Economics Chapter 14 Homework Instructors Manual Contents Preface Alternative Formats For

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Contents iii

Instructors Manual

Contents

Preface

Alternative Formats for the Introductory Course v

Contents of the Instructor’s Manual v

Integrated Cases and Lecture Presentation Software v

PowerPoint

Slide Show vii

Comprehensive/Spreadsheet Problems vii

Chapter Spreadsheet Models vii

Textbook Companion Website viii

Study Guide viii

Test Bank viii

Ordering Ancillary Materials ix

Conclusion x

Course Syllabus xi

Course Schedule xv

Answers to End–of-Chapter Problems xvii

Chapter 1 An Overview of Financial Management 1

Chapter 2 Financial Markets and Institutions 7

Chapter 3 Financial Statements, Cash Flow, and Taxes 23

Chapter 4 Analysis of Financial Statements 47

Chapter 5 Time Value of Money 79

Chapter 6 Interest Rates 121

Chapter 7 Bonds and Their Valuation 145

Chapter 8 Risk and Rates of Return 183

Chapter 9 Stocks and Their Valuation 215

Chapter 10 The Cost of Capital 247

Chapter 11 The Basics of Capital Budgeting 269

Chapter 12 Cash Flow Estimation and Risk Analysis 307

Chapter 13 Real Options and Other Topics in Capital Budgeting 353

iv Contents

Chapter 14 Capital Structure and Leverage 371

Chapter 15 Distributions to Shareholders: Dividends and Share Repurchases 407

Chapter 16 Working Capital Management 433

Chapter 17 Financial Planning and Forecasting 461

Chapter 18 Derivatives and Risk Management 485

Chapter 19 Multinational Financial Management 511

Chapter 20 Hybrid Financing: Preferred Stock, Leasing, Warrants, and Convertibles 539

Chapter 21 Mergers and Acquisitions 569

Preface

This preface explains how we have used

Fundamentals of Financial Management, Fourteenth

Edition

, and it then describes the instructional aids contained in the

Instructor’s Manual

available separately from Cengage Learning.

Alternative Formats for the Introductory Course

There is no one best way to teach the introductory finance class—the optimal course structure

varies with students’ backgrounds, instructors’ interests, number of credit hours, and position of

the course in the overall curriculum. Further, since these factors change over time, most of us

vary our approaches from year to year. Still, you may find it useful to learn how

Fundamentals

has been used at Florida and elsewhere.

Contents of the Instructor’s Manual

This

Instructor’s Manual

contains Learning Objectives, Lecture Suggestions, Answers to End–of–

Chapter Questions, Solutions to End-of-Chapter Problems, Solutions to Comprehensive/

Spreadsheet Problems, and complete restatement and full solution to the Integrated Cases. In

Integrated Cases and Lecture Presentation Software

One of the most important pedagogic aids in

Fundamentals

is the set of “Integrated Cases”

provided with the end-of–chapter problems. The integrated cases have been extremely well

received by instructors and students alike. They provide an excellent vehicle for covering the

vi Preface

The cases are good lecture vehicles for three reasons. First, they reduce instructors’

preparation time. We spent a tremendous amount of time producing carefully structured

“lecture problems” so that instructors will not have to do so. Second, students like lectures

based on the cases because this ensures that the lecture is consistent with the text, and that

the two reinforce one another. Third, the case-oriented lectures are useful for both prepared

and unprepared students, and that is helpful for instructors whose students don’t always read

the material before class.

We originally thought the slides would be too inflexible, but that was not the case. It is

extremely easy to break away from the slides and use the blackboard to clarify examples, to

make additional points, and the like. All in all, the

PowerPoint

slides really are a great addition

to our ancillary package, and all instructors would be well advised to download them from the

text’s website, and run a quick slide show to get an idea of just how useful they can be.

Note also that the Integrated Cases can be assigned as homework or used by students as self-

study problems if you decide against using them as lecture vehicles. In addition, we have

added

Excel

spreadsheet models for the cases in Chapters 3-21. We have also added a

PowerPoint

Slide Show

As mentioned earlier, a set of

PowerPoint

slides has been developed. Previously, we used the

Integrated Cases, transparencies, and a black board as a complete lecture system, and with

good results. But just as computer and communication technologies are altering the world of

finance, so are these advances influencing the way we learn and teach. Thus, along with Larry

Wolken, we created a

PowerPoint

“slide show” lecture presentation that matches the Integrated

Case solutions, with additional improvements by Christopher Buzzard.

Any instructors with access to

PowerPoint

will have the ability to customize the slides. In

addition, if you are going to print the

PowerPoint

slides in black and white, for best results set

the color/grayscale field in the print dialog box to grayscale.

Comprehensive/Spreadsheet Problems

We have added the Comprehensive/Spreadsheet Problem to Chapters 3–21. This problem

provides instructors who use the Integrated Case for their lectures with another problem that

Chapter Spreadsheet Models

Spreadsheet programs such as Microsoft

Excel

are ideally suited for analyzing many financial

issues, and knowledge of spreadsheets is becoming essential for people in business.

Throughout the text, we illustrate how spreadsheets are used to deal with the financial

concepts/analyses covered.

We developed a spreadsheet model for Chapters 3–21. These chapter models show exactly

how the decisions discussed in the chapter can be analyzed with an

Excel

spreadsheet.

Therefore, our models include a good bit of explanation and serve both as an

Excel

tutorial and

as a template for analyzing whatever financial issues are covered in the particular chapter. The

chapter models also include worked-out solutions for quantitative Self-Test Questions that are

located at the end of each major section within each chapter.

Excel

spreadsheet models have

also been added for the Integrated Cases and the Comprehensive/Spreadsheet problems.

The models are accessible from the Cengage Learning website. The models are not necessary

for going through the book and learning the essential financial concepts. However, if a student

wants to learn how these concepts are implemented in the real world, and thus get a leg up in

the job market, the models will be helpful. And, of course if an instructor wants to build

spreadsheet analysis into the course, our models will provide an excellent platform.

Textbook Companion Website

Designed to be both a teaching and learning tool, the

Fundamentals

14e

instructor’s companion

website can be accessed via login.cengage.com. (You must log in using your Faculty

Account username and password and use ISBN 9781285867977 to add

Fundamentals

14e

resources to your account “Bookshelf.”) A number of the

Fundamentals

ancillaries can be

Study Guide

We have found, in common with reviewers, that many students need a supplement (1) that

contains a summarized treatment of the main concepts of each chapter, and (2) that gives

students an opportunity to apply the concepts to relatively short, focused problems with

Test Bank

The

Test Bank

that accompanies

Fundamentals

is available in the Cognero online test creation

system, and as Blackboard, Angel, and Microsoft Word files on the Instructor Companion

Website. The Test Bank is also available through Respondus.

The questions and problems are all machine gradable, and we have used them often enough so

that most of the ambiguities that frequently plague objective tests have been removed. The

questions. Now that it is done, we are glad that we did, because we have become convinced

that relatively short, objective questions really are the best way to construct and fairly grade an

exam that covers a large amount of material and is given to a large number of students.

Incidentally, it is very easy to make a set of short-answer essay questions or “regular” exam

problems by removing the set of possible answers from selected questions and problems.

Ordering Ancillary Materials

Ancillary materials may be ordered by adopters through their local Cengage Learning sales

representative or directly by calling Cengage Learning Customer Service at 1-800–354–9706,

emailing higheredcs@cengage.com, or visiting www.cengage.com/contact.

Conclusion

We have tried to make this

Instructor’s Manual

as clear and error-free as possible; however,

there are almost certainly some mistakes and unclear sections. Any suggestions for improving

the manual will be greatly appreciated. Address your correspondence to us at the address

below.

Preface xi

Syllabus for Finance 3403

Finance 3403

Course Outline

Spring 2015

Instructor: Joel F. Houston

303D STZ

392-7546

Office Hours: M W 10:30 A.M. – 11:30 A.M., and by appointment.

Course Pre-requisite: ACG 2021 or an approved equivalent.

Required materials

Calculator

You must have a financial calculator to get through the course. Many of the exam problems involve

complex arithmetic and financial calculations—and a financial calculator is necessary to solve them.

I recommend either the HP-10BII+ or the HP–17BII+. The 10BII+ does everything needed in the course. I

will use one in class and explain how to work various problems with it, so you can follow lectures most easily if

you use a 10BII+. Moreover, the TAs will all know how to help you with a 10BII+, but you might have

trouble getting help with another calculator. The HP-17BII+ does more and costs more. Some argue that the

17BII+ is easier to use once you get used to it. Also, some students argue that the 17BII+ is better to have

in some of the upper level Finance classes. Again, however, everything in this class can be done with a

10BII+.

xii Preface

Course objectives

This course is designed for the general business student, not just the finance major. Since this is a survey

course, we will cover a lot of ground. We will begin with a general overview and then go into more detail

on several concepts, financial instruments, and techniques used in financial decision making.

The chief objectives of the course are:

1. To introduce you to the world of finance. Anyone involved with the management of a business needs

to have at least some minimal knowledge of business finance.

Class procedures

1. The structure of this class makes your individual study and preparation outside class extremely

important. The lecture material will focus on the major points introduced in the text. Reading the

2. Throughout the semester we will also have a number of review sessions. These review sessions will

take place during the regularly scheduled class periods, and will generally be offered by the head

3. There are a number of learning aids offered in addition to the regularly scheduled lectures and review

sessions. You should utilize those that may contribute to your understanding of the material.

(a) There are several teaching assistants associated with this course. The TAs will hold office hours in

Bryan 125A. The TA schedule will vary from week to week and will be posted (1) outside the

Finance office, 321 STZ, (2) outside Bryan 125A, and (3) on the class web page. The TAs know the

material quite well and they are more than willing to help you, so you should use them. You should

study the text, your notes, and the problems, and then ask the TAs for help in clearing up any

questions you might have.

Preface xiii

4. There is also a home page for Finance 3403 on the World Wide Web. The class web page will include

the course outline, office hours, schedules, class examples, and exam solutions. As time goes by, the

resources available on the class web page will expand, so it is worth checking it from time to time.

Examinations

There will be three exams, two during the semester and one during the final exam week. The exam

schedule is as follows:

First Midterm: Wednesday February 4, 2015, 7:00-9:00 P.M.

Second Midterm: Tuesday March 17, 2015 7:00-9:00 P.M.

Final Exam: Wednesday April 29, 2015, 1:00-3:00 P.M.

Your total score has a maximum of 60 points.

To calculate the “cutoffs” for each course grade, we calculate a weighted average of the lowest scores for

each grade. So, for example, to determine the cutoff for an A:

Lowest A = (Lowest A, 1st Exam) + (Lowest A, 2nd Exam) + (Lowest A, Final Exam).

Likewise, the lowest C grade would be a weighted average of the lowest C grades from each of the exams.

Please recognize that the size of this class makes it necessary for the cutoffs to be firm, i.e.,

there will be no rounding up, regardless of how close you are to the higher grade.

There will be NO makeup exams. If you have a valid excuse for missing either of the first two exams,

your final grade will be based on your performance on the other two examinations—each of these