КФ / Лекции / Brealey Myers - Principles Of Corporate Finance 7th Ed (eBook)

1066 INDEX

Miller, Merton H., 26, 82, 291n, 441–443, 451, 451n, 452, 452n, 457, 465n, 482, 483, 492n, 495, 495n, 517, 745, 777, 892n, 903, 997

Miller, N. C., 869n Miranti, P. J., Jr., 974n Mishler, L., 921

Mitchell, M., 943n, 952, 952n, 958 Mitsubishi Estate Company, 508n Modified accelerated cost recovery system

(MACRS), 127–129

Modified internal rate of return, 101n Modigliani, F., 82, 441–443, 457, 465n, 482,

483, 492n, 517, 997 Modigliani-Miller (MM) approach

to capital structure, 465, 467–475

law of conservation of value, 468–469 Proposition I, 469–473, 480, 491, 524,

533–534 Proposition II, 473, 534

risk-return trade-off, 473–475 taxes in, 491–493

violations of, 480–481

to dividend policy, 441–447, 452–455 Mohan, N., 965n, 967

Money machines, 35 Money market, 5n, 895 Money-market funds, 481

Money-market investments, 893–899 calculating yield on, 894

types of, 895–899 Monsanto, 971

Monte Carlo simulation, 263–268 decision trees and, 277–278 defined, 263

example, 263–268 Montgomery, C., 979, 979n

Moody’s bond ratings, 684–685, 706, 911–912 Moore, J., 723n

Moral hazard risk, 756 Morck, R., 982n Mortgage bonds, 705

Mortgage pass-through certificates, 707 Moss, J. D., 888n

MSN Money, 74n

Mullins, D. W., Jr., 363n, 370, 370n, 418n, 426, 654n, 903

Multiple-discriminant analysis, 913–914 Murphy, K., 319–320

Murrin, J., 83 Muscarella, C., 954n

Mutually exclusive projects

internal rate of return and, 101–104 project interactions, 136–139

Myers, S. C., 68n, 82, 179, 223n, 239n, 245, 267n, 275n, 313n, 418n, 426, 513n, 514n, 517, 552, 629n, 745, 836, 839, 935n, 936n, 938n, 988

N

NASDAQ (National Association of

Securities Dealers Automated

Quotations System), 60, 360, 405

National Gypsum, 967

Nationsbank, 930 NCR, 930, 969

Negotiable certificates of deposit (CDs), 896, 898

Nelson, C. R., 693

Nelson, E., 318n Nemhauser, G. L., 902

Net book value (NBV), 330, 828 Net convenience yield, 762–763 Net current assets, 820

Net float, 883

Net present value (NPV), 995, 998; see also Net present value rule; Present value

capital budgeting decisions and, 255–342

decision trees, 268–278

forecasting economic rents, 292–303 forecasting market values, 287–292 Monte Carlo simulation, 263–268 process for, 311–314

real options, 268–278, 617–636 sensitivity analysis, 255–262

defined, 15

financing decisions and, 126, 362–363 investment decisions and, 91–140

accounting income and, 93–94, 119–120 alternatives to, 93

book rate of return versus, 94 calculating, 36

cash flow in, 93–94, 119–122, 126–127 depreciation and, 124–126, 127–129 equivalent annual cost and, 131–136 example, 124–131

forecasting economic rents, 292–303 incentives, 316–320, 448

inflation and, 122–124 information needed by decision

makers, 314–316

internal rate of return and, 96–105 investment versus financing

decisions, 126, 346–347 key points concerning, 93 market values in, 288–292

payback analysis versus, 94–96 review of basics, 91–94

taxes and, 129–130

in merger analysis, 938–943, 956–958 production option and, 630–634 project interactions and, 136–139 reconciliation of current and future

consumption, 19–21

Net present value, capital budgeting decisions and, 255–342

Net present value rule, 17, 18–22 application of, 21

statement of, 17

Net profit margin, 823, 828

Net return on investment, 321–325 Netscape, 410–411

Netter, J. M., 973n

Net working capital, 820, 851; see also Working capital

Net-working-capital-to-total-assets, 823 Neuberger, A. J., 292n

Nevitt, P. K., 724, 745

Newhall Land and Farming, 388

New issues

efficient-market hypothesis and, 357–358, 363–364, 379

primary, 393; see also Initial public offerings (IPOs)

secondary, 59, 393

New York Stock Exchange (NYSE), 59–60, 153, 166, 199, 361

Ng, O. K., 909n Nguyen, S., 955n Nichols, N. A., 268n, 279

Nominal rates of interest, 45–46, 122–124, 668–671

Non-negotiable time deposits, 896 Northrup Grumman, 943 Northwest Airlines, 966n

Notes defined, 705

medium-term, 871, 896 money-market, 896

Notional principal, 766 Novell, 930

Nutter, J. M., 988 Nyborg, K. G., 414n

O

Occidental Petroleum, 947 Odean, T., 359n

Ofek, E., 975, 975n Off-balance-sheet financing, 732–733 Offering price, 410

Office Depot, 944 O’Hara, M., 408n, 426 O/ksendal, B., 763n Old-line factoring, 920

One-factor model of bond returns, 677–678 Operating expenses, 94

Operating leases, 734–737 defined, 729

example, 734–736

lease-or-buy decision and, 736–737 Operating leverage

asset beta and, 237–238 break-even points and, 261–262

Opportunity cost of capital

adjusted present value and, 543–544 business risk and, 549–550 calculating, 524–525, 549 debt-equivalent discounted cash flow

and, 547 defined, 15 example, 16–18

financing decisions and, 346 internal rate of return versus, 98n net present value and, 93, 121–122

weighted average cost of capital and, 524–525

Optimization models, 866

Option delta, 593, 598, 600, 772–773 Option equivalents, 592–596 Option pricing models, 577–582,

591–610, 997 binomial method, 596–602

Black-Scholes formula, 602–607, 997

1068 INDEX

Purchase method of merger accounting, 944–945

Put options, 566–568 default, 573–575

relationship between call prices and, 595–596

selling, 568

valuation of, 572, 594–596 Puttable bonds, 710

PVGO; see Present value of growth opportunities (PVGO)

Pyle, D. H., 402n

Q

Quadratic programming, 192 Quaker Oats, 323, 324

Qualified institutional buyers, 420 Qualified opinions, 318

Quick ratio, 823, 826 Quiet period, 408n QVC, 950

Qwest, 969n

R

Rajan, R. G., 382, 382n, 396, 919n, 921 Ralston Purina Company, 702–705,

707–708, 711, 713–714 Ramaswamy, K., 451, 451n Random walk hypothesis, 347–350 Rate-of-return rule

application of, 21 statement of, 17

Rates of return

on levered equity, 477–480 present value and, 15, 16–17

Ravenscroft, D. J., 954, 954n Raviv, A., 517

Raytheon, 943

Real assets, 5, 394, 618–622 Real estate

asset backed securities, 707 financial distress and, 508 interest-rate ceilings and, 481 investment decisions for, 288–289 optimal timing for development of,

624–625

Real estate investment trusts (REITs), 389 Real options, 268–278, 617–636

abandonment option, 270–271, 625–630 decision trees and, 277–278

defined, 269

expansion option, 269–270, 563, 617–622, 630–634

production option, 272–273, 630–634 timing option, 271–272, 622–625 websites, 664

Real rates of interest, 45–46, 122–124, 668–669, 670–671

Real-time gross settlement (RTGS) system, 887

Rebalancing debt, 535–536, 542

Receivables turnover, 823 Record date, dividend, 433 Red herring, 407n

Reebok, 167–171, 175–177, 188–190 Registered bonds, 704 Registration statement, 407, 410 Regular cash dividends, 434

Reinhardt, U. E., 121n, 140, 261, 261n, 279, 689n

Relative tax advantage of debt, 494–495 Relevering beta, 535

Rental leases, 730

Repayment provisions, 707–708

Repeat orders, credit decisions with, 916–918 Replacement decisions, equivalent annual

cost and, 135–136 Replicating portfolio, 593 Repurchase agreements (repos), 896,

898–899 Repurchase defense, 948

Repurchase programs; see Share repurchases

Research and development (R&D) Monte Carlo simulation for, 267–268 as outside capital budgeting process,

312–313

Residual income; see Economic value added (EVA)

Restrictive covenants, 710–713 Restructuring defense, 948, 950 Restructurings, leveraged, 967–968 Return on assets (ROA), 823, 828–829, 830 Return on equity (ROE), 66, 823, 828,

830–831

Return on investment (ROI) biases in, 326–327, 331–333 example of use, 326–329 measuring, 329–334

net, 321–325 Revco, 967

Reverse stock splits, 388 Revolving credit, 867 Reynolds, 944

Rhee, S. G., 238n

Rice, E. M., 999n Riddiough, T. J., 624n, 625n Rights issues, 421–422 Ripp, Robert, 952

Risk, 151–252, 998–999 attitudes toward, 358–359 avoiding, 317

capital asset pricing model (CAPM) and, 195–205

capital budgeting and; see Capital budgeting and risk

company, 222–223

compound rates of return and, 156–157 counterparty, 768

default, 153–154, 683–692 expected return and, 194–210 market; see Market risk

option pricing and, 581–582, 593–595 pooling, 395

portfolio; see Portfolio risk present value and, 15–16 project, 222–223, 998 unique, 168, 174–175

Risk-free rate of interest, 192–194 Risk management, 753–814, 1002 forward contracts, 764–765

hedging

defined, 755, 755n

with futures contracts, 758–764 setting up hedge, 769–773

insurance, 755–758 speculation and, 773–776, 953 swaps, 765–769

Risk premium

historic, 157–160, 194

market; see Market risk premium Risk-return trade-off, financial leverage

and, 473–475

Risk shifting game, in financial distress, 504 Ritter, J. R., 357n, 410, 410n, 411n, 417, 417n,

419n, 426

RJR Nabisco, 505–506, 713, 718, 965–967 Road show, 407

Roberts, H. V., 348n Robichek, A. A., 270n, 331n Roche, 232–234, 800–803 Rock, K., 426, 457 Rockefeller, John D., 971 Rockefeller Center, 508n Rogalski, R. J., 657n, 658 Rogerson, W. P., 323n Rogoff, K., 807

Roll, Richard, 201n, 212, 356–357, 357n, 361n, 366n, 367n, 670n, 680n, 954n, 999n

Rolls Royce, 120–121 Romaine, C., 546n Roosevelt, Theodore, 971 Rosenfeld, J., 971n

Ross, I., 886n

Ross, Stephen A., 204, 212, 683n, 761n Ruback, Richard S., 538, 538n, 553,

947n, 950n, 954n, 955n, 958, 967, 967n

Ruback, S., 160n Rubinstein, M. E., 244, 583 Rule 144A, 420, 701–702 Rydquist, K., 411n Ryngaaert, M. D., 931n

S

Safeway Stores, 966n

Sahlman, W. A., 426 Saidenberg, M. R., 867n

Sale-and-leaseback arrangements, 730 Sales-to-assets ratio, 823, 826–827 Sales-to-net-working-capital, 823 Salomon Brothers, 24–25

Salvage value

abandonment options and, 627–628 depreciation and, 124, 739, 742–743

Santiago, E. S., 335 Santos, T., 359n Sara Lee, 972, 972n Sarig, O., 687n Sarnat, M., 238n Sartoris, W. L., 873

1070 INDEX

Stock price continued

share repurchases and, 445–447 underpricing of initial public offerings,

410–412 Stock splits

efficient-market hypothesis and, 366–367

reverse, 388 Stohs, M. H., 701n Stonehill, A. I., 806

Stonier, J. E., 631n, 633n Strahan, P. E., 867n

Straight-line depreciation, 125, 129–130 Stretching payables, 860–861, 863 Stripped bonds, 674, 678, 717 Stromberg, P., 405n, 426

Strong form of market efficiency, 351, 354–356

Stultz, R. M., 386n, 777 Subordinated debt, 391–392, 706, 711 Summers, B. M., 903

Summers, L. H., 24n Sunbeam, 23 Sundaresan, A., 693 Sundaresan, S., 414n, 693

Sunk costs, in net present value analysis, 121 Sun Microsystems, 404, 434

Supermajority, 386, 950

Surface Transportation Board, U.S., 530–531 Surplus cash, 854

Surplus funds, in mergers, 933 Sustainable growth rate, 837–838 Swaps, 765–769

credit derivatives, 765, 769 default, 765, 769

interest rate, 765–768 Sweeney, R., 807 Syndicated loans, 868

T

Taggart, R. A., 363, 363n, 553 Taxes

adjusted present value (APV) and, 550 alternative systems of, 453–455

on capital gains, 435, 448–452 on corporations, 4

alternative minimum tax (AMT), 128–129, 731–732

capital structure and, 489–497 deferred, 528n

depreciation rules, 127–128, 129–130, 132n, 739, 742–743

dividends and, 435, 448–452 equivalent annual cost and, 135 financial leases, 739–740 intercorporate dividends and, 450n, 452 interest-capitalization, 702 interest-equalization, 702

investment decisions and, 127–130 leveraged buyouts (LBOs) and,

966–967

in merger analysis, 945–946 weighted-average cost of capital, 231

on individuals, leverage and, 493–497

on partnerships, 388 on REITs, 389

on share repurchases, 450

Tax-exempt municipal notes, 896, 897–898 Tax preferences, 128–129

Tax Reform Act of 1986, 127–129, 490 Tax shields

depreciation, 127–128, 132n, 546–547, 731 interest, 489–497, 539–540, 543

Technological change

equivalent annual cost and, 134–135 exploiting new technology, 295–303

Technology stocks, 360 Tehranian, H., 418, 418n

Temporary abandonment, 629–630 Temporary conglomerates, 977–980 Tender offer, 947

Term loans, 867–868 Terms of sale, 909–910

Term structure of interest rates, 35–36 in bond valuation, 671–674, 678–683 expectations theory of, 679–680 inflation and, 681

internal rate of return and, 104–105 liquidity-preference theory, 680 measuring, 673–674

relationships between bond returns, 681–683

Tetlow, R. S., 974n, 975n Texaco, 24n, 509

Thaler, R. H., 359n, 371, 439, 439n, 793n Thermo Electron, 969, 972, 972n Thomas, J. K., 357n, 358n

Three-factor model, 208–210 Times-interest-earned, 823, 825 Time value of money, 93

websites, 150

Timing of investment, 137–138 Timing option, 271–272, 622–625 TIPS (Treasury Inflation-Protected

Securities), 668–669 Titman, S., 366n, 758n, 943n Tobin, J., 194n

Torous, W. N., 722n, 723n, 724, 725 Total capitalization, 380, 529 Tracking stock, 972

Trade acceptances, 911 Trade credit, 851

Trade-off theory of capital structure, 497, 508–510

Training and personnel development, as outside capital budgeting process, 313

Transfer of value, in dividend policy, 442 Trans Union Corporation, 950n

Travlos, N., 943n Treasurer, 6 Treasury bills, 896

described, 897

historic performance of capital markets, 155

Treasury bonds; see also Bond valuation historic performance of capital markets,

154–157 indexed, 668–669

present value formulas and, 47–49 riskiness of, 164n

stripped, 674, 678, 717

TIPS (Treasury Inflation-Protected Securities), 668–669

Treasury shares, 383 Treynor, Jack, 195, 195n Triantis, A. J., 624n, 625n, 636 Trigeorgis, L., 636

Trust deed, 702–704 Trusts, 389

Tully, Shawn, 323n

Turnbull, S. M., 239n, 245, 583 Tversky, A., 358n

TWA, 721, 723n Two-tier offers, 947

Tyco International, 648–649, 952, 974

U

Umlauf, S., 414n Underpricing, 410–412

Underwriters, 408–409, 412–413, 415 Uniform-price auctions, 413–414

Union Pacific Corporation, 226–227, 231 Unique (diversifiable) risk, 168, 174–175,

205, 235

United States General Accounting Office, 776n

U.S. Justice Department, 943, 944, 954 United States Navy, 732

United States Surface Transportation Board, 227n

University of Chicago, Center for Research in Security Prices, 153–154

Unlevering beta, 535 Uppal, R., 806

Upton, C. W., 291n, 745

Utah Power & Light, 932 Uttal, B., 406n

V

Va Linux, 409

Valuation horizon, 76–78 Value additivity, 468, 523

defined, 177–178, 996 diversification and, 177–178, 934

economic value added (EVA), 322–325 mergers and, 934, 956–958

Value Line, 66n Value stocks, 202

Vander Weide, J. H., 873, 902 Van Horne, C., 270n Variability

Black-Scholes formula to estimate option, 606–607

diversification in reducing, 165–168 measuring, 163–165

Variable-rate demand bonds (VRDBs), 896, 897–898

Variance defined, 160

portfolio, 160–163, 170, 171–172 in portfolio theory, 189n

Vasicek, O., 683n Venture capital, 401–405

first-stage financing, 402–403 market for, 404–405 mezzanine financing, 403–404 second-stage financing, 403 websites on, 430

Venture Economics, 405 Verizon, 969n Vermaelen, T., 440n

Vertical mergers, 930, 931–932 Viacom, 950

Vishny, R. W., 317n, 360n, 971n, 973n, 981n, 982n, 989

Viskanta, T., 804n Vlasic, B., 946n

Volatility, in bond valuation, 674–678 Voting procedures, 385–388

W

W. T. Grant, 815

Wack, P., 832n

Wald, J. K., 510n

Waldman, R. A., 685n, 966n

Wall Street Journal, The, 60, 405, 975–976

Wal-Mart, 73

Walt Disney Company, 320, 434n, 772–773,

871n, 930

Walt Disney Productions, 73n

Warga, A., 687n

Warner, J. B., 353n, 501n, 724

Warner, Jerrold, 947n

Warrants, 392, 643–648

convertibles versus, 654–655

dilution and, 645, 646–648

dividends and, 644

reasons for issuing, 655–657

Warther, V. A., 439n

Washington Public Power Supply System

(WPPSS), 897n

Perpetuity (3-2)

The value of a perpetuity of $1 per year is: PV 1r

Annuity (3-2)

The value of an annuity of $1 per period for t years (t-year annuity factor) is:

A Growing Perpetuity

(the “Gordon” model) (3-2)

If the first period’s cash flow is $1 at year 1 and if cash flows thereafter grow at a constant rate of g in perpetuity,

1 PV r g

Continuous Compounding (3-3)

If r is the continuously compounded rate of interest, the present value of $1 received in year t is:

1 PV ert

Equivalent Annual Cost (6-3)

If an asset has a life of t years, the equivalent annual cost is:

PV 1costs 2

t-year annuity factor

Measures of Risk (7-2 to 7-4)

Variance of returns = σ2

= expected value of (r˜ – r)2

Standard deviation of returns = 2variance = σ Covariance between returns of stocks 1 and 2 = σ12 = expected value of [(r˜1 – r1)(r˜2 – r2)]

Correlation between returns of stocks 1 and 2:

β im

Beta of stock i = i =

m2

The variance of returns on a portfolio with proportion xi invested in stock i is:

NN

aa xixj ij i 1 j 1

Capital Asset Pricing Model (8-2)

The expected risk premium on a risky investment is:

r – rf = β(rm – rf)

Unlevering Betas (9-3 and 19-1)

D E

assets debt a V b equity aV b

where

D and E = the market values of debt and equity (V = D + E)

Weighted Average Cost of Capital (9-3 and 19-1)

WACC = rD(1 – Tc)D/V + rE E/V

where

rD and rE = the expected returns on debt and equity

Tc = the marginal rate of corporate tax

D and E = the market values of debt and equity (V = D + E)

MM’s Proposition II (17-2 and 19-3)

The required return on equity (rE) increases in line with the debt–equity ratio calculated using market values (D/E):

rE = r + (r – rD)D/E where r is the opportunity cost of capital.

Relationship between the Value of a Call and a Put (20-2)

The relationship between the value of a European call and a European put is:

Value of call + present value of exercise price

= value of put + share price

Black–Scholes Formula for Value of a Call (21-3) Value of a call = [N(d1) × P] – [N(d2) × PV(EX)] where

d1 log[P/PV(EX)]/σ 2t+ σ 2t/2 d2 d1 2t

N(d) = cumulative normal probability function PV(EX) = present value of exercise price

t = number of periods to exercise date P = current price of stock

σ = standard deviation per period

of continuously compounded rate of return on stock

log = natural logarithm

Inputs to Binomial Option Valuation Model

(21-1 and 21-2)

1 Upside change u e 2h

1 Downside change d 1/u

where σ = standard deviation of price changes per year

h = interval as fraction of a year

spread of possible option prices

Option delta spread of possible stock prices

Bond Duration and Volatility (24.3)

T

a t Ct/ 11 y 2t Duration of T-period bond t 1 T

a Ct/ 11 y 2t

t 1

Volatility (modified duration ) Duration/(1 y)

Value of Lease (26-4)

If LCFt is the lease’s cash outflow in period t, the value of an N-period lease of an asset costing INV is:

Growth Rates (29-5)

Sustainable growth rate (no increase in leverage)plowback ratio return on equity

Internal growth rate (no external finance)

retained earnings/net assets

plowback ratio return on equity equity/net assets