• i *1 McGRAW-HILL INTERNATIONAL r This r P International ► Student Edition \ is for use * outside of ^ the U.S. EDITION 'ON Corporate Finance Asian Network for Higher Education no sixth edition .()02 5 Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn The McGraw-Hill/Irwin Series in Finance, Insurance, and Real Estate Consulting Editor, Stephen A. Ross Franco Modigliani Professor of Finance and Economics Sloan School of Management. Massachusetts Institute of Technology Saunders and Cornett FINANCIAL MANAGEMENT R oss, W este rfie ld , a n d J o r d a n A d a ir Excel A pplications f o r C orporate Finance E ssentials o f C orporate Finance F inancial M arkets a n d Institutions: An Sixth Edition Introduction to the Risk M anagem ent F irst E dition R oss, W este rfie ld , a n d J o r d a n A pproach B lock a n d H irt F undam entals o f C orporate Finance T hird Edition F oundations o f F inancial M anagem ent E ighth Edition Twelfth Edition S h e frin B realey, M y ers, a n d A llen B ehavioral C orporate Finance: D ecisions E u n and Resnick P rinciples o f C orporate Finance That C reate Value International F inancial M anagem ent N inth Edition F irst Edition Fourth Edition B realey, M y e rs , a n d A llen W h ite Kuemmerle C orporate Finance, B r ie f E dition F inancial A nalysis w ith an Electronic C ase Studies in International F irst Edition C alculator Entrepreneurship: M anaging an d Financing B realey, M y ers, a n d M a rc u s Sixth E dition INTERNATIONAL FINANCE Ventures in the G lobal Econom y F irst E dition F undam entals o f C orporate Finance F ifth Edition INVESTMENTS B ro o k s A d a ir F inG am e O nline 5.0 E xcel A pplications f o r Investm ents B ru e g g e m a n a n d F is h e r B ru n e r F irst Edition R eal E state Finance a n d Investm ents C ase Studies in F inance: M anaging f o r B odie, K a n e , a n d M a rc u s Thirteenth E dition C orporate Value C reation E ssentials o f Investm ents C o rg e l, L in g , a n d S m ith F ifth Edition Seventh E dition R eal E state Perspectives: A n Introduction to C h ew B odie, K a n e , a n d M a rc u s R eal Estate T he N ew C orporate Finance: W here Theory Investm ents Fourth E dition M eets Practice E ighth E dition L in g a n d A r c h e r Third Edition H irt a n d B lock R eal E state P rinciples: A Value Approach D eM ello F undam entals o f Investm ent M anagem ent Seco n d E dition C ases in Finance N inth E dition Sec o n d Edition H irsc h ey a n d N o fsin g e r G r in b la tt (e d ito r) Investm ents: A n a lysis a n d B ehavior REAL ESTATE FINANCIAL PLANNING AND INSURANCE Stephen A. Ross, M entor: Influence through F irst E dition G enerations J o r d a n a n d M ille r M ah o n e y G r in b la tt a n d T itm a n F undam entals o f Investm ents: Valuation R etirem ent Plans: 401(k)s, IRAs, a n d O ther F inancial M a rkets a n d C orporate Strategy a n d M anagem ent D eferred C om pensation A pproaches Seco n d Edition Fourth Edition Tenth Edition FINANCIAL INSTITUTIONS AND MARKETS P erso n a l F inancial Planning H e lfe rt A llen, M elo n e, R o sen b lo o m , a n d A ltfest Techniques o f F inancial A nalysis: A G uide to Value C reation Eleventh Edition F irst Edition R ose a n d H u d g in s H a rrin g to n a n d N ieh a u s Higgins Bank M anagem ent a n d Financial S e n ’ices R is k M a n a g e m en t a n d Insurance A n a lysis f o r Financial M anagem ent Seventh E dition Seco n d Edition E ighth E dition R ose a n d M a rq u is K a p o o r, D lab a y , a n d H u g h e s K e ste r, R u b a c k , a n d T \ifano M oney an d C apital M arkets: F inancial F ocus on P erso n a l F inance: A n A ctive C ase P roblem s in Finance Institutions a n d Instrum ents in a A pproach to H elp You D evelo p Successful Twelfth Edition G lobal M arketplace F inancial Skills R oss, YVesterfield, a n d J a f fe Tenth Edition Seco n d Edition C orporate Finance S a u n d e r s a n d C o rn e tt K a p o o r, D la b a y , a n d H u g h e s E ighth Edition F inancial Institutions M anagem ent: A Risk P ersonal F inance R oss, W e ste rfie ld , J a f fe , a n d J o r d a n M anagem ent A pproach E ighth Edition C orporate F inance: C ore P rinciples Sixth E dition a n d A pplications Số hóa bởi Trung tâm Học liệu – ĐH TN F irst Edition http://www.lrc-tnu.edu.vn Essentials of Corporate Finance SI XTH EDI TI ON Stephen A. Ross Massachusetts Institute of Technology Randolph W. Westerfield University of Southern California Bradford D. Jordan University of Kentucky ¡ a McGraw-Hill rrm Irwin Boston Burr Ridge. IL Dubuque, IA New York San Francisco St. Louis http://www.lrc-tnu.edu.vn London Madrid Mexico City Singapore Sydney Taipei Toronto Số Bangkok hóa bởi Bogota Trung tâm HọcKuala liệu Lumpur – ĐH TN Caracas Lisbon Milan Montreal New Delhi Santiago Seoul Me Graw Hill McGraw-Hill Irwin ES SEN TIA LS O F C O R PO R A TE F IN A N C E P ublished by M cG raw -H ill/Irw in, a business unit o f T he M cG raw -H ill C om panies. Inc.. 1221 A venue o f the A m ericas, N ew York. NY, 10020. C opyright © 2008 by T h e M cG raw -H ill C om panies. Inc. All rights reserved. N o part o f this publication m ay be reproduced o r distributed in any form o r by any m eans, o r stored in a database o r retrieval system , w ithout the prior w ritten consent o f The M cG raw -H ill C om panies, Inc.. including, but not lim ited to, in any netw ork o r oth er electronic storage o r transm ission, o r broadcast for distance learning. Som e ancillaries, including electronic and print com ponents, m ay not be available to custom ers outside the U nited States. T his book is printed on acid-free paper. P rinted in C hina 4 5 6 7 8 9 0 C T P/C T P 13 12 11 10 ISBN 978-0-07-128340-3 M H ID 0-07-128340-4 w w w .m hhe.com Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn About the Authors S te p h e n A . R o s s R a n d o lp h W. W e s te rfie ld B r a d fo r d D. J o r d a n Sloan School of Management, Franco Modigliani Professor of Finance and Economics, Massachusetts Institute of Technology Marshall School of Business, University of Southern California Gatton College of Business and Economics, University of Kentucky Stephen A. Ross is the Franco Modigliani Professor of Finance and Economics at the Sloan School of Management. Massachusetts Institute of Technology. One of the most widely published authors in finance and economics. Professor Ross is recognized for his work in developing the Arbitrage Pricing Theory and his substantial contributions to the discipline through his research in signaling, agency theory, option pricing, and the theory of the term structure of interest rates, among other topics. A past president of the American Finance Association, he currently serves as an associate editor of several academic and practitioner journals. He is a trustee of CalTech and Freddie Mac. Randolph W. Westerfield is Dean Emeritus of the University of Southern California’s Marshall School of Business and is the Charles B. Thornton Professor of Finance. He came to USC from the Wharton School. University of Pennsylvania, where he was the chairman of the finance department and a member of the finance faculty for 20 years. He is a member of several public company boards of directors including Health Management Associates. Inc., and the Nicholas Applegate Growth Fund. His areas of expertise include corporate financial policy, investment management, and stock market price behavior. Số hóa bởi Trung tâm Học liệu – ĐH TN Bradford D. Jordan is Professor of Finance and holder of the Richard W. and Janis H. Furst Endowed Chair in Finance at the University of Kentucky. He has a long-standing interest in both applied and theoretical issues in corporate finance and has extensive experience teaching all levels of corporate finance and financial management policy. Professor Jordan has published numerous articles on issues such as the cost of capital, capital structure, and the behavior of security prices. He is a past president of the Southern Finance Association, and he is coauthor of Fundamentals of Investments: Valuation and Management, 4th edition, a leading investments text, also published by McGraw-Hill/Irwin. http://www.lrc-tnu.edu.vn From the Authors hen we first wrote Essentials o f Corporate Finance, we thought there might be a small niche for a briefer book that really focused on w hat students with widely vary­ ing backgrounds and interests needed to carry away from an introductory finance course. We were wrong. There was a huge niche! What we learned is that our text closely matches the needs of instructors and faculty at hundreds of schools across the country. As a result, the growth we have experienced through the first five editions of Essentials has far ex­ ceeded anything we thought possible. With the sixth edition of Essentials o f Corporate Finance, we have continued to refine our focus on our target audience, which is the undergraduate student taking a core course in business or corporate finance. This can be a tough course to teach. One reason is that the class is usually required of all business students, so it is not uncommon for a majority of the students to be nonfinance majors. In fact, this may be the only finance course many of them will ever have. With this in mind, our goal in Essentials is to convey the most important concepts and principles at a level that is approachable for the widest possible audience. To achieve our goal, we have worked to distill the subject down to its bare essentials (hence, the name of this book), w hile retaining a decidedly modem approach to finance. We have always maintained that the subject of corporate finance can be viewed as the working of a few very powerful intuitions. We also think that understanding the “why" is just as important, if not more so, than understanding the “how," especially in an introduc­ tory course. Based on the gratifying market feedback we have received from our previous editions, as well as from our other text. Fundamentals o f Corporate Finance (now in its 8th edition), many of you agree. By design, this book is not encyclopedic. As the table of contents indicates, we have a total of 18 chapters. Chapter length is about 30 pages, so the text is aimed squarely at a single-term course, and most of the book can be realistically covered in a typical semes­ ter or quarter. Writing a book for a one-term course necessarily means some picking and choosing, with regard to both topics and depth of coverage. Throughout, we strike a bal­ ance by introducing and covering the essentials (there's that word again!) while leaving some more specialized topics to follow -up courses. The other things we have always stressed, and have continued to improve with this edition, are readability and pedagogy. Essentials is written in a relaxed, conversational style that invites the students to join in the learning process rather than being a passive information absorber. We have found that this approach dramatically increases students* willingness to read and learn on their own. Between larger and larger class sizes and the ever-growing demands on faculty time, we think this is an essential (!) feature for a text in an introductor}' course. Throughout the development of this book, we have continued to take a hard look at what is truly relevant and useful. In doing so, we have worked to downplay purely theoreti­ cal issues and minimize the use of extensive and elaborate calculations to illustrate points that are either intuitively obvious or of limited practical use. As a result of this process, three basic themes emerge as our central focus in writing Essentials o f Corporate Finance: W An Em phasis on In tu itio n We always try to separate and explain the principles at work on a commonsense, intuitive level before launching into any specifics. The Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn underlying ideas are discussed first in very general terms and then by way of examples that illustrate in more concrete terms how a financial manager might proceed in a given situation. A U nified V alu atio n A pproach We treat net present value (NPV) as the basic con­ cept underlying corporate finance. Many texts stop well short of consistently integrating this important principle. The most basic and important notion, that NPV represents the excess of market value over cost, often is lost in an overly mechanical approach that em­ phasizes computation at the expense of comprehension. In contrast, every subject we cover is firmly rooted in valuation, and care is taken throughout to explain how particular deci­ sions have valuation effects. Students shouldn't lose sight of the fact that financial manage­ ment concerns management. We emphasize the role of the financial manager as decision maker, and we stress the need for managerial input and judgment. We consciously avoid “black box” approaches to finance, and, where appropriate, the approximate, pragmatic nature of financial analysis is made explicit, possible pitfalls are described, and limitations are discussed. A M a n a g e ria l Focus Today, as we prepare to once again enter the market, our goal is to stick with and build on the principles that have brought us this far. However, based on an enormous amount of feedback we have received from you and your colleagues, we have made this edition and its package even more flexible than previous editions. We offer flexibility in coverage and pedagogy by providing a wide variety of features in the book to help students to learn about corporate finance. We also provide flexibility in package options by offering the most extensive collection of teaching, learning, and technology aids of any corporate finance text. Whether you use just the textbook, or the book in conjunction with other products, we believe you will find a combination with this edition that will meet your current as well as your changing needs. Stephen A. Ross Randolph W. Westerfield B radford D. Jo rd an Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn Organization of the Text W e designed Essentials o f Corporate Finance to be as flexible and modular as pos­ sible. There are a total of nine parts, and, in broad terms, the instructor is free to decide the particular sequence. Further, within each part, the first chapter generally con­ tains an overview and survey. Thus, when time is limited, subsequent chapters can be omitted. Finally, the sections placed early in each chapter are generally the most important, and later sections frequently can be omitted without loss of continuity. For these reasons, the instructor has great control over the topics covered, the sequence in which they are covered, and the depth of coverage. Just to get an idea of the breadth of coverage in the sixth edition of Essentials, the following grid presents for each chapter some of the most significant new features, as well as a few selected chapter highlights. Of course, in every chapter, opening vignettes, boxed features, and in-chapter illustrations and examples using real companies have been thoroughly updated as well. Also, end-of-chapter material has been revised, and we have included new “challenge” problems in many places in this edition. C hapter 2 C hapter 3 Cash flow vs. earnings. Clearly defines cash flow and spells out the differences between cash flow and earnings. Market values vs. book values. Emphasizes the relevance of market values over book values. New material: Additional explanation of alternative formulas for sustainable and internal growth rates. Expanded explanation of growth rate formulas clears up a common misunderstanding about these formulas and the circumstances under which alternative formulas are correct. New material: Price-sales ratios. Explains price-sales ratios, emphasizing their usefulness in cases where companies have negative earnings. New material: EBITDA. Explains the commonly used quantity earnings before interest, taxes, depreciation, and amortization. Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn PART THREE Valuation of Future Cash Flows C hapter 4 First of two chapters on time value of money. Relatively short chapter introduces just the basic ideas on time value of money to get students started on this traditionally difficult topic. C hapter 5 Second of two chapters on time value of money. Covers more advanced time value topics with numerous examples, calculator tips, and Excel spreadsheet exhibits. Contains many real-world examples. I PART FOUR C hapter 6 C h apter 7 Valuing Stocks and Bonds Bond valuation. Thorough coverage of bond price/yield concepts. Interest rates and inflation. Highly intuitive discussion of inflation, the Fisher effect, and the term structure of interest rates. “Clean” vs. “dirty" bond prices and accrued interest. Clears up the pricing of bonds between coupon payment dates and also bond market quoting conventions. NASD's TRACE system and transparency in the corporate bond market. Up-to-date discussion of new developments in fixed income with regard to price, volume, and transactions reporting. “ Make-whole" call provisions. Up-to-date discussion of relatively new type of call provision that has become very common. Stock valuation. Thorough coverage of constant and nonconstant growth models. NYSE and Nasdaq Market operations. Up-to-date description of major stock market operations. New chapter case: Stock Valuation at Ragan, Inc. New case for this edition examines small company valuation. PART FIVE Capital Budgeting C hapter 8 First of two chapters on capital budgeting. Relatively short chapter introduces key ideas on an intuitive level to help students with this traditionally difficult topic. NPV, IRR. payback, discounted payback, accounting rate of return. Consistent, balanced examination of advantages and disadvantages of various criteria. N ew material: MIRR. Thorough, but straightforward, coverage of modified internal rate of return (MIRR) concepts and calculations. N ew chapter case: Bullock Gold Mining. New case for this edition examines basic capital budgeting using a spreadsheet. Project cash flow. Thorough coverage of project cash flows and the relevant numbers for a project analysis. Scenario and sensitivity “what-if" analyses. Illustrates how to actually apply and interpret these tools in a project analysis. C hapter 9 PART SIX Risk and Return C hapter 10 Capital market history. Extensive coverage of historical returns, volatilities, and risk premiums. Market efficiency. Efficient markets hypothesis discussed along with common misconceptions. Geometric vs. arithmetic returns. Discusses calculation and interpretation of geometric returns. Clarifies common misconceptions regarding appropriate use of arithmetic vs. geometric average returns. Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn