Bang % of Finance

998666 CH00 FM pi-iv
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Page ii
Taken from:
Foundations of Finance: The Logic and Practice of Financial Management, Fourth Edition
by Arthur J. Keown, John D. Martin, J. William Petty, David F. Scott, Jr.
Copyright 2003, 2001, 1998, 1994 by Pearson Education, Inc.
Published by Pearson Prentice Hall
Upper Saddle River, New Jersey 07458
All rights reserved. No part of this book may be reproduced, in any form or by any means, without permission in
writing from the publisher.
This special edition published in cooperation with Pearson Custom Publishing
Printed in the United States of America

10 9 8 7 6 5 4 3 2 1
ISBN 0-536-75990-1
BA 998666
BK
Please visit our web site at www.pearsoncustom.com
PEARSON CUSTOM PUBLISHING

75 Arlington Street, Suite 300, Boston, MA 02116
A Pearson Education Company
10.23.03
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Page iii
Contents
Appendix A ............................................................ 1
Appendix B ............................................................ 9
Appendix C ............................................................ 11
Apendix D ............................................................ 13
Appendix E ............................................................ 15
Appendix F ............................................................ 17
Glossary ............................................................ 21
Index ............................................................ 31
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Page iv
998666 KEOWN APP. A pp001-008
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Page 1
Appendix A
Using a Calculator
As you prepare for a career in business, the ability to use a financial calculator is
essential, whether you are in the finance division or the marketing department. For
most positions, it will be assumed that you can use a calculator in making computations that at one time were simply not possible without extensive time and effort.
The following examples let us see what is possible, but they represent only the
beginning of using the calculator in finance.
With just a little time and effort, you will be surprised at how much you can do
with the calculator, such as calculating a stocks beta, or determining the value of a
bond on a specific day given the exact date of maturity, or finding net present values
and internal rates of return, or calculating the standard deviation. The list is almost
endless.
In demonstrating how calculators may make our work easier, we must first
decide which calculator to use. The options are numerous and largely depend on
personal preference. We have chosen the Texas Instruments BAII Plus.
We will limit our discussion to the following issues:
I. Introductory Comments
II. An Important Starting Point
III. Calculating Table Values for:
A. Appendix B (Compound sum of $1)
B. Appendix C (Present value of $1)
C. Appendix D (Sum of an annuity of $1 for n periods)
D. Appendix E (Present value of an annuity of $1 for n periods)
IV. Calculating Present Values
V. Calculating Future Values (Compound sum)
VI. Calculating the Number of Payments or Receipts
VII. Calculating the Payment Amount
VIII. Calculating the Interest Rate
IX. Bond Valuation
A. Computing the value of a bond
B. Calculating the yield to maturity of a bond
X. Computing the Net Present Value and Internal Rate of Return
A. Where future cash flows are equal amounts in each period (annuity)
B. Where future cash flows are unequal amounts in each period
I. Introductory Comments
In the examples that follow, you are told (1) which keystrokes to use, (2) the resulting appearance of the calculator display, and (3) a supporting explanation.
The keystrokes column tells you which keys to press. The keystrokes shown in a
white box tell you to use one of the calculators dedicated or hard keys. For example, if +/ is shown in the keystrokes instruction column, press that key on the keyboard of the calculator. To use a function printed in a shaded box above a dedicated
key, always press the shaded key 2nd first, then the function key.
Appendix A
998666 KEOWN APP. A pp001-008
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Page 2
II. An Important Starting Point

Example: You want to display four numbers to the right of the decimal.
Keystrokes
2nd
FORMAT
4 ENTER
Display
DEC=
DEC= 4.0000
CE/C CE/C
0.0000
Explanation
Sets display to show four numbers to the right of the

decimal
Clears display
Example: You want to display two payments per year to be paid at the end of each period.
Keystrokes
2nd
P/Y
2 ENTER
2nd
BGN
Display
Explanation
P/Y =
P/Y = 2.0000
Sets number of payments per year at 2
END
Sets timing of payment at the end of each period
CE/C CE/C
0.0000
Clears display
III. Calculating Table Values

A. The compound sum of $1 (Appendix B)
Example: What is the table value for the compound sum of $1 for 5 years at a 12 percent annual
interest rate?
Keystrokes
2nd
P/Y
1 ENTER
2nd
BGN
CE/C CE/C
2nd
CLR TVM
1 +/
PV
5N
12 I/Y
CPT FV
Display
Explanation
P/Y =
P/Y = 1.0000
END
0.0000

Clears display
0.0000
PV = 1.0000
Clears TVM variables

Stores initial $1 as a negative present value.
Otherwise the answer will appear as negative.
Stores number of periods
Stores interest rate
Table value
N = 5.0000
I/Y = 12.0000
FV = 1.7623
B. The present value of $1 (Appendix C)

Example: What is the table value for the present value of $1 for 8 years at a 10 percent annual
interest rate?
Keystrokes
2nd
P/Y
1 ENTER
2nd
BGN
CE/C CE/C
2nd
CLR TVM
1 +/
FV
8N
10 I/Y
CPT PV
Appendix A
Display
Explanation
P/Y =
P/Y = 1.0000
END
0.0000

Clears display
0.0000
FV = 1.0000

Stores future amount as negative value
N = 8.0000
I/Y = 10.0000
PV = 0.4665

Table value
998666 KEOWN APP. A pp001-008
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Page 3
III. Calculating Table Values (continued )

C. The sum of an annuity of $1 for n periods (Appendix D)
Example: What is the table value for the compound sum of an annuity of $1 for 6 years at a 14
percent annual interest rate?
Keystrokes
2nd
P/Y
1 ENTER
2nd
BGN
CE/C CE/C
2nd
CLR TVM
1 +/
PMT
6N
14 I/Y
CPT FV
Display
Explanation
P/Y =
P/Y = 1.0000
END
0.0000

Clears display
0.0000
PMT = 1.0000

Stores annual payment (annuity) as a negative number.
Otherwise the answer will appear as a negative.
Table value
N = 6.0000
I/Y = 14.0000
FV = 8.5355
D. The present value of an annuity of $1 for n periods (Appendix E)

Example: What is the table value for the present value of an annuity of $1 for 12 years at 9
percent annual interest rate?
Keystrokes
2nd
P/Y
1 ENTER
2nd
BGN
CE/C CE/C
2nd
CLR TVM
1 +/
PMT
12 N
9 I/Y
CPT PV
Display
Explanation
P/Y =
P/Y = 1.0000
END
0.0000

Clears display
0.0000
PMT = 1.0000

Stores annual payment (annuity) as a negative number.
Otherwise the answer will appear as a negative.
Table value
N = 12.0000
I/Y = 9.0000
PV = 7.1607
IV. Calculating Present Values

Example: You are considering the purchase of a franchise of quick oil-change locations, which
you believe will provide an annual cash flow of $50,000. At the end of 10 years, you believe that you
will be able to sell the franchise for an estimated $900,000. Calculate the maximum amount you
should pay for the franchise (present value) in order to realize at least an 18 percent annual yield.
Keystrokes
2nd
BGN
CE/C CE/C
2nd
CLR TVM
10 N
18 I/Y
50,000 PMT
900,000 FV
CPT PV
Display
Explanation
END
0.0000

Clears display
0.0000
N = 10.0000
I/Y = 18.0000
PMT = 50,000.0000
FV = 900,000.0000

Stores n, the holding period
Stores i, the required rate of return
Stores PMT, the annual cash flow to be received
Stores FV, the cash flow to be received at the end of
the project
PV = 396,662.3350 The present value, given a required rate of return of 18
percent. (Note: the present value is displayed with a
minus sign since it represents cash paid out.)
Appendix A
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V. Calculating Future Values (Compound Sum)

Example: If you deposit $300 a month (at the beginning of each month) into a new account that
pays 6.25 percent annual interest compounded monthly, how much will you have in the account
after 5 years?
Keystrokes
2nd
BGN
2nd
SET
2nd
P/Y
12 ENTER
CE/C CE/C
2nd
CLR TVM
60 N
6.25 I/Y
300 +/
PMT
CPT FV
Display
Explanation
END
BGN
Sets timing of payments to beginning of each period
P/Y =
P/Y = 12.0000
0.0000
Sets 12 payments per year

Clears display
0.0000
N = 60.0000
I/Y = 6.2500
PMT = 300.0000
FV = 21,175.7613

Stores n, the number of months for the investment
Stores i, the annual rate
Stores PMT, the monthly amount invested (with a
minus sign for cash paid out)
The future value after 5 years
VI. Calculating the Number of Payments or Receipts

Example: If you wish to retire with $500,000 saved, and can only afford payments of $500 each
month, how long will you have to contribute toward your retirement if you can earn a 10
percent return on your contributions?
Keystrokes
2nd
BGN
2nd
P/Y
12 ENTER
CE/C CE/C
2nd
CLR TVM
10 I/Y
500 +/
PMT
500,000
FV
CPT N
Display
Explanation
BGN
Verifies timing of payment at the beginning of each

period
P/Y = 12.0000
P/Y = 12.0000
0.0000
0.0000
I/Y = 10.0000
PMT = 2500.0000
FV = 500,000.0000
N = 268.2539

Clears display
Stores i, the interest rate
The value we want to achieve
Number of months (since we considered monthly
payments) required to achieve our goal
VII. Calculating the Payment Amount

Example: Suppose your retirement needs were $750,000. If you are currently 25 years old and
plan to retire at age 65, how much will you have to contribute each month for retirement if you
can earn 12.5 percent on your savings?
Appendix A
Keystrokes
2nd
BGN
Display
Explanation
BGN
Verifies timing of payment at the beginning of each

period
2nd
P/Y
12 ENTER
P/Y = 12.0000
P/Y = 12.0000
998666 KEOWN APP. A pp001-008
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Page 5
VII. Calculating the Payment Amount (continued )

CE/C CE/C
2nd
CLR TVM
12.5 I/Y
480 N
0.0000
Clears display
0.0000
I/Y = 12.5000
N = 480.0000
750,000 FV
CPT PMT
FV = 750,000.0000
PMT = 53.8347

Stores i, the interest rate
Stores n, the number of periods until we stop
contributing (40 years 12 months/year = 480 months)
The value we want to achieve
Monthly contribution required to achieve our ultimate
goal (shown as negative since it represents cash paid out)
VIII. Calculating the Interest Rate

Example: If you invest $300 at the end of each month for 6 years (72 months) for a promised
$30,000 return at the end, what interest rate are you earning on your investment?
Keystrokes
2nd
BGN
2nd
SET
2nd
P/Y
12 ENTER
CE/C CE/C
2nd
CLR TVM
72 N
300 +/
PMT
30,000 FV
CPT I/Y
Display
Explanation
BGN
Sets timing of payments to beginning of each period
END
Sets timing of payments to end of each period
P/Y = 12.0000
P/Y = 12.0000
0.0000

Clears display
0.0000
N = 72.0000
PMT = 300.0000
FV = 30,000.0000
I/Y = 10.5892

Stores n, the number of deposits (investments)
Stores the future value to be received in 6 years
The annual interest rate earned on the investment
IX. Bond Valuation

A. Computing the value of a bond
Example: Assume the current date is January 1, 1993, and that you want to know the value of a
bond that matures in 10 years and has a coupon rate of 9 percent (4.5 percent semiannually).
Your required rate of return is 12 percent.
Keystrokes
2nd
BGN
2nd
P/Y
2 ENTER
Display
Explanation
END
Verifies timing of payments to end of each period
P/Y = 12.0000
P/Y = 2.0000
CE/C CE/C
2nd
CLR TVM
20 N
0.0000
0.0000
N = 20.0000
12 I/Y
45 PMT
1,000 FV
CPT PV
I/Y = 12.0000
PMT = 45.0000
FV = 1,000.0000
PV = 827.9512
Sets 2 payments per year; end mode (END) assumes

cash flows are at the end of each 6-month period
Clears display
Stores the number of semiannual periods
(10 years 2)
Stores annual rate of return
Stores the semiannual interest payment
Stores the bonds maturity or par value
Value of the bond, expressed as a negative number
Appendix A
998666 KEOWN APP. A pp001-008
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Page 6
IX. Bond Valuation (continued )

SOLUTION Using the Bond Feature:
CE/C CE/C
2nd
BOND
2nd
CLR WORK
1.01.93 ENTER
9 ENTER
1.01.03 ENTER
2nd
SET
12 ENTER
CPT
0.0000
Clears display
STD = 1-01-1970
(This will be the last date entered)
STD = 1-01-1970
STD = 1-01-1993
CPN =0.0000
CPN = 9.0000
RDT = 12-31-1990
RDT = 1-01-2003
RV = 100.0000
ACT
Clears BOND variables

Stores the current date (month, date, year)
360
2/Y
YLD = 0.0000
YLD = 12.0000
PRI = 0.0000
PRI = 82.7951
Stores the coupon interest rate

Stores the maturity date in 10 years
Verifies bond maturity or par value
Sets calculations to be based on 360-day year
Verifies semiannual compounding rate
Stores the investors required rate of return
Value of bond as a percent of par value; i.e.,
value of bond is $827.95
B. Computing the yield to maturity of a bond

Example: Assume the current date is January 1, 1994, and that you want to know your yield to
maturity on a bond that matures in 8 years and has a coupon rate of 12 percent (6 percent
semiannually). The bond is selling for $1,100.
Keystrokes
2nd
BGN
2nd
P/Y
2 ENTER
CE/C CE/C
2nd
CLR TVM
16 N
Display
Explanation
END
P/Y = 12.0000
P/Y = 2.0000
0.0000
0.0000
N = 16.0000
Sets 2 payments per year; end mode (END) assumes

cash flows are at the end of each 6-month period
Clears display
1100 +/
PV
60 PMT
PV = 1,100.0000
PMT = 60.0000

Stores the number of semiannual periods
(8 years 2)
Value of the bond, expressed as a negative
number
Stores the semiannual interest payments
1,000 FV
CPT I/Y
FV = 1,000.0000
I/Y = 10.1451
Stores the bonds maturity or par value

The yield to maturity, expressed on an annual basis
SOLUTION Using the Bond Feature:

CE/C CE/C
2nd
Bond
2nd
CLR WORK
1.03.94 ENTER
12 ENTER
1.03.02 ENTER
Appendix A
0.0000
Clears display
STD = 1-01-1993
STD = 1-01-1993
STD = 1-03-1994
CPN = 0.0000
CPN = 12.0000
RDT = 1-01-2003
RDT = 1-03-2002
RV = 100.0000
ACT
Clears BOND variables

Stores the current date (month, date, year)
Stores the coupon interest rate
Stores the maturity date in 8 years
Verifies bonds maturity or par value
998666 KEOWN APP. A pp001-008
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Page 7
IX. Bond Valuation (continued )

2nd
SET
360
110 ENTER
CPT
2/Y
YLD = 0.0000
PRI = 0.0000
PRI = 110.0000
YLD = 0.0000
YLD = 10.1451
Sets calculations to be based on 360-day year

Verifies semiannual compounding rate
Stores the bond value as a percentage of par value

Bonds yield to maturity

A. Where future cash flows are equal amounts in each period (annuity)
Example: The firm is considering a capital project that would cost $80,000. The firms cost of
capital is 12 percent. The project life is 10 years, during which time the firm expects to receive
$15,000 per year. Calculate the NPV and the IRR.
Keystrokes
2nd
BGN
2nd
P/Y
1 ENTER
Display
Explanation
END
P/Y = 12.0000
P/Y = 1.0000
CE/C CE/C
2nd
CLR TVM
15,000 PMT
10 N
12 I/Y
CPT PV
+/
80,000 =
0.0000
0.0000
PMT = 15.0000
N = 10.0000
I/Y = 12.0000
PV = 84,753.3454
PV = 84,753.3454
4,753.3454
80,000 +/
PV
CPT I/Y
80,000.0000
PV = 80,000.0000
I/Y = 13.4344
Sets 1 payment per year; end mode (END) assumes cash

flows are at the end of each year
Clears display
Stores the annual cash flows of $15,000
Stores the life of the project
Stores the cost of capital
Calculates present value
Changes PV to positive
Calculates net present value by subtracting the cost of
the project
Calculates the IRR
B. Where future cash flows are unequal amounts in each period

Example: The firm is considering a capital project that would cost $110,000. The firms cost of
capital is 15 percent. The project life is 5 years, with the following expected cash flows:
$25,000, $50,000, $60,000, $60,000 and $70,000. In addition, you expect to receive $30,000 in
the last year from the salvage value of the equipment. Calculate the NPV and IRR.
Keystrokes
CE/C CE/C
CF
2nd
CLR WORK
110,000 +/
ENTER
25,000 +/
ENTER
Display
0.0000
CF0 = 0.0000
Explanation
Clears display
CF0 = 0.0000
Clears cash flow variables
CF0 = 110,000.0000 Stores CF0, the initial investment (with a minus sign for
a negative cash flow)
CO1 = 0.0000
Stores CF1, the first years cash flow (with a minus sign
CO1 = 25,000.0000 for a negative cash flow)
FO1 = 1.0000
Stores the number of years CF1 is repeated

(in this case, 1 year only)
ENTER
Appendix A
998666 KEOWN APP. A pp001-008
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Page 8

(continued )
50,000
ENTER
ENTER
60,000
ENTER
2 ENTER
100,000
ENTER
ENTER
2nd
QUIT
NPV
15 ENTER
CPT
IRR
CPT
Appendix A
CO2 =
0.0000
CO2 = 50,000.0000
FO2 = 1.0000
FO2 = 1.0000
CO3 =
0.0000
CO3 = 60,000.0000
FO3 = 2.0000
Stores CF2

Stores CF3
(here, 2 years, so our response is 2 to the FO3 prompt)
CO4 =
0.0000
CO4 = 100,000.0000 Stores CF4, $70,000 plus expected $30,000
FO4 = 1.0000
Stores the number CF4
0.0000
I = 0.0000
I = 15.0000
NPV =
0.0000
NPV = 29,541.8951
IRR = 0.0000
IRR = 22.0633
Ends storage of individual cash flows

Calculate the projects NPV at the stated interest rate
Calculates the projects IRR
998666 KEOWN APP. B pp009-010
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Page 9
Appendix B
Compound Sum of $1
n
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
30
40
50
1%
1.010
1.020
1.030
1.041
1.051
1.062
1.072
1.083
1.094
1.105
1.116
1.127
1.138
1.149
1.161
1.173
1.184
1.196
1.208
1.220
1.232
1.245
1.257
1.270
1.282
1.348
1.489
1.645
2%
1.020
1.040
1.061
1.082
1.104
1.126
1.149
1.172
1.195
1.219
1.243
1.268
1.294
1.319
1.346
1.373
1.400
1.428
1.457
1.486
1.516
1.546
1.577
1.608
1.641
1.811
2.208
2.691
3%
1.030
1.061
1.093
1.126
1.159
1.194
1.230
1.267
1.305
1.344
1.384
1.426
1.469
1.513
1.558
1.605
1.653
1.702
1.753
1.806
1.860
1.916
1.974
2.033
2.094
2.427
3.262
4.384
4%
1.040
1.082
1.125
1.170
1.217
1.265
1.316
1.369
1.423
1.480
1.539
1.601
1.665
1.732
1.801
1.873
1.948
2.026
2.107
2.191
2.279
2.370
2.465
2.563
2.666
3.243
4.801
7.106
5%
1.050
1.102
1.158
1.216
1.276
1.340
1.407
1.477
1.551
1.629
1.710
1.796
1.886
1.980
2.079
2.183
2.292
2.407
2.527
2.653
2.786
2.925
3.071
3.225
3.386
4.322
7.040
11.467
6%
1.060
1.124
1.191
1.262
1.338
1.419
1.504
1.594
1.689
1.791
1.898
2.012
2.133
2.261
2.397
2.540
2.693
2.854
3.026
3.207
3.399
3.603
3.820
4.049
4.292
5.743
10.285
18.419
7%
1.070
1.145
1.225
1.311
1.403
1.501
1.606
1.718
1.838
1.967
2.105
2.252
2.410
2.579
2.759
2.952
3.159
3.380
3.616
3.870
4.140
4.430
4.740
5.072
5.427
7.612
14.974
29.456
8%
1.080
1.166
1.260
1.360
1.469
1.587
1.714
1.851
1.999
2.159
2.332
2.518
2.720
2.937
3.172
3.426
3.700
3.996
4.316
4.661
5.034
5.436
5.871
6.341
6.848
10.062
21.724
46.900
9%
1.090
1.188
1.295
1.412
1.539
1.677
1.828
1.993
2.172
2.367
2.580
2.813
3.066
3.342
3.642
3.970
4.328
4.717
5.142
5.604
6.109
6.658
7.258
7.911
8.623
13.267
31.408
74.354
10%
1.100
1.210
1.331
1.464
1.611
1.772
1.949
2.144
2.358
2.594
2.853
3.138
3.452
3.797
4.177
4.595
5.054
5.560
6.116
6.727
7.400
8.140
8.954
9.850
10.834
17.449
45.258
117.386
n
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
11%
1.110
1.232
1.368
1.518
1.685
1.870
2.076
2.305
2.558
2.839
3.152
3.498
3.883
4.310
4.785
5.311
5.895
6.543
7.263
8.062
8.949
9.933
11.026
12.239
12%
1.120
1.254
1.405
1.574
1.762
1.974
2.211
2.476
2.773
3.106
3.479
3.896
4.363
4.887
5.474
6.130
6.866
7.690
8.613
9.646
10.804
12.100
13.552
15.178
13%
1.130
1.277
1.443
1.630
1.842
2.082
2.353
2.658
3.004
3.395
3.836
4.334
4.898
5.535
6.254
7.067
7.986
9.024
10.197
11.523
13.021
14.713
16.626
18.788
14%
1.140
1.300
1.482
1.689
1.925
2.195
2.502
2.853
3.252
3.707
4.226
4.818
5.492
6.261
7.138
8.137
9.276
10.575
12.055
13.743
15.667
17.861
20.361
23.212
15%
1.150
1.322
1.521
1.749
2.011
2.313
2.660
3.059
3.518
4.046
4.652
5.350
6.153
7.076
8.137
9.358
10.761
12.375
14.232
16.366
18.821
21.644
24.891
28.625
16%
1.160
1.346
1.561
1.811
2.100
2.436
2.826
3.278
3.803
4.411
5.117
5.936
6.886
7.987
9.265
10.748
12.468
14.462
16.776
19.461
22.574
26.186
30.376
35.236
17%
1.170
1.369
1.602
1.874
2.192
2.565
3.001
3.511
4.108
4.807
5.624
6.580
7.699
9.007
10.539
12.330
14.426
16.879
19.748
23.105
27.033
31.629
37.005
43.296
18%
1.180
1.392
1.643
1.939
2.288
2.700
3.185
3.759
4.435
5.234
6.176
7.288
8.599
10.147
11.974
14.129
16.672
19.673
23.214
27.393
32.323
38.141
45.007
53.108
19%
1.190
1.416
1.685
2.005
2.386
2.840
3.379
4.021
4.785
5.695
6.777
8.064
9.596
11.420
13.589
16.171
19.244
22.900
27.251
32.429
38.591
45.923
54.648
65.031
20%
1.200
1.440
1.728
2.074
2.488
2.986
3.583
4.300
5.160
6.192
7.430
8.916
10.699
12.839
15.407
18.488
22.186
26.623
31.948
38.337
46.005
55.205
66.247
79.496
Appendix B
998666 KEOWN APP. B pp009-010
10.23.03
12:05 PM
Page 10
Compound Sum of $1 (continued )

25
30
40
50
13.585
22.892
64.999
184.559
17.000
29.960
93.049
288.996
21.230
39.115
132.776
450.711
26.461
50.949
188.876
700.197
32.918
66.210
267.856
1083.619
40.874
85.849
378.715
1670.669
50.656
111.061
533.846
2566.080
62.667
143.367
750.353
3927.189
77.387
184.672
1051.642
5988.730
95.395
237.373
1469.740
9100.191
n
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
30
40
50
21%
1.210
1.464
1.772
2.144
2.594
3.138
3.797
4.595
5.560
6.727
8.140
9.850
11.918
14.421
17.449
21.113
25.547
30.912
37.404
45.258
54.762
66.262
80.178
97.015
117.388
304.471
2048.309
13779.844
22%
1.220
1.488
1.816
2.215
2.703
3.297
4.023
4.908
5.987
7.305
8.912
10.872
13.264
16.182
19.742
24.085
29.384
35.848
43.735
53.357
65.095
79.416
96.887
118.203
144.207
389.748
2846.941
20795.680
23%
1.230
1.513
1.861
2.289
2.815
3.463
4.259
5.239
6.444
7.926
9.749
11.991
14.749
18.141
22.314
27.446
33.758
41.523
51.073
62.820
77.268
95.040
116.899
143.786
176.857
497.904
3946.340
31278.301
24%
1.240
1.538
1.907
2.364
2.932
3.635
4.508
5.589
6.931
8.594
10.657
13.215
16.386
20.319
25.195
31.242
38.740
48.038
59.567
73.863
91.591
113.572
140.829
174.628
216.539
634.810
5455.797
46889.207
25%
1.250
1.562
1.953
2.441
3.052
3.815
4.768
5.960
7.451
9.313
11.642
14.552
18.190
22.737
28.422
35.527
44.409
55.511
69.389
86.736
108.420
135.525
169.407
211.758
264.698
807.793
7523.156
70064.812
26%
1.260
1.588
2.000
2.520
3.176
4.001
5.042
6.353
8.004
10.086
12.708
16.012
20.175
25.420
32.030
40.357
50.850
64.071
80.730
101.720
128.167
161.490
203.477
256.381
323.040
1025.904
10346.879
104354.562
27%
1.270
1.613
2.048
2.601
3.304
4.196
5.329
6.767
8.595
10.915
13.862
17.605
22.359
28.395
36.062
45.799
58.165
73.869
93.813
119.143
151.312
192.165
244.050
309.943
393.628
1300.477
14195.051
154942.687
28%
1.280
1.638
2.097
2.684
3.436
4.398
5.629
7.206
9.223
11.806
15.112
19.343
24.759
31.691
40.565
51.923
66.461
85.070
108.890
139.379
178.405
228.358
292.298
374.141
478.901
1645.488
19426.418
229345.875
29%
1.290
1.664
2.147
2.769
3.572
4.608
5.945
7.669
9.893
12.761
16.462
21.236
27.395
35.339
45.587
58.808
75.862
97.862
126.242
162.852
210.079
271.002
349.592
450.974
581.756
2078.208
26520.723
338440.000
30%
1.300
1.690
2.197
2.856
3.713
4.827
6.275
8.157
10.604
13.786
17.921
23.298
30.287
39.373
51.185
66.541
86.503
112.454
146.190
190.047
247.061
321.178
417.531
542.791
705.627
2619.936
36117.754
497910.125
n
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
30
40
31%
1.310
1.716
2.248
2.945
3.858
5.054
6.621
8.673
11.362
14.884
19.498
25.542
33.460
43.832
57.420
75.220
98.539
129.086
169.102
221.523
290.196
380.156
498.004
652.385
854.623
3297.081
49072.621
32%
1.320
1.742
2.300
3.036
4.007
5.290
6.983
9.217
12.166
16.060
21.199
27.982
36.937
49.756
64.358
84.953
112.138
148.022
195.389
257.913
340.446
449.388
593.192
783.013
1033.577
4142.008
66519.313
33%
34%
35%
1.330
1.340
1.350
1.769
1.796
1.822
2.353
2.406
2.460
3.129
3.224
3.321
4.162
4.320
4.484
5.535
5.789
6.053
7.361
7.758
8.172
9.791
10.395
11.032
13.022
13.930
14.894
17.319
18.666
20.106
23.034
25.012
27.144
30.635
33.516
36.644
40.745
44.912
49.469
54.190
60.181
66.784
72.073
80.643
90.158
95.857
108.061
121.713
127.490
144.802
164.312
169.561
194.035
221.822
225.517
260.006
299.459
299.937
348.408
404.270
398.916
466.867
545.764
530.558
625.601
736.781
705.642
838.305
994.653
938.504
1123.328
1342.781
1248.210
1505.258
1812.754
5194.516
6503.285
8128.426
89962.188 121388.437 163433.875
36%
1.360
1.850
2.515
3.421
4.653
6.328
8.605
11.703
15.917
21.646
29.439
40.037
54.451
74.053
100.712
136.968
186.277
253.337
344.537
468.571
637.256
865.668
1178.668
1602.988
2180.063
10142.914
219558.625
37%
1.370
1.877
2.571
3.523
4.826
6.612
9.058
12.410
17.001
23.292
31.910
43.716
59.892
82.051
112.410
154.002
210.983
289.046
395.993
542.511
743.240
1018.238
1394.986
1911.129
2618.245
12636.086
294317.937
38%
1.380
1.904
2.628
3.627
5.005
6.907
9.531
13.153
18.151
25.049
34.567
47.703
65.830
90.845
125.366
173.005
238.747
329.471
454.669
627.443
865.871
1194.900
1648.961
2275.564
3140.275
15716.703
393684.687
39%
1.390
1.932
2.686
3.733
5.189
7.213
10.025
13.935
19.370
26.924
37.425
52.020
72.308
100.509
139.707
194.192
269.927
375.198
521.525
724.919
1007.637
1400.615
1946.854
2706.125
3761.511
19517.969
525508.312
40%
1.400
1.960
2.744
3.842
5.378
7.530
10.541
14.758
20.661
28.925
40.495
56.694
79.371
111.190
155.567
217.793
304.911
426.875
597.625
836.674
1171.343
1639.878
2295.829
3214.158
4499.816
24201.043
700022.688
10
Appendix B
998666 KEOWN APP. C pp011-012
10.23.03
12:05 PM
Page 11
Appendix C
Present Value of $1
n
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
30
40
50
1%
.990
.980
.971
.961
.951
.942
.933
.923
.914
.905
.896
.887
.879
.870
.861
.853
.844
.836
.828
.820
.811
.803
.795
.788
.780
.742
.672
.608
2%
.980
.961
.942
.924
.906
.888
.871
.853
.837
.820
.804
.789
.773
.758
.743
.728
.714
.700
.686
.673
.660
.647
.634
.622
.610
.552
.453
.372
3%
.971
.943
.915
.888
.863
.837
.813
.789
.766
.744
.722
.701
.681
.661
.642
.623
.605
.587
.570
.554
.538
.522
.507
.492
.478
.412
.307
.228
4%
.962
.925
.889
.855
.822
.790
.760
.731
.703
.676
.650
.625
.601
.577
.555
.534
.513
.494
.475
.456
.439
.422
.406
.390
.375
.308
.208
.141
5%
.952
.907
.864
.823
.784
.746
.711
.677
.645
.614
.585
.557
.530
.505
.481
.458
.436
.416
.396
.377
.359
.342
.326
.310
.295
.231
.142
.087
6%
.943
.890
.840
.792
.747
.705
.665
.627
.592
.558
.527
.497
.469
.442
.417
.394
.371
.350
.331
.312
.294
.278
.262
.247
.233
.174
.097
.054
7%
.935
.873
.816
.763
.713
.666
.623
.582
.544
.508
.475
.444
.415
.388
.362
.339
.317
.296
.277
.258
.242
.226
.211
.197
.184
.131
.067
.034
8%
.926
.857
.794
.735
.681
.630
.583
.540
.500
.463
.429
.397
.368
.340
.315
.292
.270
.250
.232
.215
.199
.184
.170
.158
.146
.099
.046
.021
9%
.917
.842
.772
.708
.650
.596
.547
.502
.460
.422
.388
.356
.326
.299
.275
.252
.231
.212
.194
.178
.164
.150
.138
.126
.116
.075
.032
.013
10%
.909
.826
.751
.683
.621
.564
.513
.467
.424
.386
.350
.319
.290
.263
.239
.218
.198
.180
.164
.149
.135
.123
.112
.102
.092
.057
.022
.009
n
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
11%
.901
.812
.731
.659
.593
.535
.482
.434
.391
.352
.317
.286
.258
.232
.209
.188
.170
.153
.138
.124
.112
.101
.091
.082
12%
.893
.797
.712
.636
.567
.507
.452
.404
.361
.322
.287
.257
.229
.205
.183
.163
.146
.130
.116
.104
.093
.083
.074
.066
13%
.885
.783
.693
.613
.543
.480
.425
.376
.333
.295
.261
.231
.204
.181
.160
.141
.125
.111
.098
.087
.077
.068
.060
.053
14%
.877
.769
.675
.592
.519
.456
.400
.351
.308
.270
.237
.208
.182
.160
.140
.123
.108
.095
.083
.073
.064
.056
.049
.043
15%
.870
.756
.658
.572
.497
.432
.376
.327
.284
.247
.215
.187
.163
.141
.123
.107
.093
.081
.070
.061
.053
.046
.040
.035
16%
.862
.743
.641
.552
.476
.410
.354
.305
.263
.227
.195
.168
.145
.125
.108
.093
.080
.069
.060
.051
.044
.038
.033
.028
17%
.855
.731
.624
.534
.456
.390
.333
.285
.243
.208
.178
.152
.130
.111
.095
.081
.069
.059
.051
.043
.037
.032
.027
.023
18%
.847
.718
.609
.516
.437
.370
.314
.266
.225
.191
.162
.137
.116
.099
.084
.071
.060
.051
.043
.037
.031
.026
.022
.019
19%
.840
.706
.593
.499
.419
.352
.296
.249
.209
.176
.148
.124
.104
.088
.074
.062
.052
.044
.037
.031
.026
.022
.018
.015
20%
.833
.694
.579
.482
.402
.335
.279
.233
.194
.162
.135
.112
.093
.078
.065
.054
.045
.038
.031
.026
.022
.018
.015
.013
Appendix C
11
998666 KEOWN APP. C pp011-012
10.23.03
12:05 PM
Page 12
Present Value of $1 (continued )

25
30
40
50
.074
.044
.015
.005
.059
.033
.011
.003
.047
.026
.008
.002
.038
.020
.005
.001
.030
.015
.004
.001
.024
.012
.003
.001
.020
.009
.002
.000
.016
.007
.001
.000
.013
.005
.001
.000
.010
.004
.001
.000
n
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
30
40
50
21%
.826
.683
.564
.467
.386
.319
.263
.218
.180
.149
.123
.102
.084
.069
.057
.047
.039
.032
.027
.022
.018
.015
.012
.010
.009
.003
.000
.000
22%
.820
.672
.551
.451
.370
.303
.249
.204
.167
.137
.112
.092
.075
.062
.051
.042
.034
.028
.023
.019
.015
.013
.010
.008
.007
.003
.000
.000
23%
.813
.661
.537
.437
.355
.289
.235
.191
.155
.126
.103
.083
.068
.055
.045
.036
.030
.024
.020
.016
.013
.011
.009
.007
.006
.002
.000
.000
24%
.806
.650
.524
.423
.341
.275
.222
.179
.144
.116
.094
.076
.061
.049
.040
.032
.026
.021
.017
.014
.011
.009
.007
.006
.005
.002
.000
.000
25%
.800
.640
.512
.410
.328
.262
.210
.168
.134
.107
.086
.069
.055
.044
.035
.028
.023
.018
.014
.012
.009
.007
.006
.005
.004
.001
.000
.000
26%
.794
.630
.500
.397
.315
.250
.198
.157
.125
.099
.079
.062
.050
.039
.031
.025
.020
.016
.012
.010
.008
.006
.005
.004
.003
.001
.000
.000
27%
.787
.620
.488
.384
.303
.238
.188
.148
.116
.092
.072
.057
.045
.035
.028
.022
.017
.014
.011
.008
.007
.005
.004
.003
.003
.001
.000
.000
28%
.781
.610
.477
.373
.291
.227
.178
.139
.108
.085
.066
.052
.040
.032
.025
.019
.015
.012
.009
.007
.006
.004
.003
.003
.002
.001
.000
.000
29%
.775
.601
.466
.361
.280
.217
.168
.130
.101
.078
.061
.047
.037
.028
.022
.017
.013
.010
.008
.006
.005
.004
.003
.002
.002
.000
.000
.000
30%
.769
.592
.455
.350
.269
.207
.159
.123
.094
.073
.056
.043
.033
.025
.020
.015
.012
.009
.007
.005
.004
.003
.002
.002
.001
.000
.000
.000
n
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
30
40
31%
.763
.583
.445
.340
.259
.198
.151
.115
.088
.067
.051
.039
.030
.023
.017
.013
.010
.008
.006
.005
.003
.003
.002
.002
.001
.000
.000
32%
.758
.574
.435
.329
.250
.189
.143
.108
.082
.062
.047
.036
.027
.021
.016
.012
.009
.007
.005
.004
.003
.002
.002
.001
.001
.000
.000
33%
.752
.565
.425
.320
.240
.181
.136
.102
.077
.058
.043
.033
.025
.018
.014
.010
.008
.006
.004
.003
.003
.002
.001
.001
.001
.000
.000
34%
.746
.557
.416
.310
.231
.173
.129
.096
.072
.054
.040
.030
.022
.017
.012
.009
.007
.005
.004
.003
.002
.002
.001
.001
.001
.000
.000
35%
.741
.549
.406
.301
.223
.165
.122
.091
.067
.050
.037
.027
.020
.015
.011
.008
.006
.005
.003
.002
.002
.001
.001
.001
.001
.000
.000
36%
.735
.541
.398
.292
.215
.158
.116
.085
.063
.046
.034
.025
.018
.014
.010
.007
.005
.004
.003
.002
.002
.001
.001
.001
.000
.000
.000
37%
.730
.533
.389
.284
.207
.151
.110
.081
.059
.043
.031
.023
.017
.012
.009
.006
.005
.003
.003
.002
.001
.001
.001
.001
.000
.000
.000
38%
.725
.525
.381
.276
.200
.145
.105
.076
.055
.040
.029
.021
.015
.011
.008
.006
.004
.003
.002
.002
.001
.001
.001
.000
.000
.000
.000
39%
.719
.518
.372
.268
.193
.139
.100
.072
.052
.037
.027
.019
.014
.010
.007
.005
.004
.003
.002
.001
.001
.001
.001
.000
.000
.000
.000
40%
.714
.510
.364
.260
.186
.133
.095
.068
.048
.035
.025
.018
.013
.009
.006
.005
.003
.002
.002
.001
.001
.001
.000
.000
.000
.000
.000
12
Appendix C
998666 KEOWN APP. D pp013-014
10.23.03
12:06 PM
Page 13
Appendix D
Sum of an Annuity of $1 for n Periods

n
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
30
40
50
1%
1.000
2.010
3.030
4.060
5.101
6.152
7.214
8.286
9.368
10.462
11.567
12.682
13.809
14.947
16.097
17.258
18.430
19.614
20.811
22.019
23.239
24.471
25.716
26.973
28.243
34.784
48.885
64.461
2%
1.000
2.020
3.060
4.122
5.204
6.308
7.434
8.583
9.755
10.950
12.169
13.412
14.680
15.974
17.293
18.639
20.012
21.412
22.840
24.297
25.783
27.299
28.845
30.421
32.030
40.567
60.401
84.577
3%
1.000
2.030
3.091
4.184
5.309
6.468
7.662
8.892
10.159
11.464
12.808
14.192
15.618
17.086
18.599
20.157
21.761
23.414
25.117
26.870
28.676
30.536
32.452
34.426
36.459
47.575
75.400
112.794
4%
1.000
2.040
3.122
4.246
5.416
6.633
7.898
9.214
10.583
12.006
13.486
15.026
16.627
18.292
20.023
21.824
23.697
25.645
27.671
29.778
31.969
34.248
36.618
39.082
41.645
56.084
95.024
152.664
5%
1.000
2.050
3.152
4.310
5.526
6.802
8.142
9.549
11.027
12.578
14.207
15.917
17.713
19.598
21.578
23.657
25.840
28.132
30.539
33.066
35.719
38.505
41.430
44.501
47.726
66.438
120.797
209.341
6%
1.000
2.060
3.184
4.375
5.637
6.975
8.394
9.897
11.491
13.181
14.972
16.870
18.882
21.015
23.276
25.672
28.213
30.905
33.760
36.785
39.992
43.392
46.995
50.815
54.864
79.057
154.758
290.325
7%
1.000
2.070
3.215
4.440
5.751
7.153
8.654
10.260
11.978
13.816
15.784
17.888
20.141
22.550
25.129
27.888
30.840
33.999
37.379
40.995
44.865
49.005
53.435
58.176
63.248
94.459
199.630
406.516
8%
1.000
2.080
3.246
4.506
5.867
7.336
8.923
10.637
12.488
14.487
16.645
18.977
21.495
24.215
27.152
30.324
33.750
37.450
41.446
45.762
50.422
55.456
60.893
66.764
73.105
113.282
295.052
573.756
9%
1.000
2.090
3.278
4.573
5.985
7.523
9.200
11.028
13.021
15.193
17.560
20.141
22.953
26.019
29.361
33.003
36.973
41.301
46.018
51.159
56.764
62.872
69.531
76.789
84.699
136.305
337.872
815.051
10%
1.000
2.100
3.310
4.641
6.105
7.716
9.487
11.436
13.579
15.937
18.531
21.384
24.523
27.975
31.772
35.949
40.544
45.599
51.158
57.274
64.002
71.402
79.542
88.496
98.346
164.491
442.580
1163.865
n
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
11%
1.000
2.110
3.342
4.710
6.228
7.913
9.783
11.859
14.164
16.722
19.561
22.713
26.211
30.095
34.405
39.190
44.500
50.396
56.939
64.202
72.264
81.213
91.147
102.173
12%
1.000
2.120
3.374
4.779
6.353
8.115
10.089
12.300
14.776
17.549
20.655
24.133
28.029
32.392
37.280
42.753
48.883
55.749
64.439
72.052
81.698
92.502
104.602
118.154
13%
1.000
2.130
3.407
4.850
6.480
8.323
10.405
12.757
15.416
18.420
21.814
25.650
29.984
34.882
40.417
46.671
53.738
61.724
70.748
80.946
92.468
105.489
120.203
136.829
14%
1.000
2.140
3.440
4.921
6.610
8.535
10.730
13.233
16.085
19.337
23.044
27.271
32.088
37.581
43.842
50.980
59.117
68.393
78.968
91.024
104.767
120.434
138.295
158.656
15%
1.000
2.150
3.472
4.993
6.742
8.754
11.067
13.727
16.786
20.304
24.349
29.001
34.352
40.504
47.580
55.717
65.075
75.836
88.211
102.443
118.809
137.630
159.274
184.166
16%
1.000
2.160
3.506
5.066
6.877
8.977
11.414
14.240
17.518
21.321
25.733
30.850
36.786
43.672
51.659
60.925
71.673
84.140
98.603
115.379
134.840
157.414
183.600
213.976
17%
1.000
2.170
3.539
5.141
7.014
9.207
11.772
14.773
18.285
22.393
27.200
32.824
39.404
47.102
56.109
66.648
78.978
93.404
110.283
130.031
153.136
180.169
211.798
248.803
18%
1.000
2.180
3.572
5.215
7.154
9.442
12.141
15.327
19.086
23.521
28.755
34.931
42.218
50.818
60.965
72.938
87.067
103.739
123.412
146.626
174.019
206.342
244.483
289.490
19%
1.000
2.190
3.606
5.291
7.297
9.683
12.523
15.902
19.923
24.709
30.403
37.180
45.244
54.841
66.260
79.850
96.021
115.265
138.165
165.417
197.846
236.436
282.359
337.007
20%
1.000
2.200
3.640
5.368
7.442
9.930
12.916
16.499
20.799
25.959
32.150
39.580
48.496
59.196
72.035
87.442
105.930
128.116
154.739
186.687
225.024
271.028
326.234
392.480
Appendix D
13
998666 KEOWN APP. D pp013-014
10.23.03
12:06 PM
Page 14
Sum of an Annuity of $1 for n Periods (continued)

25
30
40
50
114.412
199.018
581.812
1668.723
133.333
241.330
767.080
2399.975
155.616
293.192
1013.667
3459.344
181.867
356.778
1341.979
4994.301
212.790
434.738
1779.048
7217.488
249.212
530.306
2360.724
10435.449
292.099
647.423
3134.412
15088.805
342.598
790.932
4163.094
21812.273
402.038
966.698
5529.711
31514.492
471.976
1181.865
7343.715
45496.094
n
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
30
40
21%
1.000
2.210
3.674
5.446
7.589
10.183
13.321
17.119
21.714
27.274
34.001
42.141
51.991
63.909
78.330
95.779
116.892
142.439
173.351
210.755
256.013
310.775
377.038
457.215
554.230
1445.111
9749.141
22%
1.000
2.220
3.708
5.524
7.740
10.442
13.740
17.762
22.670
28.657
35.962
44.873
55.745
69.009
85.191
104.933
129.019
158.403
194.251
237.986
291.343
356.438
435.854
532.741
650.944
1767.044
12936.141
23%
1.000
2.230
3.743
5.604
7.893
10.708
14.171
18.430
23.669
30.113
38.039
47.787
59.778
74.528
92.669
114.983
142.428
176.187
217.710
268.783
331.603
408.871
503.911
620.810
764.596
2160.459
17153.691
24%
1.000
2.240
3.778
5.684
8.048
10.980
14.615
19.123
24.712
31.643
40.238
50.895
64.109
80.496
100.815
126.010
157.252
195.993
244.031
303.598
377.461
469.052
582.624
723.453
898.082
2640.881
22728.367
25%
1.000
2.250
3.813
5.766
8.207
11.259
15.073
19.842
25.802
33.253
42.566
54.208
68.760
86.949
109.687
138.109
173.636
218.045
273.556
342.945
429.681
538.101
673.626
843.032
1054.791
3227.172
30088.621
26%
1.000
2.260
3.848
5.848
8.368
11.544
15.546
20.588
26.940
34.945
45.030
57.738
73.750
93.925
119.346
151.375
191.733
242.583
306.654
387.384
489.104
617.270
778.760
982.237
1238.617
3941.953
39791.957
27%
1.000
2.270
3.883
5.931
8.533
11.837
16.032
21.361
28.129
36.723
47.639
61.501
79.106
101.465
129.860
165.922
211.721
269.885
343.754
437.568
556.710
708.022
990.187
1144.237
1454.180
4812.891
52570.707
28%
1.000
2.280
3.918
6.016
8.700
12.136
16.534
22.163
29.369
38.592
50.398
65.510
84.853
109.611
141.302
181.867
233.790
300.250
385.321
494.210
633.589
811.993
1040.351
1332.649
1706.790
5873.172
69376.562
29%
1.000
2.290
3.954
6.101
8.870
12.442
17.051
22.995
30.664
40.556
53.318
69.780
91.016
118.411
153.750
199.337
258.145
334.006
431.868
558.110
720.962
931.040
1202.042
1551.634
2002.608
7162.785
91447.375
30%
1.000
2.300
3.990
6.187
9.043
12.756
17.583
23.858
32.015
42.619
56.405
74.326
97.624
127.912
167.285
218.470
285.011
371.514
483.968
630.157
820.204
1067.265
1388.443
1805.975
2348.765
8729.805
120389.375
n
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
30
31%
1.000
2.310
4.026
6.274
9.219
13.077
18.131
24.752
33.425
44.786
59.670
79.167
104.709
138.169
182.001
239.421
314.642
413.180
542.266
711.368
932.891
1223.087
1603.243
2101.247
2753.631
10632.543
32%
1.000
2.320
4.062
6.362
9.398
13.406
18.696
25.678
34.895
47.062
63.121
84.320
112.302
149.239
197.996
262.354
347.307
459.445
607.467
802.856
1060.769
1401.215
1850.603
2443.795
3226.808
12940.672
33%
1.000
2.330
4.099
6.452
9.581
13.742
19.277
26.638
36.429
49.451
66.769
89.803
120.438
161.183
215.373
287.446
383.303
510.792
680.354
905.870
1205.807
1604.724
2135.282
2840.924
3779.428
15737.945
34%
1.000
2.340
4.136
6.542
9.766
14.086
19.876
27.633
38.028
51.958
70.624
95.636
129.152
174.063
234.245
314.888
422.949
567.751
761.786
1021.792
1370.201
1837.068
2462.669
3300.974
4424.301
19124.434
35%
1.000
2.350
4.172
6.633
9.954
14.438
20.492
28.664
39.696
54.590
74.696
101.840
138.484
187.953
254.737
344.895
466.608
630.920
852.741
1152.200
1556.470
2102.234
2839.014
3833.667
5176.445
23221.258
36%
1.000
2.360
4.210
6.725
10.146
14.799
21.126
29.732
41.435
57.351
78.998
108.437
148.474
202.925
276.978
377.690
514.658
700.935
954.271
1298.809
1767.380
2404.636
3271.304
4449.969
6052.957
28172.016
37%
1.000
2.370
4.247
6.818
10.341
15.167
21.779
30.837
43.247
60.248
83.540
115.450
159.166
219.058
301.109
413.520
567.521
778.504
1067.551
1463.544
2006.055
2749.294
3767.532
5162.516
7073.645
34148.906
38%
1.000
2.380
4.284
6.912
10.539
15.544
22.451
31.982
45.135
63.287
88.335
122.903
170.606
236.435
327.281
452.647
625.652
864.399
1193.870
1648.539
2275.982
3141.852
4336.750
5985.711
8261.273
41357.227
39%
1.000
2.390
4.322
7.008
10.741
15.930
23.142
33.167
47.103
66.473
93.397
130.822
182.842
255.151
355.659
495.366
689.558
959.485
1334.683
1856.208
2581.128
3588.765
4989.379
6936.230
9642.352
50043.625
40%
1.000
2.400
4.360
7.104
10.946
16.324
23.853
34.395
49.152
69.813
98.739
139.234
195.928
275.299
386.418
541.985
759.778
1064.689
1491.563
2089.188
2925.862
4097.203
5737.078
8032.906
11247.062
60500.207
14
Appendix D
998666 KEOWN APP. E pp015-016
10.23.03
12:57 PM
Page 15
Appendix E
Present Value of an Annuity of $1 for n Periods

n
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
30
40
50
1%
.990
1.970
2.941
3.902
4.853
5.795
6.728
7.652
8.566
9.471
10.368
11.255
12.134
13.004
13.865
14.718
15.562
16.398
17.226
18.046
18.857
19.661
20.456
21.244
22.023
25.808
32.835
39.197
2%
.980
1.942
2.884
3.808
4.713
5.601
6.472
7.326
8.162
8.983
9.787
10.575
11.348
12.106
12.849
13.578
14.292
14.992
15.679
16.352
17.011
17.658
18.292
18.914
19.524
22.397
27.356
31.424
3%
.971
1.913
2.829
3.717
4.580
5.417
6.230
7.020
7.786
8.530
9.253
9.954
10.635
11.296
11.938
12.561
13.166
13.754
14.324
14.878
15.415
15.937
16.444
16.936
17.413
19.601
23.115
25.730
4%
.962
1.886
2.775
3.630
4.452
5.242
6.002
6.733
7.435
8.111
8.760
9.385
9.986
10.563
11.118
11.652
12.166
12.659
13.134
13.590
14.029
14.451
14.857
15.247
15.622
17.292
19.793
21.482
5%
.952
1.859
2.723
3.546
4.329
5.076
5.786
6.463
7.108
7.722
8.306
8.863
9.394
9.899
10.380
10.838
11.274
11.690
12.085
12.462
12.821
13.163
13.489
13.799
14.094
15.373
17.159
18.256
6%
.943
1.833
2.673
3.465
4.212
4.917
5.582
6.210
6.802
7.360
7.887
8.384
8.853
9.295
9.712
10.106
10.477
10.828
11.158
11.470
11.764
12.042
12.303
12.550
12.783
13.765
15.046
15.762
7%
.935
1.808
2.624
3.387
4.100
4.767
5.389
5.971
6.515
7.024
7.499
7.943
8.358
8.746
9.108
9.447
9.763
10.059
10.336
10.594
10.836
11.061
11.272
11.469
11.654
12.409
13.332
13.801
8%
.926
1.3783
2.577
3.312
3.993
5.623
5.206
5.747
6.247
6.710
7.139
7.536
7.904
8.244
8.560
8.851
9.122
9.372
9.604
9.818
10.017
10.201
10.371
10.529
10.675
11.258
11.925
12.234
9%
.917
1.759
2.531
3.240
3.890
4.486
5.033
5.535
5.995
6.418
6.805
7.161
7.487
7.786
8.061
8.313
8.544
8.756
8.950
9.129
9.292
9.442
9.580
9.707
9.823
10.274
10.757
10.962
10%
.909
1.736
2.487
3.170
3.791
4.355
4.868
5.335
5.759
6.145
6.495
6.814
7.103
7.367
7.606
7.824
8.022
8.201
8.365
8.514
8.649
8.772
8.883
8.985
9.077
9.427
9.779
9.915
n
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
11%
.901
1.713
2.444
3.102
3.696
4.231
4.712
5.146
5.537
5.889
6.207
6.492
6.750
6.982
7.191
7.379
7.549
7.702
7.839
7.963
8.075
8.176
8.266
8.348
12%
.893
1.690
2.402
3.037
3.605
4.111
4.564
4.968
5.328
5.650
5.938
6.194
6.424
6.628
6.811
6.974
7.120
7.250
7.366
7.469
7.562
7.645
7.718
7.784
13%
.885
1.668
2.361
2.974
3.517
3.998
4.423
4.799
5.132
5.246
5.687
5.918
6.122
6.303
6.462
6.604
6.729
6.840
6.938
7.025
7.102
7.170
7.230
7.283
14%
.877
1.647
2.322
2.914
3.433
3.889
4.288
4.639
4.946
5.216
5.453
5.660
5.842
6.002
6.142
6.265
6.373
6.467
6.550
6.623
6.687
6.743
6.792
6.835
15%
.870
1.626
2.283
2.855
3.352
3.784
4.160
4.487
4.772
5.019
5.234
5.421
5.583
5.724
5.847
5.954
6.047
6.128
6.198
6.259
6.312
6.359
6.399
6.434
16%
.862
1.605
2.246
2.798
3.274
3.685
4.039
4.344
4.607
4.833
5.029
5.197
5.342
5.468
5.575
5.669
5.749
5.818
5.877
5.929
5.973
6.011
6.044
6.073
17%
.855
1.585
2.210
2.743
3.199
3.589
3.922
4.207
4.451
4.659
4.836
4.988
5.118
5.229
5.324
5.405
5.475
5.534
5.585
5.628
5.665
5.696
5.723
5.747
18%
.847
1.566
2.174
2.690
3.127
3.498
3.812
4.078
4.303
4.494
4.656
4.793
4.910
5.008
5.092
5.162
5.222
5.273
5.316
5.353
5.384
5.410
5.432
5.451
19%
.840
1.547
2.140
2.639
3.058
3.410
3.706
3.954
4.163
4.339
4.487
4.611
4.715
4.802
4.876
4.938
4.990
5.033
5.070
5.101
5.127
5.149
5.167
5.182
20%
.833
1.528
2.106
2.589
2.991
3.326
3.605
3.837
4.031
4.192
4.327
4.439
4.533
4.611
4.675
4.730
4.775
4.812
4.843
4.870
4.891
4.909
4.925
4.937
Appendix E
15
998666 KEOWN APP. E pp015-016
10.23.03
12:57 PM
Page 16
Present Value of an Annuity of $1 for n Periods (continued )

25
30
40
50
8.422
8.694
8.951
9.042
7.843
8.055
8.244
8.305
7.330
7.496
7.634
7.675
6.873
7.003
7.105
7.133
6.464
6.566
6.642
6.661
6.097
6.177
6.233
6.246
5.766
5.829
5.871
5.880
5.467
5.517
5.548
5.554
5.195
5.235
5.258
5.262
4.948
4.979
4.997
4.999
n
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
30
40
50
21%
.826
1.509
2.074
2.540
2.926
3.245
3.508
3.726
3.905
4.054
4.177
4.278
4.362
4.432
4.489
4.536
4.576
4.608
4.635
4.657
4.675
4.690
4.703
4.713
4.721
4.746
4.760
4.762
22%
.820
1.492
2.042
2.494
2.864
3.167
3.416
3.619
3.786
3.923
4.035
4.127
4.203
4.265
4.315
4.357
4.391
4.419
4.442
4.460
4.476
4.488
4.499
4.507
4.514
4.534
4.544
4.545
23%
.813
1.474
2.011
2.448
2.803
3.092
3.327
3.518
3.673
3.799
3.902
3.985
4.053
4.108
4.153
4.189
4.219
4.243
4.263
4.279
4.292
4.302
4.311
4.318
4.323
4.339
4.347
4.348
24%
.806
1.457
1.981
2.404
2.745
3.020
3.242
3.421
3.566
3.682
3.776
3.851
3.912
3.962
4.001
4.003
4.059
4.080
4.097
4.110
4.121
4.130
4.137
4.143
4.147
4.160
4.166
4.167
25%
.800
1.440
1.952
2.362
2.689
2.951
3.161
3.329
3.463
3.570
3.656
3.725
3.780
3.824
3.859
3.887
3.910
3.928
3.942
3.954
3.963
3.970
3.976
3.981
3.985
3.995
3.999
4.000
26%
.794
1.424
1.923
2.320
2.635
2.885
3.083
3.241
3.366
3.465
3.544
3.606
3.656
3.695
3.726
3.751
3.771
3.786
3.799
3.808
3.816
3.822
3.827
3.831
3.834
3.842
3.846
3.846
27%
.787
1.407
1.896
2.280
2.583
2.821
3.009
3.156
3.273
3.364
3.437
3.493
3.538
3.573
3.601
3.623
3.640
3.654
3.664
3.673
3.679
3.684
3.689
3.692
3.694
3.701
3.703
3.704
28%
.781
1.392
1.868
2.241
2.532
2.759
2.937
3.076
3.184
3.269
3.335
3.387
3.427
3.459
3.483
3.503
3.518
3.529
3.539
3.546
3.551
3.556
3.559
3.562
3.564
3.569
3.571
3.571
29%
.775
1.376
1.842
2.203
2.483
2.700
2.868
2.999
3.100
3.178
3.329
3.286
3.322
3.351
3.373
3.390
3.403
3.413
3.421
3.427
3.432
3.436
3.438
3.441
3.442
3.447
3.448
3.448
30%
.769
1.361
1.816
2.166
2.436
2.643
2.802
2.925
3.019
3.092
3.147
3.190
3.223
3.249
3.268
3.283
3.295
3.304
3.311
3.316
3.320
3.323
3.325
3.327
3.329
3.332
3.333
3.333
n
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
30
40
50
31%
.763
1.346
1.791
2.130
2.390
2.588
2.739
2.854
2.942
3.009
3.060
3.100
3.129
3.152
3.170
3.183
3.193
3.201
3.207
3.211
3.215
3.217
3.219
3.221
3.222
3.225
3.226
3.226
32%
.758
1.331
1.766
2.096
2.345
2.534
2.677
2.786
2.868
2.930
2.978
3.013
3.040
3.061
3.076
3.088
3.097
3.104
3.109
3.113
3.116
3.118
3.120
3.121
3.122
2.124
2.125
2.125
33%
.752
1.317
1.742
2.062
2.302
2.483
2.619
2.721
2.798
2.855
2.899
2.931
2.956
2.974
2.988
2.999
3.007
3.012
3.017
3.020
3.023
3.025
3.026
3.027
3.028
3.030
3.030
3.030
34%
.746
1.303
1.719
2.029
2.260
2.433
2.562
2.658
2.730
2.784
2.824
2.853
2.876
2.892
2.905
2.914
2.921
2.926
2.930
2.933
2.935
2.936
2.938
2.939
2.939
2.941
2.941
2.941
35%
.741
1.289
1.696
1.997
2.220
2.385
2.508
2.598
2.665
2.715
2.752
2.779
2.799
2.814
2.825
2.834
2.840
2.844
2.848
2.850
2.852
2.853
2.854
2.855
2.856
2.857
2.857
2.857
36%
.735
1.276
1.673
1.966
2.181
2.339
2.455
2.540
2.603
2.649
2.683
2.708
2.727
2.740
2.750
2.757
2.763
2.767
2.770
2.772
2.773
2.775
2.775
2.776
2.776
2.777
2.778
2.778
37%
.730
1.263
1.652
1.935
2.143
2.294
2.404
2.485
2.544
2.587
2.618
2.641
2.658
2.670
2.679
2.685
2.690
2.693
2.696
2.698
2.699
2.700
2.701
2.701
2.702
2.702
2.703
2.703
38%
.725
1.250
1.630
1.906
2.106
2.251
2.355
2.432
2.487
2.527
2.555
2.576
2.592
2.603
2.611
2.616
2.621
2.624
2.626
2.627
2.629
2.629
2.630
2.630
2.631
2.631
2.632
2.632
39%
.719
1.237
1.609
1.877
2.070
2.209
2.308
2.380
2.432
2.469
2.496
2.515
2.529
2.539
2.546
2.551
2.555
2.557
2.559
2.561
2.562
2.562
2.563
2.563
2.563
2.564
2.564
2.564
40%
.714
1.224
1.589
1.849
2.035
2.168
2.263
2.331
2.379
2.414
2.438
2.456
2.469
2.477
2.484
2.489
2.492
2.494
2.496
2.497
2.498
2.498
2.499
2.499
2.499
2.500
2.500
2.500
16
Appendix E
998666 KEOWN APP. F pp017-020
10.23.03
12:01 PM
Page 17
Appendix F
Check Figures for Selected End-of-Chapter Study Problems

CHAPTER 1
1-1.
Taxable income = $526,800

Tax liability = $179,112
1-3. Taxable income = $365,000
1-5. Taxable income = ($38,000)
Tax liability = $0
1-11. Taxable income = $1,813,000
4-7.
2-2.
2-4.
2-5.
5-1.
Inferred real rate on Treasury bills: 1.56%

Inferred real rate on Treasury bonds: 4.55%
11.28%
12.35%
a. The logic here is based on the expectations theory of the term
structure of interest rates.
5-2.
5-3.
5-4.
5-5.
5-6.
5-7.
CHAPTER 3
3-1.
3-3.
3-5.
3-7.
$120,650
No numerical solution
Free cash flow ($8)
Free cash flow $53,800
5-9.
5-11.
CHAPTER 4
4-1.
4-3.
4-5.
$500,000
a. Total assets turnover = 2
b. Sales = $17.5m
Percentage increase = 75%
c. For last year, OIROI = 20%
Projected OIROI = 35%
RATIO
Current ratio
Acid-test (quick) ratio
Average collection period
Inventory turnover
Operating income
return on investment
Operating profit margin
Total asset turnover
Inventory turnover
Fixed asset turnover
34.6%
5.63x
10.5%
= 1.84
= .72
= .55
=8
= 5.48
= 2.22
= 23.4%
CHAPTER 5
CHAPTER 2
2-1.
Debt ratio
Times interest earned
Return on common equity
a. Current ratio
Acid-test ratio
Debt ratio
Times interest earned
Inventory turnover
Fixed asset turnover
Return on equity
2000
4.0x
1.92x
107 days
1.36x
13.8%
24.8%
.56x
1.36x
1.04x
5-13.
5-15.
5-17.
5-21.
5-24.
5-26.
5-27.
5-30.
5-33.
a.
c.
a.
b.
c.
b.
a.
c.
c.
a.
$12,970
$3,019.40
n = 15 years
5%
9%
PV = $235.20
$6,289
$302.89
$1,562.96
FV1 = $10,600
FV5 = $13,380
FV15 = $23,970
a. $6,690
b. Semiannual: $6,720
Bimonthly: $6,740
Year 1: 18,000 books
$6,108.11
8%
$658,197.85
b. $8,333.33
$6,509
22%
$6,934.81
a. $1,989.73
$15,912
CHAPTER 6
6-1.
6-3.
6-5.
k = 9.85%;
= 6.43%; = 2.54%
2
A: k = 16.7%; = 102.5%; = 10.12%
B: k = 9.2%; 2 = 12.76%; = 3.57%
The beta is approximately 0.5.
Appendix F
17
998666 KEOWN APP. F pp017-020
10.23.03
12:01 PM
Page 18
6-7. 10.94%
6-9. a. Jazmon: For time = 4, 30%; Solomon for time = 3, 14.29%
6-11. a. 15.8%
b. 0.95
CHAPTER 7
7-1.
7-3.
7-5.
7-7.
7-9.
$779
4.79% semiannually
9.8% compounded annually
5.28%
a. $863.78
b. Market value $707.63 when required rate of return is 15%
Market value $1,171.19 when required rate of return is 8%
$513
CHAPTER 8
$116.67
a. 8.5%
b. $42.50
8-5. a. 18.9%
b. $28.57
8-7. 7.2%
8-9. $39.96
8-11. a. 10.91%
b. $36
8-13. $50
CHAPTER 11
11-1. a. kd (1 t) = 6.53%
b. knc = 14.37%
c. kc = 15.14%
d. kp = 8.77%
e. kd (1 t) = 7.92%
11-3. knc = 12.06%
11-5. kp = 9.23%
11-7. kp = 14.29%
11-9. a. kc = 17.59%
b. knc = 18.25%
11-11. P0 = $935.82
NP0 = $837.56
Number of bonds = 597
kd (1 t) = 7.08%
11-13. a.
Incentive Compensation
80%
8-1.
8-3.
CHAPTER 9
9-1.
9-3.
9-5.
9-7.
a.
b.
a.
a.
a.
9-11. a.
b.
c.
9-13. a.
b.
c.
IRR = 7%
IRR = 17%
IRR = approximately 19%
payback period = 4 years
Project A:
Payback period = 2.5 years
NPVA = $136.30
NPVB = $455
PIA = 1.2726
PIB = 1.09
IRRA = 40%
IRRB = 20%
Payback A = 1.589 years
Payback B = 3.019 years
NPVA = $8,743
NPVB = $11,615
IRRA = 40%
IRRB = 30%
CHAPTER 10
10-1. a.
b.
c.
d.
10-3. a.
b.
10-5. a.
b.
10-7. d.
18
$6,800
$3,400
No taxes
$1,020
2.75 years
$10,628.16
$560,000
Cash Flow AFTER TAX= $116,170
NPVa = $8025
NPVb = $10,112
Appendix F
100%
120%
CEO $540,000 $675,000 $810,000

60%
150%
b. CEO $405,000 $1,012,500
CHAPTER 12
12-1. a.
b.
c.
12-3. a.
b.
c.
d.
e.
12-5. a.
b.
12-7. a.
12-8. a.
b.
c.
d.
12-11. a.
b.
d.
1.67 times
1.11 times
1.85 times
1.67 times
1.11 times
1.85 times
$18,326,693.23
(25%) (1.85) = 46.25%
F = $780,000
SB = $1,560,000
P = $6.875 (selling price per unit)
1,200 units
$600,000
$1.316 times
26.32%
EBIT = $2,000,000
EPS will be $1.00 for each plan
Plan B
CHAPTER 13
13-1. 95,238 shares; $11,428,560
13-3. Value before and after dividend: $275
13-5. a. Year
Dividend
1
$0.70
3
$0.93
b. Target dividend: $0.90
13-7. 163,743 shares; $15,555,556
CHAPTER 14
14-1. Rate = 13.79%
14-3. a. Rate = 36.73%
b. Rate = 74.23%
14-7. a. Rate = 16.27%
14-11. a. APR = 10%
b. APR = 11.76%
c. APR = 12.5%
998666 KEOWN APP. F pp017-020
10.23.03
12:01 PM
Page 19
CHAPTER 15
15-1. a. $8,437
b. $9,368
c. $25,695
15-3. Canada; 1.1853; 1.1881; 1.1912
Japan: 213.4927; 211.9992; 209.1613
Switzerland: 1.9459; 1.9346; 1.8815
15-5. Net gain = $149.02
Appendix F
19
998666 KEOWN APP. F pp017-020
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Page 20
998666 KEOWN GLOSSARY pp021-030
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Glossary
Accelerated Depreciation Techniques. Techniques that allow the

owner of the asset to take greater amounts of depreciation
during the early years of its life, thereby deferring some of
the taxes until later years.
Accounts-Receivable Turnover Ratio. A ratio, credit sales divided
by accounts receivable, that expresses how often accounts
receivable are rolled over during a year.
Accrual Method. A method of accounting whereby income is
recorded when earned, whether or not the money has been
received at that time, and expenses are recorded when
incurred, whether or not any money has actually been paid
out.
Acid-Test Ratio. (Current assets inventories) current liabilities. This ratio is a more stringent measure of liquidity than
the current ratio in that it subtracts inventories (the least liquid current asset) from current assets.
Acquisition. A combination of two or more businesses into a single operational entity.
Agency Costs. The costs, such as a reduced stock price, associated with potential conflict between managers and investors
when these two groups are not the same.
Agency Problem. Problems and conflicts resulting from the separation of the management and ownership of the firm.
Amortized Loans. Loans that are paid off in equal periodic payments.
Analytical Income Statement. A financial statement used by internal analysts that differs in composition from audited or published financial statements.
Annuity. A series of equal dollar payments for a specified number
of years.
Annuity Due. An annuity in which the payments occur at the
beginning of each period.
Anticipatory Buying. Buying in anticipation of a price increase to
secure goods at a lower cost.
Arbitrage-Pricing Model. A theory that relates stock returns and
risk. The theory maintains that security returns vary from
their expected amounts when there are unanticipated changes
in basic economic forces. Such forces would include unexpected changes in industrial production, inflation rates, term
structure of interest rates, and the difference between interest
rates of high- and low-risk bonds.
Arbitrageur. A person involved in the process of buying and selling in more than one market to make riskless profits.
Arrearage. An overdue payment, generally referring to omitted
preferred stock dividends.
Asked Rate. The rate a bank or foreign exchange trader asks
the customer to pay in home currency for foreign currency
when the bank is selling and the customer is buying.
Asset Allocation. Identifying and selecting the asset classes appropriate for a specific investment portfolio and determining the
proportions of those assets within the portfolio.
Automated Depository Transfer Check (DTC) System. A cash
management tool that moves funds from local bank accounts
to concentration bank accounts electronically. This eliminates the mail float from the local bank to the concentration
bank.
Average Collection Period. Accounts receivable divided by
(annual credit sales divided by 365). A ratio that expresses
how rapidly the firm is collecting its credit accounts.
Balance Sheet. A basic accounting statement that represents the
financial position of a firm on a given date.
Balance-Sheet Leverage Ratios. Financial ratios used to measure
the extent of a firms use of borrowed funds, calculated using
information found in the firms balance sheet.
Bankers Acceptances. A draft (order to pay) drawn on a specific
bank by a seller of goods in order to obtain payment for
goods that have been shipped (sold) to a customer. The customer maintains an account with that specific bank.
Bank Wire. A private wire service used and supported by approximately 250 banks in the United States for transferring funds,
exchanging credit information, or effecting securities transactions.
Benefit-Cost Ratio. See Profitability Index.
Beta. The relationship between an investments returns and the
market returns. This is a measure of the investments nondiversifiable risk.
Bid-Ask Spread. The difference between the bid quote and ask
quote.
Bird-in-the-Hand Dividend Theory. The view that dividends are
more certain than capital gains.
Bond. A long-term (10-year or more) promissory note issued by
the borrower, promising to pay the owner of the security a
predetermined and fixed amount of interest each year.
Bond Par Value. The face value appearing on the bond, which is
to be returned to the bondholder at maturity.
Book Value. (1) The value of an asset as shown on the firms balance sheet. It represents the historical cost of the asset rather
than its current market value or replacement cost. (2) The
depreciated value of a companys assets (original cost less
accumulated depreciation) less the outstanding liabilities.
Book-Value Weights. The percentage of financing provided by
different capital sources as measured by their book values
from the companys balance sheet.
Break-even Analysis. An analytical technique used to determine
the quantity of output or sales that results in a zero level of
Glossary
21
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earnings before interest and taxes (EBIT). Relationships

among the firms cost structure, volume of output, and EBIT
are studied.
Business Risk. The relative dispersion or variability in the firms
expected earnings before interest and taxes (EBIT). The
nature of the firms operations causes its business risk. This
type of risk is affected by the firms cost structure, product
demand characteristics, and intra-industry competitive position. In capital structure theory, business risk is distinguished
from financial risk. Compare Financial Risk.
Buying Rate. The bid rate in a currency transaction.
Call Option. The right to purchase a given number of shares of
stock or some other asset at a specified price over a given
time period.
Call Premium. The difference between the call price and the
securitys par value.
Call Provision. A provision that entitles the corporation to repurchase its preferred stock from their investors at stated prices
over specified periods.
Capital Asset. All property used in conducting a business other
than assets held primarily for sale in the ordinary course of
business or depreciable and real property used in conducting
a business.
Capital Asset Pricing Model (CAPM). An equation stating that
the expected rate of return on a project is a function of
(1) the risk-free rate, (2) the investments systematic risk, and
(3) the expected risk premium for the market portfolio of all
risky securities.
Capital Budgeting. The decision-making process with respect to
investment in fixed assets. Specifically, it involves measuring
the incremental cash flows associated with investment proposals and evaluating those proposed investments.
Capital Gain or Loss. As defined by the revenue code, a gain or
loss resulting from the sale or exchange of a capital asset.
Capital Market. All institutions and procedures that facilitate
transactions in long-term financial instruments.
Capital Rationing. The placing of a limit by the firm on the dollar size of the capital budget.
Capital Structure. The mix of long-term sources of funds used by
the firm. This is also called the firms capitalization. The relative total (percentage) of each type of fund is emphasized.
Cash. Currency and coins plus demand deposit accounts.
Cash Break-even Analysis. Another version of break-even analysis that includes only the cash costs of production within the
cost components. This means noncash expenses, like depreciation, are omitted in the analysis.
Cash Budget. A detailed plan of future cash flows. This budget is
composed of four elements: cash receipts, cash disbursements, net change in cash for the period, and new financing
needed.
Cash Flow Process. The process of cash generation and disposition in a typical business setting.
Cash Flow Statement. An accounting statement that computes
the firms cash inflows and outflows for a given time period.
Cash Flows from Investment Activities. Cash flows that include
the purchase of fixed assets and other assets.
Cash Flows from Financing Activities. Cash flows that include
proceeds from long-term debt or issuing common stock, and
payments made for stock dividends.
Cash Flows from Operations. Cash flows that consist of (1) collections from customers; (2) payments to suppliers for the
purchase of materials; (3) other operating cash flows such as
22
Glossary
marketing and administrative expenses and interest payments; (4) and cash tax payments.
Certainty Equivalents. The amount of cash a person would
require with certainty to make him or her indifferent between
this certain sum and a particular risky or uncertain sum.
Characteristic Line. The line of best fit through a series of
returns for a firms stock relative to the market returns. The
slope of the line, frequently called beta, represents the average movement of the firms stock returns in response to a
movement in the markets returns.
Chattel Mortgage Agreement. A loan agreement in which the
lender can increase his or her security interest by having specific items of inventory identified in the loan agreement. The
borrower retains title to the inventory but cannot sell the
items without the lenders consent.
Clientele Effect. The belief that individuals and institutions that
need current income will invest in companies that have high
dividend payouts. Other investors prefer to avoid taxes by
holding securities that offer only small dividend income but
large capital gains. Thus, we have a clientele of investors.
Commercial Paper. Short-term unsecured promissory notes sold
by large businesses in order to raise cash. Unlike most other
money-market instruments, commercial paper has no developed secondary market.
Common Stock. Shares that represent the ownership in a corporation.
Company-Unique Risk. See Unsystematic Risk.
Compensating Balance. A balance of a given amount that the
firm maintains in its demand deposit account. It may be
required by either a formal or informal agreement with the
firms commercial bank. Such balances are usually required
by the bank (1) on the unused portion of a loan commitment,
(2) on the unpaid portion of an outstanding loan, or (3) in
exchange for certain services provided by the bank, such as
check-clearing or credit information. These balances raise the
effective rate of interest paid on borrowed funds.
Compound Annuity. Depositing an equal sum of money at the
end of each year for a certain number of years and allowing
it to grow.
Compound Interest. The situation in which interest paid on the
investment during the first period is added to the principal
and, during the second period, interest is earned on the original principal plus the interest earned during the first period.
Compounding. The process of determining the future value of a
payment or series of payments when applying the concept of
compound interest.
Concentration Bank. A bank where a firm maintains a major disbursing account.
Concentration Banking. The selection of a few major banks
where the firm maintains significant disbursing accounts.
Constant Dividend Payout Ratio. A dividend payment policy in
which the percentage of earnings paid out in dividends is
held constant. The dollar amount fluctuates from year to
year as profits vary.
Contractual Interest Rate. The interest rate to be paid on a bond
expressed as a percent of par value.
Contribution Margin. The difference between a products selling
price and its unit variable costs. It is usually measured on a
per unit basis.
Contribution-to-Firm Risk. The amount of risk that a project
contributes to the firm as a whole. This measure considers
the fact that some of the projects risk will be diversified
away as the project is combined with the firms other projects
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and assets, but ignores the effects of diversification of the

firms shareholders.
Convertible Debt. A hybrid security that combines debt or preferred stock with an option on the firms common stock.
Convertible Preferred Stock. Stock that allows the stockholder to
convert the preferred stock into a predetermined number of
shares of common stock, if he or she so chooses.
Convertible Security. Preferred stock or debentures that can be
exchanged for a specified number of shares of common stock
at the will of the owner.
Corporate Bylaws. Regulations that govern the internal affairs of
the corporation, designating such items as the time and place
of the shareholders meetings, voting rights, the election
process for selecting members of the board of directors, the
procedures for issuing and transferring stock certificates, and
the policies relating to the corporate records.
Corporation. An entity that legally functions separate and apart
from its owners.
Cost of Capital. See Weighted Cost of Capital.
Cost of Common Stock. The rate of return a firm must earn in
order for the common stockholders to receive their required
rate of return. The rate is based on the opportunity cost of
funds for the common stockholders in the capital markets.
Cost of Debt. The rate that has to be received from an investment
in order to achieve the required rate of return for the creditors. The cost is based on the debtholders opportunity cost
of debt in the capital markets.
Cost of Preferred Stock. The rate of return that must be earned
on the preferred stockholders investment to satisfy their
required rate of return. The cost is based on the preferred
stockholders opportunity cost of preferred stock in the capital markets.
Cost-Volume-Profit Analysis. Another way of referring to ordinary breakeven analysis.
Coupon Interest Rate. The interest to be paid annually on a bond
as a percent of par value, which is specified in the contractual
agreement.
Coverage Ratios. A group of ratios that measure a firms ability
to meet its recurring fixed-charge obligations, such as interest
on long-term debt, lease payments, and/or preferred stock
dividends.
Covered Interest Arbitrage. Arbitrage designed to eliminate differentials across currency and interest rate markets.
Credit Scoring. The numerical evaluation of credit applicants where
the score is evaluated relative to a predetermined standard.
Cross Rate. The computation of an exchange rate for a currency
from the exchange rates of two other currencies.
Cumulative Feature. A requirement that all past unpaid preferred
stock dividends be paid before any common stock dividends
are declared.
Cumulative Voting. Voting in which each share of stock allows
the shareholder a number of votes equal to the number of
directors being elected. The shareholder can then cast all of
his or her votes for a single candidate or split them among
the various candidates.
Current Assets. Assets consisting primarily of cash, marketable
securities, accounts receivable, inventories, and prepaid
expenses.
Current Ratio. Current assets divided by current liabilities. A
ratio that indicates a firms degree of liquidity by comparing
its current assets to its current liabilities.
Current Yield. The ratio of the annual interest payment to the
bonds market price.
Date of Record. Date at which the stock transfer books are to be

closed for determining the investor to receive the next dividend payment. See Ex-Dividend Date.
Debenture. Any unsecured long-term debt.
Debt. Liabilities consisting of such sources as credit extended by
suppliers or a loan from a bank.
Debt Capacity. The maximum proportion of debt that the firm
can include in its capital structure and still maintain its lowest composite cost of capital.
Debt Ratio. Total liabilities divided by total assets. A ratio that
measures the extent to which a firm has been financed with
debt.
Declaration Date. The date upon which a dividend is formally
declared by the board of directors.
Default Risk. The uncertainty of expected returns from a security
attributable to possible changes in the financial capacity of
the security issuer to make future payments to the security
owner. Treasury securities are considered default-free.
Default risk is also referred to as financial risk in the context of marketable-securities management.
Degree of Combined Leverage. The percentage change in earnings per share caused by a percentage change in sales. It is the
product of the degree of operating leverage and the degree of
financial leverage.
Delivery-Time Stock. The inventory needed between the order
date and the receipt of the inventory ordered.
Depository Transfer Checks (DTCs). A means for moving funds
from local bank accounts to concentration bank accounts.
The depository transfer check itself is an unsigned, nonnegotiable instrument. It is payable only to the bank deposit for
credit to the firms specific account.
Depreciation. The means by which an assets value is expensed
over its useful life for federal income tax purposes.
Direct Costs. See Variable Costs.
Direct Method. A format used to measure cash flow from operations, by which the different cash outflows occurring in regular operations of a business are subtracted from the cash flow
collected from customers.
Direct Placement. See Private Placement.
Direct Quote. The exchange rate that indicates the number of
units of the home currency required to buy one unit of foreign currency.
Direct Sale. The sale of securities by the corporation to the
investing public without the services of an investmentbanking firm.
Direct Securities. The pure financial claims issued by economic
units to savers. These can later be transformed into indirect
securities.
Disbursing Float. Funds available in the companys bank account
until its payment check has cleared through the banking system.
Discount Bond. A bond that sells at a discount below par value.
Discounting. The inverse of compounding. This process is used to
determine the present value of a cash flow.
Discount Rate. The interest rate used in the discounting process.
Discretionary Financing. Sources of financing that require an
explicit decision on the part of the firms management every
time funds are raised. An example is a bank note which
requires that negotiations be undertaken and an agreement
signed setting forth the terms and conditions of the financing.
Diversifiable Risk. See Unsystematic Risk.
Dividend Payout Ratio. The amount of dividends relative to the
companys net income or earnings per share.
Glossary
23
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Dividend Yield. The dividend per share divided by the price of

the security.
Dunning Letters. Past-due letters sent out to delinquent accounts.
DuPont Analysis. A method used to evaluate a firms profitability
and return on equity.
Earnings Before Interest and Taxes (EBIT). Profits from sales
minus total operating expenses. Also called Operating
Income.
Earnings Before Taxes (EBT). Operating income minus interest
expense.
EBIT-EPS Indifference Point. The level of earnings before interest
and taxes (EBIT) that will equate earnings per share (EPS)
between two different financing plans.
Economic Failure. Situation in which a companys costs exceed
its revenues. Stated differently, the internal rates of return on
investments are less than the firms cost of capital.
Efficient Market. A market in which the values of securities at
any instant in time fully reflect all available information,
which results in the market value and the intrinsic value
being the same.
EPS. Typical financial notation for earnings per (common) share.
Equity. Stockholders investment in the firm and the cumulative
profits retained in the business up to the date of the balance
sheet.
Equivalent Annual Annuity (EAA). An annuity cash flow that
yields the same present value as the projects NPV. It is calculated by dividing the projects NPV by the appropriate PVIFAi,n.
Eurobond. A bond issued in a country different from the one in
whose currency the bond is denominated; for example, a
bond issued in Europe or Asia by an American company that
pays interest and principal to the lender in U.S. dollars.
Eurodollar Market. This is a banking market in U.S. dollars outside the United States. Large sums of U.S. dollars can be borrowed or invested in this unregulated financial market.
Similar external markets exist in Europe and Asia and for
other major currencies.
Exchange Rate. The price of a foreign currency stated in terms of
the domestic or home currency.
Exchange Rate Risk. The risk that tomorrows exchange rate will
differ from todays rate.
Ex-Dividend Date. The date upon which stock brokerage companies have uniformly decided to terminate the right of ownership to the dividend, which is two days prior to the date of
record.
Expectations Theory. The concept that, no matter what the decision area, how the market price responds to managements
actions is not determined entirely by the action itself; it is
also affected by investors expectations about the ultimate
decision to be made by management.
Expected Rate of Return. (1) The discount rate that equates the
present value of the future cash flows (interest and maturity
value) with the current market price of a bond. It is the rate
of return an investor will earn if the bond is held to maturity. (2) The rate of return the investor expects to receive on
an investment by paying the existing market price of the
security. (3) The arithmetic mean or average of all possible
outcomes where those outcomes are weighted by the probability that each will occur.
Ex-Rights Date. The date on or after which the stock sells without rights.
External Common Equity. A new issue of common stock.
24
Glossary
Factor. A firm that, in acquiring the receivables of other firms,

bears the risk of collection and, for a fee, services the
accounts.
Factoring Accounts Receivable. The outright sale of a firms
accounts receivable to another party (the factor) without
recourse. The factor, in turn, bears the risk of collection.
Fair Value. The present value of an assets expected future cash
flows.
Federal Agency Securities. Debt obligations of corporations and
agencies created to carry out the lending programs of the
U.S. government.
Federal Reserve System. The U.S. central banking system.
Field WarehouseFinancing Agreement. A security agreement in
which inventories pledged as collateral are physically separated from the firms other inventories and placed under the
control of a third-party field-warehousing firm.
Financial Analysis. The assessment of a firms financial condition
or well-being. Its objectives are to determine the firms financial strengths and to identify its weaknesses. The primary
tool of financial analysis is the financial ratio.
Financial Assets. Claims for future payment by one economic
unit upon another.
Financial Intermediaries. Major financial institutions, such as
commercial banks, savings and loan associations, credit
unions, life insurance companies, and mutual funds, that
assist the transfer of savings from economic units with excess
savings to those with a shortage of savings.
Financial Leverage. The use of securities bearing a fixed (limited)
rate of return to finance a portion of a firms assets. Financial
leverage can arise from the use of either debt or preferred
stock financing. The use of financial leverage exposes the
firm to financial risk.
Financial Markets. Institutions and procedures that facilitate
transactions in all types of financial claims (securities).
Financial Policy. The firms policies regarding the sources of
financing it plans to use and the particular mix (proportions)
in which they will be used.
Financial Ratios. Accounting data restated in relative terms to
identify some of the financial strengths and weaknesses of a
company.
Financial Risk. The added variability in earnings available to a
firms common shareholders, and the added chance of insolvency caused by the use of securities bearing a limited rate of
return in the firms financial structure. The use of financial
leverage gives rise to financial risk.
Financial Structure. The mix of all funds sources that appear on
the right-hand side of the balance sheet.
Financial Structure Design. The activity of seeking the proper
mixture of a firms short-term, long-term, and permanent
financing components to minimize the cost of raising a given
amount of funds.
Financing Costs. Cost incurred by a company that often include
interest expenses and preferred dividends.
Finished-Goods Inventory. Goods on which the production has
been completed but that are not yet sold.
Fixed-Asset Turnover. Sales divided by fixed assets. A ratio indicating how effectively a firm is using its fixed assets to generate sales.
Fixed Costs. Costs that do not vary in total dollar amount as
sales volume or quantity of output changes. Also called
Indirect Costs.
Fixed or Long-Term Assets. Assets comprising equipment, buildings, and land.
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Float. The length of time from when a check is written until the
actual recipient can draw upon or use the good funds.
Floating Lien Agreement. An agreement, generally associated
with a loan, whereby the borrower gives the lender a lien
against all its inventory.
Floating Rate International Currency System. An international
currency system in which exchange rates between different
national currencies are allowed to fluctuate with supply and
demand conditions. This contrasts with a fixed rate system in
which exchange rates are pegged for extended periods of
time and adjusted infrequently.
Flotation Costs. The transaction cost incurred when a firm raises
funds by issuing a particular type of security.
Foreign Direct Investment. Physical assets, such as plant and
equipment, acquired outside a corporations home country
but operated and controlled by that corporation.
Formal Control. Control vested in the stockholders having the
majority of the voting common shares.
Forward Exchange Contract. A contract that requires delivery on
a specified future date of one currency in return for a specified amount of another currency.
Forward-Spot Differential. The premium or discount between
forward and spot currency exchange rates.
Future-Value Interest Factor (FVIFi,n). The value (1 + i)n used as
a multiplier to calculate an amounts future value.
Future-Value Interest Factor for an Annuity (FVIFAi,n). The value
n 1
(1 + i)t used as a multiplier to calculate the future value
t = 0
of an annuity.
Futures Contract. A contract to buy or sell a stated commodity
(such as soybeans or corn) or financial claim (such as U.S.
Treasury bonds) at a specified price at a specified future time.
General Partnership. A partnership in which all partners are fully

liable for the indebtedness incurred by the partnership.
Gross Income. A firms dollar sales from its product or services
less the cost of producing or acquiring the product or service.
Gross Profit Margin. Gross profit divided by net sales. A ratio
denoting the gross profit of the firm as a percentage of net
sales.
Hedge. A means to neutralize exchange rate risk on an exposed
asset position, whereby a liability of the same amount and
maturity is created in a foreign currency.
Hedging Principle. A working-capital management policy which
states that the cash flowgenerating characteristics of a firms
investments should be matched with the cash flow requirements of the firms sources of financing. Very simply, shortlived assets should be financed with short-term sources of
financing while long-lived assets should be financed with
long-term sources of financing.
High-Yield Bond. See Junk Bond.
Holding-Period Return. The return an investor would receive
from holding a security for a designated period of time. For
example, a monthly holding-period return would be the
return for holding a security for a month.
Hostile Takeover. A merger or acquisition in which management
resists the group initiating the transaction.
Hurdle Rate. The required rate of return used in capital budgeting.
Income Statement. A basic accounting statement that measures
the results of a firms operations over a specified period,
commonly one year. Also known as the profit and loss statement. The bottom line of the income statement shows the
firms profit or loss for the period.
Increasing-Stream Hypothesis of Dividend Policy. The hypothesis
that dividend stability is essentially a smoothing of the dividend stream to minimize the effect of other types of company
reversals. Thus, corporate managers make every effort to
avoid a dividend cut, attempting instead to develop a gradually increasing dividend series over the long-term future.
Incremental Cash Flows. The cash flows that result from the
acceptance of a capital-budgeting project.
Indenture. The legal agreement between a firm issuing bonds and
the bond trustee who represents the bondholders, providing
the specific terms of the long agreement.
Indirect Costs. See Fixed Costs.
Indirect Method. An approach used to measure cash flows from
operations, by which all operating expenses that did not
result in a cash outflow for the period are added to net
income.
Indirect Quote. The exchange rate that expresses the number of
units of foreign currency that can be bought for one unit of
home currency.
Indirect Securities. The unique financial claims issued by financial
intermediaries. Mutual fund shares are an example.
Information Asymmetry. The difference in accessibility to information between managers and investors, which may result in
a lower stock price than would be true in conditions of certainty.
Initial Outlay. The immediate cash outflow necessary to purchase
an asset and put it in operating order.
Insolvency. The inability to meet interest payments or to repay
debt at maturity.
Interest-Rate Parity Theory. The forward premium or discount
should be equal and opposite in size to the differences in the
national interest rates for the same maturity.
Interest Rate Risk. (1) The variability in a bonds value (risk)
caused by changing interest. (2) The uncertainty that
envelops the expected returns from a security caused by
changes in interest rates. Price changes induced by interest
rate changes are greater for long-term than for short-term
financial instruments.
Internal Common Equity. Profits retained within the business for
investment purposes.
Internal Growth. A firms growth rate in earnings resulting from
reinvesting company profits rather than distributing the earnings in the form of dividends. The growth rate is a function
of the amount retained and the return earned on the retained
funds.
Internal Rate of Return (IRR). A capital-budgeting technique that
reflects the rate of return a project earns. Mathematically, it
is the discount rate that equates the present value of the
inflows with the present value of the outflows.
Intrinsic or Economic Value. The present value of an assets
expected future cash flows. This value is the amount the
investor considers to be fair value, given the amount, timing,
and riskiness of future cash flows.
Inventory Loans. Loans secured by inventories. Examples include
floating or blanket lien agreements, chattel mortgage agreements, field-warehouse receipt loans, and terminal-warehouse receipt loans.
Inventory Management. The control of assets used in the production process or produced to be sold in the normal course of
the firms operations.
Glossary
25
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Inventory Turnover Ratio. Cost of goods sold divided by inventory. A ratio that measures the number of times a firms
inventories are sold and replaced during the year. This ratio
reflects the relative liquidity of inventories.
Investment Banker. A financial specialist who underwrites and
distributes new securities and advises corporate clients about
raising new funds.
Investors Required Rate of Return. The minimum rate of return
necessary to attract an investor to purchase or hold a security. It is also the discount rate that equates the present value
of the cash flows with the value of the security.
Junk Bond. Any bond rated BB or below.
Just-in-Time Inventory Control System. A production and management system in which inventory is cut down to a minimum through adjustments to the time and physical distance
between the various production operations. Under this system the firm keeps a minimum level of inventory on hand,
relying upon suppliers to furnish parts just in time for
them to be assembled.
Law of One Price. The proposition that in competitive markets
the same goods should sell for the same price where prices
are stated in terms of a single currency.
Lead and Lag Strategies. Techniques used to reduce exchange
rate risk where the firm maximizes its asset position in the
stronger currency and its liability position in the weaker currency.
Least-Square Regression. A procedure for fitting a line through
a scatter of observed data points in a way that minimizes the
sum of the squared deviations of the points from the fitted
line.
Leveraged Buyout (LBO). A corporate restructuring where the
existing shareholders sell their shares to a small group of
investors. The purchasers of the stock use the firms unused
debt capacity to borrow the funds to pay for the stock.
Limited Liability. A protective provision whereby the investor
is not liable for more than the amount invested in the
firm.
Limited Partnership. A partnership in which one or more of the
partners has limited liability, restricted to the amount of capital he or she invests in the partnership.
Line of Credit. Generally an informal agreement or understanding between a borrower and a bank as to the maximum
amount of credit the bank will provide the borrower at any
one time. Under this type of agreement there is no legal
commitment on the part of the bank to provide the stated
credit. Compare Revolving Credit Agreement.
Liquidation Value. The dollar sum that could be realized if an
asset were sold independently of the going concern.
Liquidity. A firms ability to pay its bills on time. Liquidity is
related to the ease and quickness with which a firm can convert its noncash assets into cash, as well as the size of the
firms investment in noncash assets vis--vis its short-term
liabilities.
Liquidity Preference Theory. The shape of the term structure of
interest rates is determined by an investors additional
required interest rate in compensation of additional risks.
Liquidity Ratios. Financial ratios used to assess the ability of a
firm to pay its bills on time. Examples of liquidity ratios
include the current ratio and the acid-test ratio.
Loan Amortization Schedule. A breakdown of the interest and
principle payments on an amortized loan.
26
Glossary
Long-Term Residual Dividend Policy. A dividend plan by which

the residual capital is distributed smoothly to the investors
over the planning period.
Mail Float. Funds tied up during the time that elapses from the
moment a customer mails his or her remittance check until
the firm begins to process it.
Majority Voting. Voting in which each share of stock allows the
shareholder one vote, and each position on the board of
directors is voted on separately. As a result, a majority of
shares has the power to elect the entire board of directors.
Marginal Cost of Capital. The cost of capital that represents the
weighted cost of each additional dollar of financing from all
sources, debt, preferred stock, and common stock.
Marginal Tax Rate. The tax rate that would be applied to the
next dollar of income.
Market Equilibrium. The situation in which expected returns
equal required returns.
Market Risk. See Systematic Risk.
Market Segmentation Theory. The shape of the term structure of
interest rates implies that the rate of interest for a particular
maturity is determined solely by demand and supply for a
given maturity. This rate is independent of the demand and
supply for securities having different maturities.
Market Value. The value observed in the marketplace, where
buyers and sellers negotiate a mutually acceptable price for
the asset.
Market-Value Weights. The percentage of financing provided by
different capital sources, measured by the current market
prices of the firms bonds and preferred and common stock.
Marketable Securities. Security investments (financial assets) the
firm can quickly convert to cash balances. Also known as
near cash or near-cash assets.
Maturity. The length of time until the bond issuer returns the par
value to the bondholder and terminates the bond.
Maturity Date. The date upon which a borrower is to repay a
loan.
Merger. A combination of two or more businesses into a single
operational entity.
Money Market. All institutions and procedures that facilitate
transactions in short-term instruments issued by borrowers
with very high credit ratings.
Money-Market Mutual Funds. Investment companies that purchase a diversified array of short-term, high-grade (moneymarket) debt instruments.
Monitoring Costs. A form of agency costs. Typically these costs
arise when bond investors take steps to ensure that protective
covenants in the bond indenture are adhered to by management.
Mortgage Bond. A bond secured by a lien on real property.
Multinational Corporation (MNC). A corporation with holdings
and/or operations in more than one country.
Mutually Exclusive Projects. A set of projects that perform essentially the same task, so that acceptance of one will necessarily
mean rejection of the others.
Negotiable Certificates of Deposit. Marketable receipts for funds
deposited in a bank for a fixed period. The deposited funds
earn a fixed rate of interest. More commonly, these are called
CDs.
Net Income. A figure representing a firms profit or loss for the
period. It also represents the earnings available to the firms
common and preferred stockholders.
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Page 27
Net Income Available to Common Equity (also Net Common

Stock Earnings). Net income after interest, taxes, and preferred dividends.
Net Income Available to Common Stockholders (Net Income). A
figure representing a firms profit or loss for a period. It also
represents the earnings available to the firms common and
preferred stockholders.
Net Operating Loss Carryback and Carryforward. A tax provision that permits the taxpayer first to apply the loss against
the profits in the three prior years (carryback). If the loss has
not been completely absorbed by the profits in these three
years, it may be applied to taxable profits in each of the 15
following years (carryforward).
Net Present Value (NPV). A capital-budgeting concept defined as
the present value of the projects annual net cash flows after
tax less the projects initial outlay.
Net Profit Margin. Net income divided by sales. A ratio that
measures the net income of the firm as a percent of sales.
Net Working Capital. The difference between the firms current
assets and its current liabilities.
Nondiversifiable Risk. See Systematic Risk.
Nominal Interest Rate. The interest rate paid on debt securities
without an adjustment for any loss in purchasing power.
Normal Probability Distribution. A special class of bell-shaped
distributions with symmetrically decreasing density, where
the curve approaches but never reaches the X axis.
Offer Rate. Same as asked rate.
Operating Income. See Earnings Before Interest and Taxes
(EBIT).
Operating Income Return on Investment. The ratio of net operating income divided by total assets.
Operating Leverage. The incurring of fixed operating costs in a
firms income stream.
Operating Profit Margin. Net operating income divided by sales.
A firms earnings before interest and taxes. This ratio serves
as an overall measure of operating effectiveness.
Opportunity Cost of Funds. The next-best rate of return available to the investor for a given level of risk.
Optimal Capital Structure. The capital structure that minimizes
the firms composite cost of capital (maximizes the common
stock price) for raising a given amount of funds.
Optimal Range of Financial Leverage. The range of various capital structure combinations that yield the lowest overall cost
of capital for the firm.
Option Contract. The right to buy or sell a fixed number of
shares at a specified price over a limited time period.
Order Point Problem. Determining how low inventory should be
depleted before it is reordered.
Order Quantity Problem. Determining the optimal order size for
an inventory item given its usage, carrying costs, and ordering costs.
Organized Security Exchanges. Formal organizations involved in
the trading of securities. Such exchanges are tangible entities
that conduct auction markets in listed securities.
Other Assets. Assets not otherwise included in current assets or
fixed assets.
Over-the-Counter Markets. All security markets except the organized exchanges. The money market is an over-the-counter
market. Most corporate bonds also are traded in this market.
Partnership. An association of two or more individuals joining
together as co-owners to operate a business for profit.
Par Value. On the face of a bond, the stated amount that the firm
is to repay upon the maturity date.
Payable-Through Draft (PTD). A legal instrument that has the
physical appearance of an ordinary check but is not drawn
on a bank. A payable-through draft is drawn on and paid by
the issuing firm. The bank serves as a collection point and
passes the draft on to the firm.
Payback Period. A capital-budgeting criterion defined as the
number of years required to recover the initial cash investment.
Payment Date. the date on which the company mails a dividend
check to each investor of record.
Percent of Sales Method. A method of financial forecasting
that involves estimating the level of an expense, asset, or
liability for a future period as a percent of the sales forecast.
Perfect Capital Market. An assumption that allows one to study
the effect of dividend decisions in isolation. It assumes that
(1) investors can buy and sell stocks without incurring any
transaction costs, such as brokerage commissions; (2) companies can issue stocks without any cost of doing so; (3) there
are no corporate or personal taxes; (4) complete information
about the firm is readily available; (5) there are no conflicts
of interest between management and stockholders; and
(6) financial distress and bankruptcy costs are nonexistent.
Permanent Investment. An investment that the firm expects to
hold longer than one year. The firm makes permanent investments in fixed and current assets. Compare Temporary
Investments.
Perpetuity. An annuity with an infinite life.
Pledging Accounts Receivable. A loan the firm obtains from a
commercial bank or a finance company using its accounts
receivable as collateral.
Plowback Ratio. The fraction of earnings that are reinvested, or
plowed back, into the firm.
Portfolio Beta. The relationship between a portfolios returns and
the market returns. It is a measure of the portfolios nondiversifiable risk.
Portfolio Diversification Effect. The fact that variations of the
returns from a portfolio or combination of assets may be less
than the sum of the variation of the individual assets making
up the portfolio.
Preauthorized Check (PAC). A check that resembles an ordinary
check but does not contain or require the signature of the
person on whose account it is being drawn. A PAC is created
only with the individuals legal authorization. The PAC system is advantageous when the firm regularly receives a large
volume of payments of a fixed amount from the same customer over a long period.
Preemptive Right. The right entitling the common shareholder to
maintain his or her proportionate share of ownership in the
firm.
Preferred Stock. A hybrid security with characteristics of both
common stock and bonds. It is similar to common stock in
that it has no fixed maturity date, the nonpayment of dividends does not bring on bankruptcy, and dividends are not
deductible for tax purposes. It is similar to bonds in that dividends are limited in amount.
Premium Bond. A bond that is selling above its par value.
Present Value. The value in todays dollars of a future payment
discounted back to present at the required rate of return.
Present-Value Interest Factor (PVIFi,n). The value [1/(1 + i)n] used
as a multiplier to calculate an amounts present value.
Glossary
27
10.23.03
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Page 28
Present-Value Interest Factor for an Annuity (PVIFAi,n). The

n
1
used as a multiplier to calculate the prevalue
t = 1 (1 + i)t
sent value of an annuity.
Price-Earnings (P/E) Ratio. The price the market places on $1 of
a firms earnings. For example, if a firm has an earnings per
share of $2, and a stock price of $30, its price-earnings ratio
is 15 ($30 $2).
Primary Markets. Transactions in securities offered for the first
time to potential investors.
Principle of Self-Liquidating Debt. See Hedging Principle.
Private Placement. A security offering limited to a small number
of potential investors.
Privileged Subscription. The process of marketing a new security
issue to a select group of investors.
Processing Float. Funds tied up during the time required for the
firm to process remittance checks before they can be
deposited in the bank.
Profit Budget. A budget of forecasted profits based on information gleaned from the cost and sales budgets.
Profit Margins. Financial ratios (sometimes simply referred to as
margins) that reflect the level of firm profits relative to sales.
Examples include the gross profit margin (gross profit divided
by sales), operating profit margin (operating earnings divided
by sales), and the net profit margin (net profit divided by sales).
Profitability Index (PI). A capital-budgeting criterion defined as
the ratio of the present value of the future net cash flows to
the initial outlay. Also called Benefit-Cost Ratio.
Pro Forma Income Statement. A statement of planned profit or
loss for a future period.
Prospectus. A condensed version of the full registration statement
filed with the Securities and Exchange Commission that
describes a new security issue.
Protective Provisions. Provisions for preferred stock included in
terms of the issue to protect the investors interest. For
instance, provisions generally allow for voting in the event of
nonpayment of dividends, or they restrict the payment of
common stock dividends if sinking-fund payments are not
met or if the firm is in financial difficulty.
Proxy. A means of voting in which a designated party is provided
with the temporary power of attorney to vote for the signee
at the corporations annual meeting.
Proxy Fight. A battle between rival groups for proxy votes in order
to control the decisions made in a stockholders meeting.
Public Offering. A security offering where all investors have the
opportunity to acquire a portion of the financial claims being
sold.
Purchasing Power Parity Theory. In the long run, exchange rates
adjust so that the purchasing power of each currency tends to
be the same.
Pure Play Method. A method of estimating a projects beta that
involves looking for a publicly traded firm on the outside
that looks like the project and using that outside firms
required rate of return to judge the project.
Put Option. The right to sell a given number of shares of common stock or some other asset at a specified price over a
given time period.
Quick Ratio. See Acid-Test Ratio.

Raw-Materials Inventory. The basic materials purchased from
other firms to be used in the firms production operations.
28
Glossary
Real Assets. Tangible assets like houses, equipment, and inventories; real assets are distinguished from financial assets.
Real Interest Rate. The nominal rate of interest less any loss in
purchasing power of the dollar during the time of the investment.
Remote Disbursing. A cash management service specifically
designed to extend disbursing float.
Repurchase Agreements. Legal contracts that involve the sale of
short-term securities by a borrower to a lender of funds. The
borrower commits to repurchase the securities at a later date
at the contract price plus a stated interest charge.
Required Rate of Return. See Investors Required Rate of Return.
Residual Dividend Theory. A theory that a companys dividend
payment should equal the cash left after financial all the
investments that have positive net present values.
Restrictive Covenants. Provisions in the loan agreement that
place restrictions on the borrower and make the loan immediately payable and due when violated. These restrictive
covenants are designed to maintain the borrowers financial
condition on a par with that which existed at the time the
loan was made.
Retained Earnings. Cumulative profits retained in a business up
to the date of the balance sheet.
Return on Common Equity. Net income available to the common
stockholders divided by common equity. A ratio relating
earned income to the common stockholders investment.
Return on Total Assets. Net income divided by total assets. This
ratio determines the yield on the firms assets by relating net
income to total assets.
Return-Risk Line. A specification of the appropriate required
rates of return for investments having different amounts of
risk.
Revolving Credit Agreement. An understanding between the borrower and the bank as to the amount of credit the bank will
be legally obligated to provide the borrower. Compare Line
of Credit.
Right. A certificate issued to common stockholders giving them
an option to purchase a stated number of new shares at a
specified price during a 2- to 10-week period.
Risk. Potential variability in future cash flows. The likely variability associated with revenue or income streams. This concept has been measured operationally as the standard deviation or beta.
Risk-Adjusted Discount Rate. A method for incorporating a projects level of risk into the capital-budgeting process, in which
the discount rate is adjusted upward to compensate for
higher-than-normal risk or downward to compensate for
lower-than-normal risk.
Risk-Free Rate of Return. The rate of return on risk-free investments. The interest rates on short-term U.S. government
securities are commonly used to measure this rate.
Risk Premium. The additional return expected for assuming risk.
Safety Stock. Inventory held to accommodate any unusually large
and unexpected usage during delivery time.
Sales Forecast. Projection of future sales.
Salvage Value. The value of an asset or investment project at the
end of its usable life.
Scenario Analysis. Simulation analysis that focuses on an examination of the range of possible outcomes.
Secondary Market. Transactions in currently outstanding securities. This is distinguished from the new issues or primary
market.
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Secured Loans. Sources of credit that require security in the form

of pledged assets. In the event the borrower defaults in payment of principal or interest, the lender can seize the pledged
assets and sell them to settle the debt.
Securities and Exchange Commission (SEC). The federal agency
created by the Securities Exchange Act of 1934 to enforce
federal securities laws.
Securities Exchange Act of 1933. A regulation that requires registration of certain new issues of public securities with the
Securities and Exchange Commission (SEC). The registration
statement should disclose all facts relevant to the new issue
that will permit an investor to make an informed decision.
Securities Exchange Act of 1934. This act enables the SEC to
enforce federal securities laws. The major aspects of the 1934
act include (1) major securities exchanges are required to register with the SEC; (2) insider-trading is regulated; (3) stock
price manipulation by investors is prohibited; (4) the SEC has
control over proxy procedures; and (5) the Board of
Governors of the Federal Reserve System is given the responsibility of setting margin requirements.
Security Market Line. The return line that reflects the attitudes of
investors regarding the minimum acceptable return for a
given level of systematic risk.
Selling Group. A collection of securities dealers that participates
in the distribution of new issues to final investors. A sellinggroup agreement links these dealers to the underwriting syndicate.
Selling Rate. Same as the asked rate.
Sell-off. The sale of a subsidiary, division, or product line by one
firm to another.
Semifixed Costs. See Semivariable Costs.
Semivariable Costs. Costs that exhibit the joint characteristics of
both fixed and variable costs over different ranges of output.
Also called Semifixed Costs.
Sensitivity Analysis. The process of determining how the distribution of possible net present values or internal rates of return
for a particular project is affected by a change in one particular input variable.
Shelf Offering. See Shelf Registration.
Shelf Registration. A procedure for issuing new securities where
the firm obtains a master registration statement approved by
the SEC.
Simple Arbitrage. Trading to eliminate exchange rate differentials
across the markets for a single currency, e.g., for the New
York and London markets.
Simulation. The process of imitating the performance of an
investment project through repeated evaluations, usually
using a computer. In the general case, experimentation upon
a mathematical model that has been designed to capture the
critical realities of the decision-making situation.
Sinking-Fund Provision. A protective provision that requires the
firm periodically to set aside an amount of money for the
retirement of its preferred stock. This money is then used to
purchase the preferred stock in the open market or through
the use of the call provision, whichever method is cheaper.
Small, Regular Dividend Plus a Year-End Extra. A corporate policy of paying a small regular dollar dividend plus a year-end
extra dividend in prosperous years to avoid the connotation
of a permanent dividend.
Sole Proprietorship. A business owned by a single individual.
Spin-off. The separation of a subsidiary from its parent, with no
change in the equity ownership. The management of the parent company gives up operating control over the subsidiary,
but the shareholders maintain their same percentage ownership in both firms. New shares representing ownership in the
averted company are issued to the original shareholders on a
pro rata basis.
Spontaneous Financing. The trade credit and other accounts
payable that arise spontaneously in the firms day-to-day
operations.
Spot Transaction. A transaction made immediately in the marketplace at the market price.
Stable Dollar Dividend per Share. A dividend policy that maintains a relatively stable dollar dividend per share over time.
Standard Deviation. A statistical measure of the spread of a probability distribution calculated by squaring the difference
between each outcome and its expected value, weighting each
value by its probability, summing over all possible outcomes,
and taking the square root of this sum.
Stock Buyback. See Stock Repurchase.
Stock Dividend. A distribution of shares of up to 25 percent of
the number of share currently outstanding, issued on a pro
rata basis to the current stockholders.
Stock Market Value. (See Market Value.)
Stock Repurchase. The repurchase of common stock by the issuing firm for any of a variety of reasons, resulting in reduction
of shares outstanding. Also called Stock Buyback.
Stock Split. A stock dividend exceeding 25 percent of the number
of shares currently outstanding.
Straight-Line Depreciation. A method for computing depreciation
expenses in which the cost of the asset is divided by the
assets useful life.
Stretching on Trade Credit. Failing to pay within the prescribed
credit period. For example, under credit terms of 2/10, net
30, a firm would be stretching its trade credit if it failed to
pay by the thirtieth day and paid on the sixtieth day.
Subchapter S Corporation. A corporation that, because of specific qualifications, is taxed as though it were a partnership.
Subordinated Debenture. A debenture that is subordinated to
other debentures in being paid in case of insolvency.
Subscription Price. The price for which the security may be purchased in a rights offering.
Sustainable Rate of Growth. The rate at which a firms sales can
grow if it wants to maintain its present financial ratios and
does not want to resort to the sale of new equity shares.
Syndicate. A group of investment bankers who contractually
assist in the buying and selling of a new security issue.
Systematic Risk. (1) The portion of variations in investment
returns that cannot be eliminated through investor diversification. This variation results form factors that affect all stocks.
Also called Market Risk or Nondiversifiable Risk. (2) The
risk of a project from the viewpoint of a well-diversified
shareholder. This measure takes into account that some of the
projects risk will be diversified away as the project is combined with the firms other projects, and, in addition, some of
the remaining risk will be diversified away by shareholders as
they combine this stock with other stocks in their portfolios.
Target Capital Structure Mix. The mix of financing sources that
a firm plans to maintain through time.
Target Debt Ratio. A desired proportion of long-term debt in a
firms capital structure. Alternatively, it may be the desired
proportion of total debt in the firms financial structure.
Taxable Income. Gross income from all sources, except for
allowable exclusions, less any tax-deductible expenses.
Tax Expenses. Tax liability determined by earnings before taxes.
Glossary
29
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Page 30
Tax Liability. The amount owed the federal, state, or local taxing
authorities.
Tax Shield. The element from the federal tax code that permits interest costs to be deductible when computing a firms tax bill. The
dollar difference (the shield) flows to the firms security holders.
Temporary Financing. Financing (other than spontaneous sources)
that will be repaid within a period of one year or less.
Included among these sources of short-term debt are secured
and unsecured bank loans, commercial paper, loans secured
by accounts receivable, and loans secured by inventories.
Temporary Investments. A firms investments in current assets that
will be liquidated and not replaced within a period of one year
or less. Examples include seasonal expansions in inventories
and accounts receivable. Compare Permanent Investments.
Tender Offer. A formal offer by the company to buy a specified
number of shares at a predetermined and stated price. The
tender price is set above the current market price in order to
attract sellers.
Terminal Warehouse Agreement. A security agreement in which
the inventories pledged as collateral are transported to a public warehouse that is physically removed from the borrowers
premises. This is the safest (though costly) form of financing
secured by inventory.
Term Loans. Loans that have maturities of 1 to 10 years and are
repaid in periodic installments over the life of the loan. Term
loans are usually secured by a chattel mortgage on equipment
or a mortgage on real property.
Terms of Sale. The credit terms identifying the possible discount
for early payment.
Term Structure of Interest Rates. The relationship between interest rates and the term to maturity, where the risk of default is
held constant.
Times Interest Earned Ratio. Earnings before interest and taxes
(EBIT) divided by interest expense. A ratio that measures a
firms ability to meet its interest payments from its annual
operating earnings.
Total Asset Turnover. Sales divided by total tangible assets. An
overall measure of the relation between a firms tangible
assets and the sales they generate.
Total Project Risk. A projects risk ignoring the fact that much of
the risk will be diversified away as the project is combined
with the firms other projects and assets.
Total Revenue. Total sales dollars.
Trade Credit. Credit made available by a firms suppliers in conjunction with the acquisition of materials. Trade credit
appears on the balance sheet as accounts payable.
Transaction Loan. A loan where the proceeds are designated for
a specific purposefor example, a bank loan used to finance
the acquisition of a piece of equipment.
Transfer Price. The price a subsidiary or a parent company
charges other companies that are part of the same MNC for
its goods or services.
Transit Float. Funds tied up during the time necessary for a
deposited check to clear through the commercial banking
system and become usable funds to the company.
Treasury Bills. Direct debt obligations of the U.S. government
sold on a regular basis by the U.S. Treasury.
Trend Analysis. An analysis of a firms financial ratios over time.
Triangular Arbitrage. Arbitrage across the markets for all currencies.
Unbiased Expectations Theory. The shape of the term structure
of interest rates is determined by an investors expectations
about future interest rates.
30
Glossary
Underwriting. The purchase and subsequent resale of a new security issue. The risk of selling the new issue at a satisfactory
(profitable) price is assumed (underwritten) by the investment banker.
Underwriting Syndicate. A temporary association of investment
bankers formed to purchase a new security issue and quickly
resell it at a profit. Formation of the syndicate spreads the
risk of loss among several investment bankers, thereby minimizing the risk exposure of any single underwriter.
Undiversifiable Risk. The portion of the variation in investment
returns that cannot be eliminated through investor diversification.
Unique Risk. See Unsystematic Risk.
Unsecured Loans. All sources of credit that have as their security
only the lenders faith in the borrowers ability to repay the
funds when due.
Unsystematic Risk. The portion of the variation in investment
returns that can be eliminated through investor diversification. This diversifiable risk is the result of factors that are
unique to the particular firm. Also called Company-Unique
Risk or Diversifiable Risk.
Value of a Bond. The present vale of the interest payments, I1, in
period t, plus the present value of the redemption or par
value of the indebtedness, M, at the maturity date.
Value of a Security. The present value of all future cash inflows
expected to be received by the investor owning the security.
Variable Costs. Costs that are fixed per unit of output but vary in
total as output changes. Also called Direct Costs.
Volume of Output. A firms level of operations expressed either
in sales dollars or as units of output.
Weighted Cost of Capital. A composite of the individual costs of
financing incurred by each capital source. A firms weighted
cost of capital is a function of (1) the individual costs of capital, (2) the capital structure mix, and (3) the level of financing necessary to make the investment.
Weighted Marginal Cost of Capital. The composite cost for each
additional dollar of financing. The marginal cost of capital
represents the appropriate criterion for making investment
decisions.
Wire Transfers. A method of moving funds electronically
between bank accounts in order to eliminate transit float.
The wired funds are immediately usable at the receiving
bank.
Working Capital. A concept traditionally defined as a firms
investment in current assets. Compare Net Working Capital.
Work-in-Process Inventory. Partially finished goods requiring
additional work before they become finished goods.
Yield to Maturity. (1) See Term Structure of Interest Rates. (2)
The rate of return a bondholder will receive if the bond is
held to maturity. (Equivalent to the expected rate of return.)
Zero and Very Low Coupon Bond. A bond issued at a substantial discount from its $1,000 face value and that pays little or
no interest.
Zero Balance Accounts (ZBA). A cash management tool that permits centralized control over cash outflow while maintaining
divisional disbursing authority. Objectives are (1) to achieve
better control over cash payments; (2) to reduce excess cash
balances held in regional banks for disbursing purposes; and
(3) to increase disbursing float.
998666 KEOWN INDEX pp031-038
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Index
20th Century Fox, 25

3Com Corporation, 281
3M, 24
500 Index, 184189, 198,
200203, 208, 335, 435436
A
A&P, 25, 405407, 435
Accelerated Cost Recovery
System, 13, 299300
Accounting book value, 71, 79,
82, 8990
Accounting profits, 17, 28, 176,
263264, 266, 292, 319,
323, 347
Accounting, 7576, 7879,
8690, 241
Accounts payable, 79
Accounts receivable, 78
Accounts receivable management,
448
Accounts receivable turnover,
115116, 123, 131
Accrual-basis accounting, 82, 90
Accrued expenses, 79
Accrued wages and taxes, 447,
449, 457
Acid-test (quick) ratio, 114, 131,
135
ACRS, 300
Adkins, W. H., 178
After-tax cash flows, 83, 84, 296
Agency costs, 388392
Agency problems, 20, 242, 389
Airborne Express, 265
Altman, Edward I., 388
Amazon.com, 175, 262
American Airlines, 222, 224
American Express, 24
American Standard, 441
American Stock Exchange, 43
American Telephone and
Telegraph, 398
Amortized loan, 161, 168
Analytical income statement,
371372, 374, 404407
Annual percentage yield, 447, 459
Annual rate of return, 182
Annuity, 154161
AOL TimeWarner, 241
AOL, 6, 175, 241
Apple Computer, 183, 195, 282,
298
APY, 447
Arbitrageur, 51, 468, 472, 483
Argentina, 166167, 467
Aronson, J. Richard, 398
Ash, Inc., 339
Asked rate, 469, 483
Asset allocation, 191192, 198
Asset perspective, 71, 83, 8990,
9293, 101
Asset structure, 364366, 394
AT&T, 42, 176, 211, 236,
238239, 248, 398, 400
Auditors, 6, 7576
Average collection period,
115117
B
Baker, H. Kent, 419
Balance of payments, 465, 481
Balance sheet, 7582
Ball Corporation, 346, 351
Banc of America Securities, 48
Bank One Corp., 347
Bankers acceptances, 42
Banking, 33, 46, 48, 66, 216, 463
Bankruptcy, 308309
Barclay, Michael J., 411
Barings, 22
Barnes and Noble, 262
BCCI, 22
Beebower, Gilbert L., 192
Beech-Nut, 279280
Berle, A. A., Jr., 388
Berlin, M., 35
Bernstein, Peter L., 411
Best-efforts basis, 47, 66
Beta estimation, 312
Beta, 187189, 195201
Bid rate, 469, 483
Bid-asked spread, 469, 483
Bird-in-the-hand dividend theory,
412413, 420, 433
BMW, 24
Boeing, 317
Boesky, Ivan F., 5051
Boise Cascade Corporation, 345
Bond, 37, 211217, 221233
Book assets, 344
Book value, 79, 217
Borrowing capacity, 380
Boston Stock Exchange, 43
Break-even analysis, 363364,
366367, 369371, 378,
381, 401, 403
Break-even point, 369372, 375,
381, 396, 401, 403407
Bre-X, 22
Brinson, Gary P., 192
Bristol-Myers Squibb Co., 24
Brooks Brothers, 25
Budget, 259, 261262, 273274,
282, 351
Business cycle, 32, 36, 336, 392,
430
Business organization, 3, 5, 364
Business ratios, 116, 119, 121,
123
Business risk, 353, 363366, 375,
381, 395, 398, 400403, 481
Buying rate, 469, 483
C
Calculators, 149, 155, 159, 224,
265, 269270
California Adventure, 261, 291
Calpine Corporation, 218
Campbells Soup, 20
Capital Asset Pricing Model, 195,
197198, 200201, 332,
334, 336337, 342, 353354
Capital budgeting, 259, 261262
Capital curve, 387
Capital flows, 464, 473
Capital gain, 13, 26, 413414
Capital investments, 129, 190,
262, 274, 312, 327, 343, 387
Capital markets,3335, 42
Capital rationing, 261, 273276,
282, 284, 287
Capital spending, 31, 339
Capital structure decisions, 391,

463464, 479480, 482
Capital structure management,
363364, 382383, 388392,
396, 398, 401403
Capital structure, 37341,
380404
CAPM, 195200, 308309,
311312, 323, 334335,
337, 340, 353
Cash conversion cycle, 116117,
131
Cash dividends, 96, 137, 383,
386, 389, 409, 413414,
423424, 426, 430, 433
Cash flow, 1718
Cash inflow, 177, 213, 275, 284,
294, 296297
Cash management, 479
Cash outflow, 9, 106107,
165166, 213, 249, 294296
Cash-basis accounting, 83, 90
Caterpillar, 211
Cendant, 241
CEO, 8, 20, 28, 244, 279, 281,
287, 322, 358, 361, 400
CFO, 89, 23, 58, 6869, 341,
384, 407, 448
Characteristic line, 186188, 192,
198
Chase Manhattan Bank, 1
Chattel mortgage agreement, 455,
457
Chew, Donald H., 411
Chicago Stock Exchange, 43
Chief executive officer, 8, 71, 357
Chief financial officer, 8, 23, 58,
68, 87, 136, 331, 357, 429,
473
Chrysler, 193, 294
Cincinnati Stock Exchange, 43
Cisco Systems, 347
Citigroup/Salomon Smith Barney,
48
Citizens National Bank, 57
Claims, 8, 3739, 67, 194, 212,
215, 230, 236237, 241, 253
Clientele effect, 414416, 420,
432433
Index
31
10.23.03
Coca-Cola Company, 361, 363,

380, 398, 400, 402, 409
CoCos, 214
Colgate-Palmolive, 24
Combined leverage, 363,
379381, 401405, 407
Commercial banking, 33, 46
Commercial paper, 42, 445, 447,
452453, 456460
Common equity, 332333
Common stock, 3638, 240241
Common stockholders, 79
Company-unique risk, 183, 187,
195, 198
Compaq, 24
Comparative leverage ratios,
396397, 402
Compensating balance, 450,
457460
Compensation, 4, 7, 20, 129, 182,
309, 327328, 345346,
348349, 351, 354,
357358, 388, 417418, 481
Competitive bid purchase, 47, 66,
68
Competitive markets, 1819, 26,
112, 261262, 265, 431, 474
Competitive-advantage period,
248250, 254
Compound annuity, 154,
168169, 171
Compound interest, 63, 143146,
150152, 162, 168173,
224, 447
Conglomerates, 241
Constant dividend payout ratio,
422423, 432434
Contingent convertible bonds,
214
Contracts, 37, 49, 56, 87, 218,
363, 387, 397, 402, 421,
450, 470471, 476478,
482484
Contribution margin, 369372,
381, 401, 403, 405406
Contribution-to-firm risk,
307309, 318
Control hypothesis, 391, 402
Convertible preferred stock, 237,
254
Corporate debt, 36, 66
Corporate earnings, 76, 243
Corporate finance, 1, 3, 7, 14, 19,
23, 75, 193, 299, 349, 382,
384, 388, 390391,
411413, 418419
Corporate income, 2728, 331,
384, 386, 429, 433
Cost advantage, 1819, 265, 431,
433
Cost of capital, 327329
32
Index
1:01 PM
Page 32
Cost of common equity, 332, 337,

340, 342, 353, 355, 385,
387, 396
Cost of debt, 113, 122, 327328,
330332, 337, 340, 342,
352, 355356, 387, 389,
392, 399
Cost of funds, 3233, 53, 57,
6768, 130, 176, 193,
197198, 220, 231, 364,
383385, 447
Cost of goods sold, 11, 1314,
2629, 7374, 9092, 9498,
100, 104106, 113, 116,
119, 127, 133134,
136137, 482
Cost of preferred stock, 331332,
342, 352, 356
Cost-of-credit formula, 446447
Coupon interest rate, 215216,
222223, 225226, 228,
230231, 355356
Covered-interest arbitrage, 468,
483
Credit, 445460
Credit Lyonnais, 22
Credit rating, 218, 397
Credit Suisse First Boston, 48
Credit terms, 115, 449450,
452454, 457460
Cross rate, 469, 483
Cumulative feature, 237, 254
Cumulative voting, 242, 254
Cunningham, Donald F., 128
Currency exchange rates, 350,
473
Currency markets, 466, 480, 482,
484
Currency, 9, 65, 72, 166, 213,
317318, 350, 456457,
463477, 479485
Currency-futures contracts and
options, 477
Current assets, 7778, 80, 82,
8485, 8897, 99100, 104,
107, 114115, 132,
134137, 382, 441446, 456
Current debt, 79, 82, 90, 9293,
97, 115, 392, 444
Current liabilities, 80, 82, 91,
9496, 99100, 104,
114115, 132, 134135,
137138, 382, 442445,
456457
Current ratio, 114115, 128,
131135, 137139
Current yield, 215216, 223,
230231, 435
Customers, 18, 23, 33, 47, 71, 78,
87, 103, 105107, 117, 262,
279, 308, 348, 439, 441,
448, 459, 465
D
Daiwa, 22
Date of record, 424, 432434
Days of payables outstanding,
117, 131
Days of sales in inventory, 117,
131
Days of sales outstanding, 117,
131, 448
Debenture, 212, 231
Debt capacity, 36, 121, 388, 397,
399400, 402403
Debt capital, 49, 66, 79, 90, 328,
330331, 352, 380, 391, 421
Debt contracts, 37, 49, 363, 387
Debt creation, 391
Debt financing, 75, 113,
330331, 337, 340, 361,
372, 385387, 389, 391,
394, 396, 404, 406
Debt instruments, 35, 42, 66
Debt obligations, 113, 217, 377
Debt ratio, 121, 131, 133137,
139, 342, 378, 398, 406
Debt/equity mix, 82, 90
Debt-to-equity ratio, 389
Declaration date, 424, 432434
Default-risk premium, 5459, 61,
69
Deficit, 13, 37, 40, 65
Degree of combined leverage,
379381, 401405, 407
Degree of financial leverage, 375,
377379, 381, 401,
404405, 407
Degree of operating leverage, 363,
374375, 379, 381, 401,
404405, 407
Dell, 193
Demand flow technology, 441
Depreciation, 1014, 299301
Deregulation, 24
Deutsche Bank, 48
Differential cash flows, 298299,
301304, 318, 323324
Direct costs, 367, 403
Direct foreign investment,
463464, 472, 481483
Direct investment, 65, 67,
431432, 464, 483
Direct placement, 42, 67
Direct quote, 466, 468470, 472,
482483
Direct sale, 48, 6667
Direct securities, 39, 41, 67
Direct transfer of funds, 40
Disclosure, 23, 5051, 75, 213,
244
Discount bond, 228, 231
Discount rate, 141, 144145,
309311
Disneyland, 65, 261, 291
Distribution methods, 47
Diversifiable risk, 183, 197198

Diversification, 2122, 35, 175,
178, 182183, 189,
191193, 197, 208, 219,
307308, 400, 402, 464
Dividend exclusion, 12
Dividend growth model,
332334, 337, 342, 353
Dividend income, 10, 1214,
2729, 412414, 416, 433,
435436
Dividend payout ratio, 409411,
419423, 432434
Dividend policy, 409437
Dividend theory, 412413,
415416, 420, 431, 433
Dividend valuation model, 245
Divisional costs of capital, 327,
340344, 353, 357
Dow Chemical, 24, 282
Dow Corning, 279280
Drawing down, 38
Drexel Burnham Lambert, 22, 52,
214
DSO, 448
Dun & Bradstreet, 113, 128
DuPont analysis, 111112,
125128, 131, 138
DuPont, 111112, 125128, 131,
138
E
EAA, 278280, 282, 287
Earnings before interest and taxes,
11, 7475, 9091, 106, 113,
133, 364, 378, 400, 405
Earnings before interest, taxes,
depreciation, and
amortization, 84, 90, 248
Earnings per share, 1, 71, 238,
256, 334, 346, 355356,
366, 376379, 381, 394,
401402, 410, 422425,
427428, 434435
Earnings-per-share stream, 393,
402
EBIT, 9293, 364367, 369379,
381, 384, 386, 393397,
400402, 404407
EBITDA, 84, 8990, 9293, 248,
397
EBIT-EPS analysis, 394396,
402404, 406
EBIT-EPS indifference point, 396,
398, 403
Economic exposure, 456457,
475, 478, 482
Economic profit, 327328, 344,
347349, 354, 357
Economic units, 3739, 45, 53,
65, 414
10.23.03
Economic value added, 129132,

138, 327328, 341,
345346, 351
Economies of scale, 1819
Edelman, Richard B., 419
Effective market discount rate,
141
Efficient market, 19, 28, 63, 196,
218219, 231, 253, 352
EMC, 6
Emerson Electric, 424
Emery, 265
Encore Inc., 327, 338, 352
Enron Corporation, 67, 23, 75,
193, 382
Enterprise valuation, 391
Equifax, Inc., 345
Equities, 36, 42, 480
Equity-risk premiums, 190
Equivalent annual annuity, 278,
280, 282, 287
Ernst & Young, 141
Eskridge, James, 429
Ethical behavior, 22, 26, 28, 34,
52, 279280
Euro, 53, 465, 467, 473
Eurobonds, 212213, 230231,
480
Europe, 65, 71, 166, 213, 244,
281, 465, 473, 480
European Union, 465
EVA Training Tutor, 341
EVA, 1, 129131, 327328, 341,
345346, 351, 358
Exchange rate risk, 65, 463,
470472, 475477, 480,
482483
Exchange rate, 65, 88, 352,
455456, 463, 465466,
468480, 482483
Exchanges, 4245, 5152, 6667,
478, 480
Ex-dividend date, 424, 433435
Expectations theory, 6364, 67,
415, 418, 420, 433
Expected rate of return, 177,
225226, 250257
Expected return, 4, 16, 21, 64,
175176, 179180, 183,
197201, 203204, 226,
252, 255256, 444
External funds, 31, 34, 46
Exxon, 188, 211, 232, 281
ExxonMobil, 26
F
Factor, 454
Factoring accounts receivable,
454, 457
Fair value, 79, 212, 218, 231
Fama, Eugene F., 340
Farrelly, Gail E., 419
1:01 PM
Page 33
Federal agency securities, 42

Federal Express, 265
Federal funds rate, 3133
Federal income taxation, 3, 9
Federal Reserve System, 31, 35,
40, 52, 452
Fielitz, Bruce D., 426
Financial calculator, 149151,
172, 224, 267, 269, 271, 331
Financial intermediary, 41, 6667
Financial leverage, 123, 131, 340,
363364, 366, 372,
375381, 383389, 391394,
398, 401407
Financial manager, 8, 3335
Financial markets, 31, 3335,
3741
Financial Modernization Act, 46
Financial performance, 111113,
115, 117, 119, 121, 123,
125, 127, 129, 131, 133,
135, 137, 139, 312, 327, 363
Financial planning, 89, 58, 369,
396
Financial policies, 361, 380,
398400
Financial ratio analysis, 111112,
124, 131, 396
Financial ratios, 111113,
123125, 128132, 135138,
396
Financial reporting, 75, 89
Financial risk, 75, 122, 353,
363364, 366, 376, 381,
383, 389, 400, 403, 481
Financial statements, 7579,
111113
Financial structure ratios, 399
Financial structure, 364366,
375, 377, 380383,
398399, 401, 403, 481
Financial-leverage effects, 393,
402
Financing costs, 7374, 8990,
106, 378, 395, 402
Financing flows, 295, 317
Financing mix, 363367
Firestone Tire & Rubber, 25
First Union Corp., 347
Fischer Black, 411
Fisher effect, 5960, 166, 350,
354, 474475, 482483
Fisher, Irving, 60, 63
Fisher, Lawrence, 426
Fitch Investor Services, 216
Fixed assets turnover, 120, 131
Fixed assets, 7778
Fixed commissions, 52
Fixed costs, 18, 314, 367375,
379, 381, 383, 403407
Flexibility, 8, 31, 34, 49, 361,
364, 392, 397, 443, 452, 454
Float, 44
Floating exchange rates, 465

Floating lien agreement, 455, 457
Floating-rate international
currency system, 465, 483
Floating-rate regime, 465
Flotation costs, 31, 4950, 6668,
329333, 342, 352356,
358, 415, 433435, 480
Flow of funds, 34, 40, 78
Ford Motor Company, 65, 262,
427
Foreign exchange market, 465
Foreign portfolio investments,
471
Foreign-exchange risk exposure,
456
Forward exchange contract, 469,
483
Forward-market hedge, 476477,
482
Forward-spot differential, 470,
483
Foucher, Serge, 473
Franklin, Benjamin, 143
free cash flow, 1, 8687, 89,
9293, 244, 247250, 262,
264266, 268269, 272,
283285, 363, 390392,
402403
Free cash flows, 83, 243, 247250
French, Kenneth R., 340
Friedman, Benjamin M., 391
Funds mix, 382
Future cash flows, 176178
Future value, 143150, 152155,
159, 162164, 167168,
170, 173
Future-value interest factor, 146,
155, 168
G
GE, 202, 238, 241, 317
General Dynamics Corp., 429
General Electric, 24, 188,
202203, 238, 241, 347, 424
General Mills, 17, 238
General Motors Acceptance
Corporation, 452
General Motors, 3, 16, 24, 38,
40, 188, 238, 452
General partnership, 78, 2526
Generally accepted accounting
principles, 7576, 78, 8788,
241
George Donnelly, 341
Georgia-Pacific Corporation, 364,
392
Gifford, D., Jr., 384
Gillette, 24, 282
Glass-Steagall Act, 46
Global Crossings, 6
Global Energy, 343344
Globalization, 12, 463464

GM, 238, 281, 317
Goldman Sachs, 41, 48, 429
Government securities, 6263, 68,
181, 190191, 203, 335
Gramm-Leach-Bliley Act, 46
Griggs Corporation, 1314
Gross domestic product, 32, 43,
61
Gross income, 10, 26
Gross working capital, 78, 82, 90
Group of Seven, 431432
Growth factor, 243, 252253
Growth rates, 334
H
H&L Manufacturing, 327, 344
Harken Energy, 259
Harley-Davidson Inc., 363, 422
Hedging, 312, 442, 444446,
456457, 475, 477
Hewlett-Packard, 24, 282
Hicks, John R., 64
High-yield bonds, 213, 231
History of Interest Rates, A, 143
Holding-period returns, 184189,
198202
Home Depot, 363, 423
Honda, 18, 24, 316
Host countries, 480
Hybrid security, 214, 236, 254
I
Ibbotson Associates, 5355, 182,
191192, 335
Ibbotson, Roger G., 181
IBM, 24, 26, 188, 195, 224225,
282, 298, 317, 346, 427
IFE, 474, 482
IKEA, 473
Imputed discount rate, 141
Incentive compensation, 328, 345,
348349, 351, 354,
357358, 417
Income taxation, 3, 910
Increasing-stream hypothesis,
422423, 433
Incremental after-tax cash flows,
291, 293, 298, 316318
Incremental cash flows, 17,
2021, 26, 293296, 298,
310, 317, 319, 323
Incremental expenses, 294, 317
Indenture, 215217, 230231
Independence hypothesis,
384385, 392, 403
Indifference point, 396, 398, 403
Indirect costs, 308, 367, 403
Indirect quote, 466, 468, 472,
482485
Indirect securities, 39, 41, 67
Index
33
10.23.03
Inflation index, 61
Inflation, 16, 3132, 35, 5362,
6769, 166168, 181182,
197, 349350, 352, 354,
421, 432, 473475
Information asymmetry, 417, 433
Information effect, 415416
Information technology, 24
Information for shareholders, 244
Initial outlay, 264272, 275,
283289, 296304, 311,
317318, 321, 323
Initial public offerings, 235
Insider trading, 22, 5051, 53
Insolvency, 212, 215, 366
Insurance firms, 46, 52, 66
Intel, 6, 45, 199, 346347
Intercountry risk, 31, 65, 67
Interest payments, 103, 105106,
154, 211, 213, 222226,
274, 295, 298, 317, 323,
330, 386, 391, 441
Interest rate parity, 350, 352, 463,
483
Interest rate risk, 228233
Interest rate, 3133, 53, 5561,
6364
Internal capital market, 3536
Internal funds, 420
Internal growth, 244, 247, 254
Internal rate of return, 261,
268270, 276, 280,
282283, 285, 288, 302,
320321
Internally generated funds, 34, 66,
274, 412, 415, 421, 433
International finance, 71, 88, 466,
482
International Fisher effect, 350,
354, 474475, 482
International Harvester, 48
International trade contracts, 471
Inventory loans, 455, 457
Inventory management, 266
Inventory turnover ratio, 116,
128, 131, 135
Investment risk, 380
Investment tax credit, 21
Investors required rate of return,
192195
IPOs, 235, 336
Ireland, Peter N., 60
IRP, 5761, 472, 476477, 483
IRR, 261, 268277, 280, 282,
284289, 302, 305, 310,
314, 323
Issuing costs, 50, 66
IT Group, 16
Ivan F. Boesky & Co., 51
Ivester, M. Douglas, 400
34
Index
1:01 PM
Page 34
J
J and S Corporation, 1012
J.P. Morgan Chase, 48
Japan, 24, 65, 71, 281, 317,
349350, 431, 467, 474,
481, 484485
JDS, 6
Jensen, Michael C., 388, 390
Johns Manville, 279
Johnson & Johnson, 279,
307308
Johnson Worldwide Associates
Inc., 345
Johnson, Dana J., 398
Junk bonds, 212215, 230231
K
Keown, A. J., 49
Kester, W. Carl, 349
Kidder-Peabody, 279
KKR, 214
Kmart, 347348
Loan, 10, 38, 54, 86, 113,

130131, 137138, 149,
158, 161162, 168,
170173, 194, 216, 221,
352, 354, 397, 443447,
449460, 477, 480
Loews Corporation, 347
Long-term assets, 8385
Long-term bonds, 228, 392
Long-term debt, 7981, 8793,
96, 99100, 106107, 111,
114, 120, 132, 134, 137,
212213, 216, 237,
382383, 394, 397, 399,
404, 406, 442445, 457
Long-term residual, 420
Lorie, James H., 272
Louisiana Gas, 21
Lucent Corporation, 176
Luehrman, Timothy A., 349
Lutz, F. A., 63
Lutz, V. C., 63
M
L
Labor markets, 3132, 363
LaFarge Corporation, 448
Lagging, 479, 482
Law of one price, 352, 463,
474475, 483
Leading, 48, 208, 479, 482
Legal forms of business
organization, 3, 5
Lehman Brothers, 48
Leverage ratios, 396398,
402403
Leverage, 111, 123, 131, 340,
363364, 366, 372389,
391407, 411, 419
Lewis, Michael, 22
Liabilities, 3839
Liars Poker, 22
Limited liability, 78, 2526, 243,
254
Limited partnership, 78, 2526
Line of credit, 132, 134, 136,
138, 450451, 455, 457459
Linear regression, 186
Lintner, John, 422
Liquidation value, 218, 231
Liquidity preference theory,
6364, 67
Liquidity premium, 5759, 64,
67, 69
Liquidity, 5759, 6364, 67, 69,
87, 113116, 123124, 128,
131132, 138139, 197,
216, 264, 336, 421, 426,
432433, 442, 444, 456457
Listing requirements, 44
Lloyds, 22
Majority voting, 242, 254

Maness, Terry S., 113
Marginal tax rates, 11, 14
Market efficiency, 196, 219
Market risk premium, 335336,
342, 353
Market risk, 183184, 188189,
192, 195, 198, 335336,
342, 353
Market segmentation theory,
6365, 67
Market value, 1, 5, 4344, 7576,
79, 89, 207, 212, 218219,
226228, 231232, 241,
328, 338, 344347, 349,
351, 353358, 384387,
389390, 394, 425427, 481
Market value added, 1, 344, 347,
349, 354
Marketable securities, 96, 135,
137, 366, 380, 442, 444, 457
Marshall, John, 8
Martin, John D., 398
Mattel, Inc., 429
Matthews International
Corporation, 351
Maturity premium, 5659, 61,
64, 67, 69
Maturity of bond, 216
Maximization of shareholder
wealth, 45, 1920, 2223,
2526, 28
McDonalds Corporation, 71,
7475, 8082, 88, 103107,
112124, 126127, 131, 427
Means, G. C., 388
Meckling, William H., 388
Merck and Co. Inc., 312
Merrill Lynch, 1, 48, 213, 335,

429
Microsoft, 6, 150, 175, 347
Milken, Michael, 214
Millar, James A., 426
Miller, Merton, 384, 412
Minimum rate of return, 193,
220, 328, 346
MNC, 464, 475, 478483
Mobil Oil, 48
Modigliani, Franco, 384
Money Angles, 143
Money market, 1, 42, 45, 6667,
208, 476477, 480
Money-market hedge, 476477,
482
Moodys Investors Service, 218
Morgan Chase, 48
Morgan Stanley, 48
Mortgage bonds, 212, 215,
230231
Multinational corporation, 3, 25,
464, 478, 483
Multinational working-capital
management, 441, 455, 457,
463, 478
Multiple classes of preferred
stock, 236, 253
Multiple rates of return, 272
Mutually exclusive projects, 261,
275276, 282, 284,
286288, 321
Myers, Stewart C., 391
N
Nasdaq Stock Market, Inc.,
4445
NASDAQ, 15, 22, 4345, 240,
244
National market system, 52, 67
Navistar, 48
Negotiated purchase, 47, 66, 68
Net income, 71, 7476, 79,
8788, 9091, 9498, 100,
104, 107, 113, 118119,
122123, 125, 133134,
136137, 245, 313, 353,
363, 377, 379, 393394,
404405, 407, 409, 428, 434
Net operating loss carryback and
carryforward, 13, 26
Net present value profile,
271272, 282
Net present value, 264269
Net profit margin, 119, 125,
131132
Net working capital, 82, 90,
9293, 441442, 444, 457
Netscape, 235
New York Stock Exchange, 15,
4344, 57, 89, 183184,
10.23.03
199, 218, 223, 237238,

419, 426, 465
Next-best investment, 193, 328
Nextel Communications, 111
Nissan, 24, 316
NMS, 52
Nominal rate of interest, 55, 57,
5961, 6768, 349, 447
Nondiversifiable risk, 183, 195,
197198, 337
Nortel, 6, 193
Notes, 3637, 49, 66, 7981,
8788, 9092, 94, 96,
99101, 104105, 114, 132,
134135, 137, 247, 348,
445, 450, 459
NPV, 264269
NYSE, 4345, 65, 237, 244, 332
1:01 PM
Page 35
Organized security exchanges,

4243, 6667
Other assets, 7778, 80, 85,
8990, 99100, 104106,
114, 442, 475
Other expenses, 364, 453
Other income, 1011, 29, 36, 364
Other payables, 79, 90
Output, 1, 31, 5758, 69, 170,
314, 316, 366372, 374,
379, 391, 400401,
403405, 407, 464465, 478
Overhead costs, 295, 317
Over-the-counter markets, 4245,
67
Ownership, 8, 1920, 2526, 44,
193, 240, 243, 247,
253254, 351, 388, 413,
417, 421, 424, 427, 433,
439, 448
O
Occidental Petroleum, 416
Ohio State University, 466
OIROI, 118, 122123, 131
Old-line factor, 454
Olin Corporation, 345
Operating cash flows, 106, 413
Operating expenses, 1011,
1314, 2629, 7374, 8991,
9495, 98, 100, 104, 106,
113, 119, 127, 133134,
136, 207, 345
Operating income return on
investment, 118119,
122123, 125, 129,
131134, 136139
Operating income, 11, 14, 25, 71,
74, 76, 84, 88, 90, 9294,
97, 101, 104, 106, 113,
118119, 121123, 125,
129134, 136139, 248249,
364, 366, 384, 386
Operating leverage, 363364,
366, 372377, 379, 381,
400405, 407
Operating profit margin,
118120, 131137, 139,
249, 256, 405
Operating profit, 118120,
131137, 139, 249, 256,
341, 346347, 351, 405
Operating working capital,
8385, 90, 9293, 101
Opportunity cost of funds, 32, 53,
57, 67, 130, 176, 193,
197198, 220, 231
Optimal capital structure, 363,
382383, 391, 402403
Optimal range of financial
leverage, 388, 403
Ordinary annuities, 154, 159
Organization, 3, 5, 8, 26, 4546,
336, 364, 368, 388, 478
P
Pacific Gas & Electric, 214
Pacific Stock Exchange, 43
Par value and paid-in capital,
7980, 88, 90, 114
Par value of a bond, 215, 231
Partnership, 5, 710, 2526, 28
Payables, 79, 86, 90, 104, 117,
131, 136, 476
Payback period, 263264, 273,
280289, 319321
Payment date, 424, 433
Penn Central, 443
PepsiCo, 9899, 138, 188,
244245, 327, 340342, 354
Perfect capital markets, 412, 433
Permanent investments, 445, 457
Permanent sources of financing,
445, 457
Perpetuities, 143, 166, 171, 238
Petty, J. W., 49
Pfizer, 183
Philadelphia Stock Exchange, 43
Phillips Petroleum, 363
Pillsbury Company, 341
Pindyck, Robert S., 4
Plain vanilla stock split, 426
Planet Hollywood, 235
Pledging accounts receivable, 453,
457
Polaroid, 281
Political risk, 12, 481, 483
Portfolio, 1, 21, 175, 178,
180184, 187189, 191193,
195199, 201204, 207208,
259, 308, 335, 343, 411,
435, 464, 471
PPP, 473474, 482483
Preemptive right, 243, 254
Preferred stock contracts, 421
Preferred stock, 235241,

251257, 331332
Preferred stockholders, 27, 73,
79, 90, 215, 237, 240241,
253, 332, 421
Premium bond, 228, 231
Prentice Hall, 49, 113, 265
Prepaid expenses, 78, 80, 90, 92,
95, 97, 104107, 114
Pre-Paid Legal Services, 76
Present value, 149154
Present-value interest factor, 153,
157, 168
Price indexes, 363
Price quotes, 4445
Price takers, 196
Primary markets, 42, 45, 67
Prime lending rate, 3233, 453
Prime rate of interest, 450
Principle of self-liquidating debt,
444, 446, 456457
Private placements, 31, 42, 45,
4750, 66
Privileged subscription, 4748, 67
Professional money manager, 207,
219
Profit and loss statement, 7273,
90
Profit margin, 118120, 125,
131137, 139, 249, 256,
405, 478
Profit maximization, 45, 2526,
28
Profit, 129
Profitability index, 261, 267268,
280, 282283, 285, 302,
320321
Profitability, 35
Profit-retention rate, 245, 254
Project ranking, 261, 275
Project standing alone risk, 307,
318
Prospectus, 51, 336
Protective provisions, 216,
236237, 253255
Proxy fight, 242, 254
Proxy, 52, 61, 242, 254,
312313, 351
Public offering, 42, 49, 6668, 71,
336
Purchasing-power parity theory,
463
Pure play method, 313, 318, 340
PVIF, 153, 159, 164165, 168,
173, 278, 289
Q
Quaker Oats, 293
Quick ratio, 114, 131, 135
R
R.J. Reynolds, 312
Ratio analysis, 111112,
124125, 128129, 131135,
138139, 396
Ratio, 111121, 396399,
409411, 419423, 448
RCA, 25
Real assets, 3738, 67
Real rate of interest, 5961,
6768, 474
Receivables, 80, 82, 84, 95,
99100, 105, 107, 114116,
120, 127, 134, 448,
453454, 456, 459460, 476
Recessions, 35
Red herring, 51
Regional exchanges, 45
Regulation, 31, 5051, 67, 193,
213
Required rate of return, 192199,
252257
Research and development, 4, 21,
262, 311, 322
Residual dividend theory,
415416, 420, 431, 433
Residual income, 240241
Residual value, 248, 250, 254,
314, 352
Retained earnings, 38, 7475,
7981, 8992, 9497,
99100, 104, 113114, 132,
135, 137, 333, 337339,
342, 358, 420422,
425426, 434, 437
Retention rate, 245
Return, 5357
Return on assets, 118, 125, 127,
131, 313, 456
Return on common equity,
121125, 131133, 135,
137, 139, 353
Return on equity, 122123,
125129, 131, 134,
244245, 256, 334335
Return on net assets, 448
Revenue, 11, 13, 73, 78, 87,
8990, 105, 111, 293, 299,
312, 318, 341, 345346,
363364, 368369, 371372,
374, 379, 381, 403405, 475
Revenue Reconciliation Act, 11,
13, 299
Revolving credit agreement, 450,
455, 457
Reynolds Metals, 237
Richard Roll, 63, 426
Risk premium, 5455, 57, 64,
182, 194198, 200,
221222, 230, 232233,
335336, 342, 353
Risk structure, 389
Index
35
10.23.03
Risk-adjusted discount rate,,

309311, 313, 318319, 321
Risk-free rate, 5759, 69, 182,
194201, 221, 230, 309,
334335, 342, 353
Risk-free rate of interest, 5759,
69, 221, 230, 335
Risk-free rate of return, 194, 198,
309
Riskless debt, 190
Risk-return relationship, 16, 310
Risk-return trade-off, 309
RJR Nabisco, 214
ROA, 118, 125
Robert Morris Associates, 113,
128
RONA, 448
Rose, John T., 128
Rubenfield, Daniel, 4
S
Sacripanti, Pete, 448
Sales forecast, 372, 374
Sales growth, 256, 429
Salomon Brothers, 2223, 52
Salomon Smith Barney, 41, 48
Savage, Leonard J., 272
Savings, 3741
Savings-deficit sector, 4041
Savings-surplus sector, 4041, 68
SCANA Corporation, 237
Scandals, 2223, 52
Scenario analysis, 314, 316, 318
Schering-Plough, 18
Schwartz, Eli, 398
Scott, David F., 398399
SEC, 43, 4952, 67, 76, 89, 213,
336, 410, 480
Secondary market, 38, 42, 44, 51,
58, 6667, 69
Secured loans, 447, 457
Securities, 3657
Securities Acts Amendments, 52,
67
Securities and Exchange
Commission, 43, 89, 213,
237, 336, 410
Security exchanges, 4243, 45,
51, 6667
Security market line, 196199,
201, 205
Self-liquidating debt, 444, 446,
456457
Selling rate, 469, 483
Semiannual interest payments,
224225
Semivariable costs, 372
Sensitivity analysis, 312, 314,
316, 318, 323
Shareholder value, 67, 72, 75,
111112, 129131, 138,
36
Index
1:01 PM
Page 36
247, 249250, 256, 327,

344348, 351, 354, 358,
380, 397, 411, 435
Shareholder value-based
management, 345, 354
Shareholder wealth,, 1, 45,
1920, 2226, 28, 274275,
282283, 327328, 341,
344, 347, 349, 354, 409, 423
Shelf registration, 5253, 67
Shelley Taylor & Associates, 244
Short-term bonds, 228
Short-term credit, 441, 446447,
450, 452458, 460
Short-term notes, 7981, 8788,
90, 99101, 104105, 114,
134, 445
Sidney Homer, 143
Simple arbitrage, 468, 483
Simulation, 291, 312316,
318319, 323, 341
Singer, Ronald F., 192
Sinking-fund provision, 237238,
253254
Sinquefield, Rex A., 181
Ski-Doo, 265267
Slope, 186188, 335, 395396
Smith, Clifford W., 388, 411
Smith, Keith V., 422
Social responsibility, 2324
Sole proprietorship, 59, 2526
Solon, 178
Spontaneous financing, 445
Spot transactions, 466, 483
Spreadsheets, 150, 162, 267, 270
SPX Corporation, 346, 351
St. Paul Co., 347
Stable dollar dividend per share,
422, 432433
Standard & Poors, 113, 184,
188, 201203, 208, 213,
216217, 363, 435
Standard deviation, 53, 180182,
184186, 191, 197199,
201203, 365
Standby agreement, 48
Starbucks Corporation, 409410,
415
Stern Stewart & Co., 1, 129, 328,
361
Stern, Joel M., 411
Stewart, G. Bennett, III, 1, 361
Stock buyback, 427, 433
Stock dividend, 103, 236,
424428, 433434, 437
Stock exchanges, 4445, 52, 480
Stock price, 1, 5, 7, 1920, 76,
175, 183184, 186, 195,
199, 214, 218, 238, 245,
252, 255, 269, 313, 327,
332333, 341, 344, 363,
382383, 385, 387388,
401402, 409414, 416418,

420, 427, 430, 432435
Stock repurchase, 423, 427430,
433
Stock split, 424427, 433435
Stock, 3438, 175176, 186191,
214219, 235247
Stockholders, 79
Stretching of trade credit, 450
Subrahmanyam, Marti G., 388
Sumitomo, 22, 28
Sun Microsystems, 6
Sunk costs, 294295, 317, 319,
323
SunTrust Bank, 57
Surplus savings, 38
Suzuki Motors, 281
Syndicate, 4142, 4647, 6768
Syndicated Eurocredit loan, 480
Systematic risk, 183184, 188,
192, 195198, 201, 203,
205, 307309, 311314,
318, 334, 353
T
Target debt ratio, 342, 398
Tax credit, 21
Tax expenses, 7374, 90
Tax Reform Act, 13, 299
Taxable income, 1014, 2529,
73, 213, 299, 352, 475
Taxation, 3, 910, 219, 384, 386,
414, 481
Taxpayer Relief Act, 414
Taxpayer, 10, 414
Temporary investments, 445446,
457
Temporary sources of financing,
445, 457
Tender offer, 430, 433
Tenneco Corporation, 237
Term structure of interest rates,
31, 6165, 6768, 443
Terminal cash flow, 296,
301302, 304, 317318,
321, 323324
Terminal growth rate, 141
Terminal warehouse agreement,
455, 457
Texaco, 48
Texas Utility Electric (TXU), 236
The Gap Inc., 184185, 187
Third World, 24, 26, 481
Time value of money, 1617,
143149, 413
Times interest earned, 121, 131,
133135, 137, 139
Tobias, Andrew, 143
Toledo Edison, 332
Total asset turnover, 118120,
131137, 139
Total revenue, 369, 403

Toyota, 18, 24, 27, 316
Trade credit, 79, 445447,
449450, 456459
Transaction exposure, 456457,
475476, 478, 483
Transaction loans, 450451,
456457
Transfer price, 479, 483
Translation exposure, 456457,
475, 478, 482
Treasury bill, 23, 179, 181182,
194, 203
Treasury stock, 7980, 88, 90,
99100, 114, 427
Triangular arbitrage, 468469,
483
Triumph of the Optimists, 190
Turnover, 115116, 118120,
123, 125, 128, 131137,
139, 208, 407, 439
TVM, 146, 270
Tyco International Ltd., 87, 214,
241
U
U.S. Treasury Bills, 42, 56, 60, 63,
181, 197
UBS Warburg, 48
Unbiased expectations theory,
6364, 67
Underwriters spread, 50, 66
Underwriting, 38, 42, 4650,
6667
Uneven cash flows, 154, 164, 271
Uniphase, 6
Universal Studios, 261, 292
Unsecured loans, 447, 457
Unsystematic risk, 183184, 192,
198, 314
V
Valuation approach, to liquidity
management, 444
Valuation, 211233, 235257,
330, 332334
Value Line, 188, 334335
Value-based management,
344345, 349, 354
Variable costs, 367372,
374375, 379, 381, 403406
Vencor, 347
Very low coupon bonds,
212213, 230231
Volatility, 43, 175, 182183,
186187, 346, 392, 413
Volkswagen, 3
Volume of output, 366, 369, 403
Voting rights, 237, 240241
10.23.03
W
W.R. Grace & Co., 423
Wages, 10, 79, 107, 166,
445447, 449, 457, 481
Wal-Mart, 18, 188, 347, 357, 465
Walt Disney Company, 32, 53,
65, 261, 291, 397, 427
Walt Disney Company, 32, 53,
65, 261, 291, 397, 427
Watts, Ross L., 411
Wealth creation, 344, 348
Weighted average cost of capital,
327, 329, 333, 337343,
352355, 357358, 380, 392
Welch, Ivo, 336
1:01 PM
Page 37
West, M. L., 178

Working capital, 78, 8285, 90,
9293, 101, 116117, 248,
294, 296, 317, 319, 421,
439, 441442, 444, 446,
448, 450, 452, 454458,
460, 464, 466, 468, 470,
472, 474, 476, 478480,
482, 484
Work-in-process inventory, 302
Worldcom, 6, 194
Y
Yahoo! Inc, 78
Yield to maturity, 61, 67, 211,
213, 225, 230231, 269
Z
Zietlow, John T., 113
X
Xerox Corporation, 237
Index
37

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998666 CH00 FM pi-iv

Printed in the United States of America

PEARSON CUSTOM PUBLISHING

998666 CH00 FM pi-iv

998666 CH00 FM pi-iv

998666 KEOWN APP. A pp001-008

998666 KEOWN APP. A pp001-008

II. An Important Starting Point

Sets display to show four numbers to the right of the

Sets number of payments per year at 2

Sets timing of payment at the end of each period

III. Calculating Table Values

Sets number of payments per year at 1

Sets timing of payment at the end of each period

Clears TVM variables

B. The present value of $1 (Appendix C)

Sets number of payments per year at 1

Sets timing of payment at the end of each period

Clears TVM variables

Stores number of periods

998666 KEOWN APP. A pp001-008

III. Calculating Table Values (continued )

Sets number of payments per year at 1

Sets timing of payment at the end of each period

Clears TVM variables

D. The present value of an annuity of $1 for n periods (Appendix E)

Sets number of payments per year at 1

Sets timing of payment at the end of each period

Clears TVM variables

IV. Calculating Present Values

Sets timing of payment at the end of each period

Clears TVM variables

998666 KEOWN APP. A pp001-008

V. Calculating Future Values (Compound Sum)

Sets timing of payment at the end of each period

Sets timing of payments to beginning of each period

Sets 12 payments per year

Clears TVM variables

VI. Calculating the Number of Payments or Receipts

Verifies timing of payment at the beginning of each

Sets 12 payments per year

VII. Calculating the Payment Amount

Verifies timing of payment at the beginning of each

Sets 12 payments per year

998666 KEOWN APP. A pp001-008

VII. Calculating the Payment Amount (continued )

Clears TVM variables

VIII. Calculating the Interest Rate

Sets timing of payments to beginning of each period

Sets timing of payments to end of each period

Sets 12 payments per year

Clears TVM variables

IX. Bond Valuation

Verifies timing of payments to end of each period

Sets 2 payments per year; end mode (END) assumes

998666 KEOWN APP. A pp001-008

IX. Bond Valuation (continued )

(This will be the last date entered)

Clears BOND variables

Stores the coupon interest rate

B. Computing the yield to maturity of a bond

Verifies timing of payments to end of each period

Sets 2 payments per year; end mode (END) assumes