I-6 Index
Pro" tability ratios, 96–98
Progressive tax, 70
Promissory note, 495
Proprietorship, 6
Proxy " ght, 271
Proxy, 271
Public market, 31
Publicly owned corporation, 41
Purchasing power parity (PPP),
547 –550
Pure expectations theory, 180
Putable bond, 200
PVAN, 138Q
Quick (acid test) ratio, 89R
Raider, corporate, 19
Rates of return, risk and, 229
Ratio analysis, 87
Ratios,
analyzing effects of changing,
524–525
and EPS, 520
in different industries, 1034-12 Uses and Limitations of Ratios
Real option, 382–384
types of, 382
Real risk-free rate of interest
(r*), 169
Realized rate of return (rˉ), 241
Regression, used to improve
forecasts, 523–524
Regression analysis, 523
Regular interest, 498
Reinvestment rate assumptions,
346–347
Reinvestment rate risk, 174, 213
Relaxed current asset policy, 475
Relevant risk, 245
Reorganization, bankruptcy
and, 219
Repatriation of earnings, 557
Replacement analysis, 372–374
Replacement projects, 366
Reports, " nancial, 55–56
Required rate of return (rs), 276
Required returns, 238
Reserve borrowing capacity, 424
Residual dividend model, 446, 447
Restricted current asset
policy, 475
Retained earnings
breakpoint, 320
Retention ratio, 514
Retirement concerns, 123Return on common equity
(ROE), 98
Return on total assets (ROA), 97
Returns, stock markets and, 43–46
Revaluation of currency, 540
Reverse splits, 458
Revolving credit agreement, 497
Risk, 163, 232
business, 402, 403 –413
" nancial, 403–407, 408 –413
interest rate, 173
measuring with historical
data, 237
reinvestment rate, 174, 213
Risk analysis
and cash! ow estimation, 364
Home Depot growth, 364
in capital budgeting, 374–375
Risk and rates of return, 229
relationship, 251–257
Risk and return, trade-off
between, 239
Risk aversion, 238– 239
changes in, 255
Risk premium (RP), 239, 315
Risk-adjusted cost of capital, 375
RJR Nabisco, 271
ROE, potential misuses of, 108–109
ROE, see also return on common
equity
rRF , 169S
S corporation, 7, 75
Sales forecast, 512–513
Salomon Smith Barney, 37
Sarbanes-Oxley Act, 5
Scenario analysis, 378
Sears, 492
Seasoned issue, 206
Secondary market, 30
Secured " nancing, 500
Secured loan, 500
Security in short-term " nancing,
500–501
Security market line (SML)
equation, 253
Self-liquidating approach, 476
Semiannual compounding,
146 –148
Semiannual coupons, bonds with,
209–210
Sensitivity analysis, 376
Share repurchases, 440
Shareholder
distributions, dividends and
share repurchases, 440
value, stock prices and, 8–10wealth maximization, 9, 14
Short-term " nancing, use of
security in, 500–501
Signal, 424, 444
Signaling theory, 423
Simple interest, 126, 498
Sinking fund provision, 199
Sinking funds, 199
Ski Equipment Inc., 506
Southeastern Steel Company, 468
Special studies, 525
Spontaneous funds, 500
Spontaneously generated
funds, 514
Spot market, 30
Spot rate, 540, 545
Spreadsheets, 128
Stand-alone risk, 232, 233 –240, 375
measuring, 236, 376–381
statistical measures of, 233
Standard deviation (sigma),
236, 237
Starbucks, 84, 270
Statement of cash # ows, 63, 63–67
Statement of corporate
objectives, 51 1
Statement of stockholders’
equity, 67
Stock,
and valuation, 269
that doesn’t pay dividends,
evaluating, 287
types of common, 272–273
valuation, searching for the
right stock, 269
Stock dividends, 458
and stock splits, 457–459
Stock market, 38–40
and returns, 43–46
global indices, 552
OTC and Nasdaq, 39
physical location, 39
Stock market ef" ciency, 46–50
Stock market equilibrium, 301–303
Stock market reporting, 43
Stock market returns, 46
Stock market transactions, types
of, 41
Stock prices,
and shareholder value, 8–10
effect of split, 458
intrinsic values, and executive
compensation, 10–13
recent trends, 231–232
vs. intrinsic value, 273–275
Stock repurchases, 460, 459–463
advantages of, 461
conclusions on, 462
disadvantages of, 462
effects of, 460