini Case 558
Glossary 560
Indexes 569
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