1 Merger Fundamentals 716 Major Causes of Business Failure 738

18 18.1 Merger Fundamentals 716 Major Causes of Business Failure 738

Mergers, LBOs, in practice Terminology Focus on Ethics: Too Big to

Divestitures, and

Fail? 739

Business Failure

Voluntary Settlements 739 page 714

Motives for Merging 718

Types of Mergers 720

6 REVIEW QUESTIONS 740

6 REVIEW QUESTIONS 721

18.5 Reorganization and

18.2 LBOs and Divestitures 721

Liquidation in Bankruptcy 741

Leveraged Buyouts (LBOs) 721

Bankruptcy Legislation 741

Divestitures 722

Reorganization in Bankruptcy

6 REVIEW QUESTIONS 723

(Chapter 11) 742 Liquidation in Bankruptcy

IMS Health, Inc.—Creating

18.3 Analyzing and Negotiating

(Chapter 7) 744

Value by Going Private

Mergers 723

6 REVIEW QUESTIONS 744

page 715

Valuing the Target Company 724

Summary 745

Stock Swap Transactions 726

Opener-in-Review 747

Merger Negotiation Process 731

Self-Test Problems 748

Holding Companies 733

Warm-Up Exercises 748

International Mergers 735

Problems 749

Spreadsheet Exercise 755

6 REVIEW QUESTIONS 736

in practice Global Focus: International Mergers 737

18.4 Business Failure Fundamentals 737 Types of Business Failure 737

Contents

xxxiii

19 in practice 19.1 The Multinational Company Global Focus: Take an

International

Overseas Assignment to Take a Step Up the Managerial

and Its Environment 759

Corporate Ladder 778

Key Trading Blocs 759

Finance Long-Term Debt 779 page 757

GATT and the WTO 761

Equity Capital 780

Legal Forms of Business Organization 6 761 REVIEW QUESTIONS 781

Taxes 762

19.5 Short-Term Financial

Financial Markets 764

Decisions 781

6 REVIEW QUESTIONS 765

Cash Management 783

19.2 Credit and Inventory Management Financial Statements 786 765 6 REVIEW QUESTIONS 787

General Electric—Establishing Subsidiary Characterization and

Functional Currency 766

a Presence in China page

19.6 Mergers and Joint

Translation of Individual Accounts 766

Ventures 787

6 REVIEW QUESTION 767

6 REVIEW QUESTION 788

19.3 Summary Risk 788 767

Opener-in-Review 790

Exchange Rate Risks 767

Self-Test Problems 790

Political Risks 773

Warm-Up Exercises 791

6 REVIEW QUESTIONS 774

Problems 791

in practice Focus on Ethics: Chiquita’s

Spreadsheet Exercise 794

Slippery Situation 775

Integrative Case 8 Organic

19.4 Solutions Long-Term Investment and 795 Financing Decisions 775 Foreign Direct Investment 775 Investment Cash Flows and

Decisions 776 Capital Structure 777

Appendix A-1 Glossary G-1 Index I-1

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About the Authors

Lawrence J. Gitman is an emeritus professor of finance at San Diego State University. Dr. Gitman has pub- lished more than 50 articles in scholarly journals as well as textbooks covering undergraduate- and graduate-level cor- porate finance, investments, personal finance, and introduc- tion to business. Dr. Gitman is past president of the Academy of Financial Services, the San Diego Chapter of the Financial Executives Institute, the Midwest Finance Association, and the FMA National Honor Society. Dr. Gitman served as Vice-President of Financial Education of the Financial Management Association, as a director of the San Diego MIT Enterprise Forum, and on the CFP ® Board of Standards. He received his B.S.I.M. from Purdue University, his M.B.A. from the University of Dayton, and his Ph.D. from the University of Cincinnati. He and his wife have two children and live in La Jolla, California, where he is an avid bicyclist, having twice competed in the coast-to-coast Race Across America.

Chad J. Zutter is an associate professor of finance at the University of Pittsburgh. Dr. Zutter recently won the Jensen Prize for the best paper published in the Journal of Financial Economics and has also won a best paper award from the Journal of Corporate Finance. His research has a practical, applied focus and has been the subject of feature stories in, among other prominent outlets, The Economist and CFO Magazine. His papers have been cited in arguments before the U.S. Supreme Court and in consultation with companies such as Google and Intel. Dr. Zutter has also won teaching awards at Indiana University and the University of Pittsburgh. He received his B.B.A. from the University of Texas at Arlington and his Ph.D. from Indiana University. He and his wife have four children and live in Pittsburgh, Pennsylvania. Prior to his career in academics, Dr. Zutter was a submariner in the U.S. Navy.

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Preface

he desire to write T Principles of Managerial Finance came from the experience

of teaching the introductory managerial finance course. Those who have taught the introductory course many times can appreciate the difficulties that some students have absorbing and applying financial concepts. Students want a book that speaks to them in plain English and a book that ties concepts to reality. These students want more than just description—they also want demonstration of concepts, tools, and techniques. This book is written with the needs of students in mind, and it effectively delivers the resources that students need to succeed in the introductory finance course.

Courses and students have changed since the first edition of this book, but the goals of the text have not changed. The conversational tone and wide use of examples set off in the text still characterize Principles of Managerial Finance. Building on those strengths, 13 editions, numerous translations, and well over half a million U.S. users, Principles has evolved based on feedback from both instructors and students, from adopters, nonadopters, and practitioners.

In this edition, Chad Zutter of the University of Pittsburgh joins the author team. A recent recipient of the Jensen Prize for the best paper published in the Journal of Financial Economics, Chad brings a fresh perspective to Principles. Larry and Chad have worked together to incorporate contemporary thinking and pedagogy with the classic topics that Gitman users have come to expect.

NEW TO THE THIRTEENTH EDITION As we made plans to publish the thirteenth edition, we carefully assessed market

feedback about content changes that would better meet the needs of instructors teaching the course.

The chapter sequence is similar to the prior edition, but there are some note- worthy changes. The thirteenth edition contains 19 chapters divided into eight parts. Each part is introduced by a brief overview, which is intended to give stu- dents an advance sense for the collective value of the chapters included in the part.

In Part 1, a new Chapter 2 expands coverage of financial markets and insti- tutions, with particular emphasis on the recent financial crisis and recession. This chapter not only explores the root causes and consequences of the financial crisis, but it also discusses the changing regulatory landscape within which financial institutions and markets function.

Part 2 contains three chapters in the same order in which they appeared in the twelfth edition. These chapters focus on basic financial skills such as financial statement analysis, cash flow analysis, and time-value-of-money calculations.

Part 3 focuses on bond and stock valuation. We moved these two chapters forward in this edition, just ahead of the risk and return chapter, to provide stu- dents with exposure to basic material on bonds and stocks that is easier to grasp than some of the more theoretical concepts in the next part.

xxxviii

Preface

Part 4 contains the risk and return chapter as well as the chapter on the cost of capital, which we have moved forward to lead into Part 5 on capital budg- eting. We also moved up the chapter on the cost of capital so that it follows directly on the heels of the risk and return material. We believe that this makes the subsequent discussion of capital budgeting topics more meaningful because students will already have an idea of where a project “hurdle rate” comes from.

Part 5 contains three chapters on various capital budgeting topics. A change from the last edition here is that we present capital budgeting methods before the chapter on capital budgeting cash flows.

Parts 6, 7, and 8 contain the same seven chapters in the same order that appeared in the latter part of the twelfth edition. These chapters cover topics such as capital structure, payout policy, working capital management, derivatives, mergers, and international finance. Details about the revisions made to these chapters appear below.

Although the text content is sequential, instructors can assign almost any chapter as a self-contained unit, enabling instructors to customize the text to var- ious teaching strategies and course lengths.

A number of new topics have been added at appropriate places, and new fea- tures appear in each chapter. The Matter of Fact feature provides additional detail and interesting empirical facts that help students understand the practical implica- tions of financial concepts. For students who want to explore particular topics more deeply on their own, the In More Depth feature, available on MyFinanceLab, offers a guide for further study. In addition, as the detailed list shows, the chapter- opening vignettes and In Practice boxes have been replaced or heavily revised: For example, three-quarters of the chapter-opening vignettes are new, focusing on com- panies such as Facebook, Abercrombie & Fitch, and Best Buy that have student appeal, and more than half of the Focus on Ethics boxes are new. Also new to this edition are Opener-in-Review questions, which appear at the end of each chapter.

The following chapter-by-chapter list details several of the notable content changes in the thirteenth edition.

Chapter 1 The Role of Managerial Finance • Revised opening vignette discusses Facebook’s possible IPO. • New Focus on Practice box discusses professional certifications in finance. • New Matter of Fact feature provides statistics on the number of businesses

and the revenues they generate by legal form of organization. • Sections on financial markets and business taxes have been moved to a new,

expanded Chapter 2. • Coverage of the difference between cash flow and profit as part of the discus- sion surrounding the goal of the firm has been revised. • New Focus on Ethics box highlights the ethical issues that Google faced

during its expansion to China. • Coverage of agency issues has been substantially revised, and a new Matter of Fact feature provides data on the link between pay and performance for several prominent firms.

Chapter 2 The Financial Market Environment • This new chapter focuses on financial markets and institutions as well as the

recent financial crisis.

xxxix • New section provides coverage of commercial banks, investment banks, and

Preface

the shadow banking system. • New Focus on Ethics box is related to the Martha Stewart insider trading scandal. • New section has been added on causes and consequences of financial crisis. • Coverage of regulatory issues has been updated.

Chapter 3 Financial Statements and Ratio Analysis • New opening vignette has been added (financial results, Abercrombie & Fitch). • New Global Focus box covers International Financial Reporting Standards (IFRS). • New Focus on Ethics box describes ethical issues related to corporate earn- ings reports. • New table shows values of key ratios for several prominent firms and the related industry averages. Five related Matter of Fact features explain why certain ratio values vary systematically across industries.

Chapter 4 Cash Flow and Financial Planning • New opening vignette highlights Apple’s huge cash hoard.

• New Matter of Fact box illustrates where Apple’s cash flow comes from. • New Focus on Practice box dissects a recent earnings report by Cisco

Systems to explore the firm’s underlying cash generation. • Discussion of alternative cash flow measures has been revised. • New In More Depth feature (on MyFinanceLab) discusses the value of using

regression analysis to estimate fixed costs. Chapter 5 Time Value of Money

• New In More Depth feature (on MyFinanceLab) shows how the firm Royalty Pharma makes lump-sum payments to acquire royalty streams from other firms.

• References to financial tables and interest rate factors have been eliminated. • Coverage of calculations using Excel has been expanded. • New Matter of Fact feature describes a Kansas truck driver’s choice to take a

lump-sum payment rather than an annuity due after winning the lottery. • The Focus on Ethics box on subprime loans has been revised.

Chapter 6 Interest Rates and Bond Valuation

• Opening vignette (U.S. Treasury, public debt) has been updated. • New Matter of Fact feature highlights a 2008 U.S. Treasury auction in which

bill returns briefly turned negative. • Discussion of factors that influence interest rates, particularly inflation, has been substantially revised. • New In More Depth feature (on MyFinanceLab) points students to an ani- mation on the Web that illustrates historical yield curve behavior. • Major revisions have been made to coverage of the term structure of interest rates. • Focus on Ethics box on the performance of rating agencies during the finan- bill returns briefly turned negative. • Discussion of factors that influence interest rates, particularly inflation, has been substantially revised. • New In More Depth feature (on MyFinanceLab) points students to an ani- mation on the Web that illustrates historical yield curve behavior. • Major revisions have been made to coverage of the term structure of interest rates. • Focus on Ethics box on the performance of rating agencies during the finan-

Preface

Chapter 7 Stock Valuation • New opening vignette has been added about A123 Systems Inc., a company that uses nanotechnology to make more powerful batteries for electric cars. • New In More Depth feature (on MyFinanceLab) discusses the U.S. bank-

ruptcy process. • New Matter of Fact box describes how assets are divided in bankruptcy. • New In More Depth feature (on MyFinanceLab) discusses the hierarchy of

the efficient market hypothesis. • New In More Depth feature (on MyFinanceLab) illustrates the derivation of

the constant-growth model. • New Matter of Fact box describes how P/E ratios fluctuate over time.

Chapter 8 Risk and Return • New opening vignette has been added about a mutual fund that ranked near

the bottom and then at the top of all mutual funds in consecutive years. • New Focus on Ethics box features Bernie Madoff. • New numerical examples have data drawn from the real world. • Historical returns on U.S. stocks, bonds, and bills have been updated. • Discussion of investor risk preferences has been substantially revised. • New Matter of Fact feature discusses Nicholas Taleb’s Black Swan. • New Matter of Fact box compares historical returns on large stocks versus

small stocks. • New Global Focus box features data on international diversification.

Chapter 9 The Cost of Capital

• New opening vignette focuses on General Electric. • New Focus on Ethics box deals with Merck’s handling of Vioxx. • New In More Depth feature (on MyFinanceLab) discusses changes in the

weighted average cost of capital. • New Matter of Fact box presents a more comprehensive cost of retained

earnings. • New Focus on Practice feature focuses on WACC’s susceptibility to the 2008

financial crisis and the 2009 great recession. • New integrative case for Part 4 has been added.

Chapter 10 Capital Budgeting Techniques • New opening vignette describes techniques used by Genco Resources to eval-

uate a proposal to expand its mining operations. • New In More Depth feature (on MyFinanceLab) discusses the Accounting

Rate of Return method. • Substantially revised opening section discusses the capital budgeting process. • Coverage of profitability index approach has been expanded. • Coverage of economic value added has been expanded. • New Matter of Fact box provides evidence on the extent to which firms use

different capital budgeting methods.

Chapter 11 Capital Budgeting Cash Flows • Opening vignette (project costs at ExxonMobil) has been updated. • New Matter of Fact box provides statistics on foreign direct investment in Chapter 11 Capital Budgeting Cash Flows • Opening vignette (project costs at ExxonMobil) has been updated. • New Matter of Fact box provides statistics on foreign direct investment in

Preface

• Focus on Ethics box (accuracy of cash flow estimates) has been updated. • Two new Integrative Problems have been added.

Chapter 12 Risk and Refinements in Capital Budgeting • New opening vignette discusses BP oil spill. • New In More Depth feature (on MyFinanceLab) directs students to a Crystal

Ball simulation of a mining investment on the Internet. • New Matter of Fact box provides evidence on the frequency with which firms make adjustments to their investment analysis to account for currency risk.

• New Focus on Ethics box discusses the implications of the BP oil spill on the firm’s cost of capital.

Chapter 13 Leverage and Capital Structure • New opening vignette discuss the value created by Genzyme when it added

debt to its capital structure in response to a proxy fight with Carl Icahn. • Substantially revised opening section discusses the nature and risks of leverage. • Revised Focus on Practice box calculates Adobe’s operating leverage. • New Focus on Ethics box discusses Lehman Brothers’ use of off–balance

sheet transactions to understate its leverage. • New Matter of Fact box offers data on the use of financial leverage by firms in different countries. • New In More Depth feature (on MyFinanceLab) explains why capital struc- ture does not affect firm value in perfect markets. • Major revisions have been made to the discussion of the pecking order and signaling theories of capital structure.

Chapter 14 Payout Policy • New chapter title reflects broader focus on payout policy, including share repurchases as opposed to a narrow focus on dividends. • Revised opening vignette covers Best Buy’s dividend and share repurchase programs. • New opening section discusses long-term trends in earnings, dividends, and repurchases. • New Matter of Fact box describes Procter & Gamble’s long dividend history. • New figure shows relative frequency of firms increasing and decreasing divi-

dends over time. • New examples have real-world data. • Extensive new discussion of share repurchase programs and procedures has

been added. • New discussion covers effects of dividend and share repurchase decisions on firm value. • New In More Depth feature (on MyFinanceLab) explains the conditions

under which dividend policy has no impact on firm value. • Extensive revisions have been made to discussions of alternative dividend theories and a brief introduction to the new catering theory of dividends has under which dividend policy has no impact on firm value. • Extensive revisions have been made to discussions of alternative dividend theories and a brief introduction to the new catering theory of dividends has

Preface

Chapter 15 Working Capital and Current Assets Management • New opening vignette focuses on working capital at Cytec Industries. • New figure shows the yearly median working capital values for all U.S.-listed

manufacturing companies. • Updated example for calculating the cash conversion cycle uses real data for

IBM. • Updated Focus on Practice box discusses Walmart’s use of RFID. • New In More Depth feature (on MyFinanceLab) discusses accounts receiv-

able financing. • New Matter of Fact box cites finding from a survey of CFOs regarding the

value they place on working capital management.

Chapter 16 Current Liabilities Management • Updated opening vignette covers reducing accounts payable expenses at

Memorial Sloan-Kettering. • Revised in-chapter examples use real data for Hewlett-Packard. • Focus on Practice box (commercial paper) has been updated. • New Focus on Ethics box discusses the accounting fraud case against

Diebold Inc. • Two new Matter of Fact boxes have been added, one on lending limits and

the other on quasi-factoring. • Several In More Depth features (on MyFinanceLab) have been added,

including one that discusses floating inventory liens.

Chapter 17 Hybrid and Derivative Securities • New opening vignette discusses airlines sale-leaseback transactions. • New Matter of Fact feature provides recent data on the size of the convert-

ibles market. • Major revisions to options coverage include a Matter of Fact box that describes the decline in trading volume during the financial crisis and another one outlining some popular options trading strategies.

• Updated Focus on Ethics box discusses the options backdating scandal. Chapter 18 Mergers, LBOs, Divestitures, and Business Failure

• New opening vignette on creating value by going private has been added. • New In More Depth (on MyFinanceLab) discusses prioritizing claims in

liquidation. • Global Focus box (News Corp acquisitions) has been updated. • New Focus on Ethics box discusses General Motors and the “too big to fail”

policy. • New Matter of Fact box provides statistics on the ten largest U.S. bankruptcies.

Chapter 19 International Managerial Finance • Opening vignette (GE’s business in China) has been updated. • Two new Matter of Fact boxes have been added, one on diversifying opera-

tions and the other on adjusting discount rates. • Global Focus box (overseas assignments) has been updated. • New Focus on Ethics box discusses Chiquita’s policy of paying protection tions and the other on adjusting discount rates. • Global Focus box (overseas assignments) has been updated. • New Focus on Ethics box discusses Chiquita’s policy of paying protection

Preface

Like the previous editions, the thirteenth edition incorporates a proven learning system, which integrates pedagogy with concepts and practical applications. It concentrates on the knowledge that is needed to make keen financial decisions in an increasingly competitive business environment. The strong pedagogy and gen- erous use of examples—including personal finance examples—make the text an easily accessible resource for in-class learning or out-of-class learning, such as online courses and self-study programs.

ORGANIZATION The text’s organization conceptually links the firm’s actions and its value, as

determined in the financial market. Each major decision area is presented in terms of both risk and return factors and their potential impact on owners’ wealth. A Focus on Value element at the end of each chapter helps reinforce the student’s understanding of the link between the financial manager’s actions and the firm’s share value.

In organizing each chapter, we have adhered to a managerial decision- making perspective, relating decisions to the firm’s overall goal of wealth maxi- mization. Once a particular concept has been developed, its application is illustrated by an example—a hallmark feature of this book. These examples demonstrate, and solidify in the student’s thought, financial decision-making con- siderations and their consequences.

INTERNATIONAL CONSIDERATIONS We live in a world where international considerations cannot be divorced from the

study of business in general and finance in particular. As in prior editions, discus- sions of international dimensions of chapter topics are integrated throughout the book. International material is integrated into learning goals and end-of-chapter materials. In addition, for those who want to spend more time addressing the topic, a separate chapter on international managerial finance concludes the book.

PERSONAL FINANCE LINKAGES The thirteenth edition contains several features designed to help students see the

value of applying financial principles and techniques in their personal lives. At the start of each chapter, the feature titled Why This Chapter Matters to You helps motivate student interest by discussing how the topic of the chapter relates to the concerns of other major business disciplines and to personal finance. Within the chapter, Personal Finance Examples explicitly link the concepts, tools, and tech- niques of each chapter to personal finance applications. Throughout the homework material, the book provides numerous personal finance problems. The purpose of these personal finance materials is to demonstrate to students the usefulness of managerial finance knowledge in both business and personal financial dealings.

ETHICAL ISSUES The need for ethics in business remains as important as ever. Students need to under-

stand the ethical issues that financial managers face as they attempt to maximize stand the ethical issues that financial managers face as they attempt to maximize

Preface

shareholder value and to solve business problems. Thus, every chapter includes an In Practice box that focuses on current ethical issues.

HOMEWORK OPPORTUNITIES Of course, practice is essential for students’ learning of managerial finance con-

cepts, tools, and techniques. To meet that need, the book offers a rich and varied menu of homework assignments: short, numerical Warm-Up Exercises; a com- prehensive set of Problems, including more than one problem for each important concept or technique and personal finance problems; an Ethics Problem for each chapter; a Spreadsheet Exercise; and, at the end of each part of the book, an Integrative Case. In addition, the end-of-chapter problems are available in algo- rithmic form in

. These materials (see pages xi through xii for detailed descriptions) offer students solid learning opportunities, and they offer instruc- tors opportunities to expand and enrich the classroom environment.

MyFinanceLab This fully integrated online homework system gives students the hands-on prac-

tice and tutorial help they need to learn finance efficiently. There are ample opportunities for online practice and assessment that is automatically graded in MyFinanceLab ( www.myfinancelab.com ).

Chapter Cases with automatically graded assessment are also provided in MyFinanceLab. These cases have students apply the concepts they have learned to a more complex and realistic situation. These cases help strengthen practical application of financial tools and techniques.

MyFinanceLab also has Group Exercises where students can work together in the context of an ongoing company. Each group creates a company and fol- lows it through the various managerial finance topics and business activities pre- sented in the textbook.

MyFinanceLab provides Critical Thinking Problems, which require students to apply the various finance concepts and managerial techniques presented in the textbook. These are rigorous problems that are designed to test a student’s ability to understand the financial management situation, apply the necessary manage- rial finance concepts, and find the value-maximizing solution.

An online glossary, digital flashcards, financial calculator tutorials, videos, Spreadsheet Use examples from the text in Excel, and numerous other premium resources are available in MyFinanceLab.

From classroom to boardroom, the thirteenth edition of Principles of Managerial Finance can help users get to where they want to be. We believe that it is the best edition yet—more relevant, more accurate, and more effective than ever. We hope you agree that Principles of Managerial Finance, Thirteenth Edition, is the most effective introductory managerial finance text for your students.

Lawrence J. Gitman La Jolla, California

Chad J. Zutter Pittsburgh, Pennsylvania

Supplements to the Thirteenth Edition

The Principles of Managerial Finance Teaching and Learning System includes a variety of useful supplements for teachers and for students.

TEACHING TOOLS FOR INSTRUCTORS The key teaching tools available to instructors are the Instructor’s Manual,

testing materials, and PowerPoint Lecture Presentations. Instructor’s Manual Revised by Thomas Krueger, Texas A&M University–

Kingsville and accuracy-checked by Gordon Stringer, University of Colorado, Colorado Springs. This comprehensive resource pulls together the teaching tools so that instructors can use the textbook easily and effectively in the classroom. Each chapter provides an overview of key topics and detailed answers and solu- tions to all review questions, Opener-in-Review questions, Warm-Up Exercises, end-of-chapter problems, and chapter cases, plus suggested answers to all critical thinking questions in chapter boxes, Ethics Problems, and Group Exercises. At the end of the manual are practice quizzes and solutions. The complete Instructor’s Manual, including Spreadsheet Exercises, is available online at the Instructor’s Resource Center ( www.pearsonhighered.com/irc ).

Test Item File Revised by Shannon Donovan, Bridgewater State University. Thoroughly revised to accommodate changes in the text, the Test Item File consists of a mix of true/false, multiple-choice, and essay questions. Each test question includes identifiers for type of question, skill tested by learning goal, and key topic tested plus, where appropriate, the formula(s) or equation(s) used in deriving the answer.

The Test Item File is also available in Test Generator Software (TestGen) for either Windows or Macintosh. The Test Item File and TestGen are avail- able online at the Instructor’s Resource Center ( www.pearsonhighered.com/irc ).

PowerPoint Lecture Presentation Revised by Thomas Boulton, Miami University. This presentation combines lecture notes with all of the art from the textbook. The PowerPoint Lecture Presentation is available online at the Instructor’s Resource Center ( www.pearsonhighered.com/irc ).

LEARNING TOOLS FOR STUDENTS Beyond the book itself, students have access to valuable resources, such as

MyFinanceLab and the Study Guide, that if taken advantage of can help ensure their success.

MyFinanceLab MyFinanceLab opens the door to a powerful Web-based diag- nostic testing and tutorial system designed specifically for the Gitman/Zutter, Principles of Managerial Finance textbooks. With MyFinanceLab, instructors can create, edit, and assign online homework and test and track all student work in the online gradebook. MyFinanceLab allows students to take practice tests corre- MyFinanceLab MyFinanceLab opens the door to a powerful Web-based diag- nostic testing and tutorial system designed specifically for the Gitman/Zutter, Principles of Managerial Finance textbooks. With MyFinanceLab, instructors can create, edit, and assign online homework and test and track all student work in the online gradebook. MyFinanceLab allows students to take practice tests corre-

Supplements to the Thirteenth Edition

Most end-of-chapter problems are available in MyFinanceLab, and because the problems have algorithmically generated values, no student will have the same homework as another; there is an unlimited opportunity for practice and testing. Students get the help they need, when they need it, from the robust tutorial options, including “View an Example” and “Help Me Solve This,” which breaks the problem into its steps and links to the relevant textbook page.

This fully integrated online homework system gives students the hands-on practice and tutorial help they need to learn finance efficiently. There are ample opportunities for online practice and assessment that is automatically graded in MyFinanceLab ( www.myfinancelab.com ).

Advanced reporting features in MyFinanceLab also allow you to easily report on AACSB accreditation and assessment in just a few clicks. Chapter Cases with automatically graded assessment are also provided in MyFinanceLab. These cases have students apply the concepts they have learned to a more complex and realistic situation. These cases help strengthen practical application of financial tools and techniques.

MyFinanceLab also has Group Exercises where students can work together in the context of an ongoing company. Each group creates a company and fol- lows it through the various managerial finance topics and business activities pre- sented in the textbook.

MyFinanceLab provides Critical Thinking Problems, which require students to apply the various finance concepts and managerial techniques presented in the textbook. These are rigorous problems that are designed to test a student’s ability to understand the financial management situation, apply the necessary manage- rial finance concepts, and find the value-maximizing solution.

An online glossary, digital flashcards, financial calculator tutorials, videos, Spreadsheet Use examples from the text in Excel, and numerous other premium resources are available in MyFinanceLab.

Students can use MyFinanceLab with no instructor intervention. However, to take advantage of the full capabilities of MyFinanceLab, including assigning homework and tracking student progress in the automated gradebook, instruc- tors will want to set up their class. To view a demo of MyFinanceLab or to request instructor access go to www.myfinancelab.com .

Study Guide Revised by Shannon Donovan, Bridgewater State University. The Study Guide is an integral component of the Principles of Managerial Finance Teaching and Learning System. It offers many tools for studying finance. Each chapter contains the following features: chapter summary enumerated by learning goals; topical chapter outline, also broken down by learning goals for quick review; sample problem solutions; study tips and a full sample exam with the answers at the end of the chapter. A financial dictionary of key terms is located at the end of the Study Guide, along with an appendix with tips on using financial calculators.

Acknowledgments

TO OUR COLLEAGUES, FRIENDS, AND FAMILY Prentice Hall sought the advice of a great many excellent reviewers, all of whom

influenced the revisions of this book. The following individuals provided extremely thoughtful and useful comments for the preparation of the thirteenth edition:

Johnny C. Chan, Western Kentucky University Kent Cofoid, Seminole Community College Shannon Donovan, Bridgewater State University Suk Hun Lee, Loyola University Chicago Hao Lin, California State University–Sacramento Larry Lynch, Roanoke College Alvin Nishimoto, Hawaii Pacific University William Sawatski, Southwestern College Steven R. Scheff, Florida Gulf Coast University Michael Schellenger, University of Wisconsin, Oshkosh Gordon M. Stringer, University of Colorado–Colorado Springs Barry Uze, University of Southwestern Louisiana Sam Veraldi, Duke University John Zietlow, Malone University

Our special thanks go to the following individuals who analyzed the manu- script in previous editions:

Saul W. Adelman M. Fall Ainina Gary A. Anderson Ronald F. Anderson James M. Andre Gene L. Andrusco Antonio Apap David A. Arbeit Allen Arkins Saul H. Auslander Peter W. Bacon Richard E. Ball Thomas Bankston Alexander Barges Charles Barngrover Michael Becker Omar Benkato Scott Besley Douglas S. Bible Charles W. Blackwell Russell L. Block Calvin M. Boardman Paul Bolster

Jeffrey A. Born Jerry D. Boswell Denis O. Boudreaux Kenneth J. Boudreaux Wayne Boyet Ron Braswell Christopher Brown William Brunsen Samuel B. Bulmash Francis E. Canda Omer Carey Patrick A. Casabona Robert Chatfield K. C. Chen Roger G. Clarke Terrence M. Clauretie Mark Cockalingam Boyd D. Collier Thomas Cook Maurice P. Corrigan Mike Cudd Donnie L. Daniel Prabir Datta

Lee E. Davis Irv DeGraw Richard F. DeMong Peter A. DeVito James P. D’Mello R. Gordon Dippel Carleton Donchess Thomas W. Donohue Vincent R. Driscoll Betty A. Driver Lorna Dotts David R. Durst Dwayne O. Eberhardt Ronald L. Ehresman Ted Ellis

F. Barney English Greg Filbeck Ross A. Flaherty Rich Fortin Timothy J. Gallagher George W. Gallinger Sharon Garrison Gerald D. Gay F. Barney English Greg Filbeck Ross A. Flaherty Rich Fortin Timothy J. Gallagher George W. Gallinger Sharon Garrison Gerald D. Gay

Acknowledgments

R. H. Gilmer Anthony J. Giovino Michael Giuliano Philip W. Glasgo Jeffrey W. Glazer Joel Gold Ron B. Goldfarb Dennis W. Goodwin David A. Gordon J. Charles Granicz

C. Ramon Griffin Reynolds Griffith Arthur Guarino Lewell F. Gunter Melvin W. Harju John E. Harper Phil Harrington George F. Harris George T. Harris John D. Harris Mary Hartman R. Stevenson Hawkey Roger G. Hehman Harvey Heinowitz Glenn Henderson Russell H. Hereth Kathleen T. Hevert J. Lawrence Hexter Douglas A. Hibbert Roger P. Hill Linda C. Hittle James Hoban Hugh A. Hobson Keith Howe Kenneth M. Huggins Jerry G. Hunt Mahmood Islam James F. Jackson Stanley Jacobs Dale W. Janowsky Jeannette R. Jesinger Nalina Jeypalan Timothy E. Johnson Roger Juchau Ashok K. Kapoor Daniel J. Kaufman Jr. Joseph K. Kiely Terrance E. Kingston Raj K. Kohli Thomas M. Krueger Lawrence Kryzanowski Harry R. Kuniansky Richard E. La Near William R. Lane

James Larsen Rick LeCompte

B. E. Lee Scott Lee Michael A. Lenarcic

A. Joseph Lerro Thomas J. Liesz Alan Lines Christopher K. Ma James C. Ma Dilip B. Madan Judy Maese James Mallet Inayat Mangla Bala Maniam Timothy A. Manuel Brian Maris Daniel S. Marrone William H. Marsh John F. Marshall Linda J. Martin Stanley A. Martin Charles E. Maxwell Timothy Hoyt McCaughey Lee McClain Jay Meiselman Vincent A. Mercurio Joseph Messina John B. Mitchell Daniel F. Mohan Charles Mohundro Gene P. Morris Edward A. Moses Tarun K. Mukherjee William T. Murphy Randy Myers Lance Nail Donald A. Nast Vivian F. Nazar

G. Newbould Charles Ngassam Gary Noreiko Dennis T. Officer Kathleen J. Oldfather Kathleen F. Oppenheimer Richard M. Osborne Jerome S. Osteryoung Prasad Padmanabahn Roger R. Palmer Don B. Panton John Park Ronda S. Paul Bruce C. Payne Gerald W. Perritt

Gladys E. Perry Stanley Piascik Gregory Pierce Mary L. Piotrowski

D. Anthony Plath Jerry B. Poe Gerald A. Pogue Suzanne Polley Ronald S. Pretekin Fran Quinn Rich Ravichandran David Rayone Walter J. Reinhart Jack H. Reubens Benedicte Reyes William B. Riley Jr. Ron Rizzuto Gayle A. Russell Patricia A. Ryan Murray Sabrin Kanwal S. Sachedeva R. Daniel Sadlier Hadi Salavitabar Gary Sanger Mukunthan

Santhanakrishnan William L. Sartoris Michael Schinski Tom Schmidt Carl J. Schwendiman Carl Schweser Jim Scott John W. Settle Richard A. Shick

A. M. Sibley Sandeep Singh Surendra S. Singhvi Stacy Sirmans Barry D. Smith Gerald Smolen Ira Smolowitz Jean Snavely Joseph V. Stanford John A. Stocker Lester B. Strickler Elizabeth Strock Donald H. Stuhlman Sankar Sundarrajan Philip R. Swensen S. Tabriztchi John C. Talbott Gary Tallman Harry Tamule Richard W. Taylor

Acknowledgments

xlix

Rolf K. Tedefalk

Tony R. Wingler Richard Teweles

Faye (Hefei) Wang

I. R. Woods Kenneth J. Thygerson

William H. Weber III

John C. Woods Robert D. Tollen

Herbert Weinraub

Robert J. Wright Emery A. Trahan

Jonathan B. Welch

Richard H. Yanow Pieter A. Vandenberg

Grant J. Wells

Seung J. Yoon Nikhil P. Varaiya

Larry R. White

Charles W. Young Oscar Varela

Peter Wichert

Philip J. Young Kenneth J. Venuto

C. Don Wiggins

Joe W. Zeman James A. Verbrugge

Howard A. Williams

J. Kenton Zumwalt Ronald P. Volpe

Richard E. Williams

Tom Zwirlein John M. Wachowicz Jr.

Glenn A. Wilt Jr.

Bernard J. Winger

A special thanks goes to Thomas J. Boulton of Miami University for his work on the Focus on Ethics boxes and to Alan Wolk of the University of Georgia for accuracy checking the quantitative content in the textbook. We are pleased by and proud of all their efforts.

No textbook would be complete, let alone usable, if not for the accompanying instructor and student supplements. We are grateful to the following individuals for their work creating, revising, and accuracy checking all of the valuable instructor and student resources that support the use of Principles: Thomas Krueger of Texas A&M University–Kingsville for updating the Instructor’s Manual, Gordon Stringer of University of Colorado–Colorado Springs for accu- racy checking the Instructor’s Manual, Thomas J. Boulton of Miami University for revising the PowerPoint Lecture Presentation, and Shannon Donovan of Bridgewater State University for revising the Test Item File and the Study Guide.

A hearty round of applause also goes to the publishing team assembled by Prentice Hall—including Donna Battista, Tessa O’Brien, Kerri McQueen, Melissa Pellerano, Nancy Freihofer, Alison Eusden, Nicole Sackin, Miguel Leonarte, and others who worked on the book—for the inspiration and the perspiration that define teamwork. Also, special thanks to the formidable Prentice Hall sales force in finance, whose ongoing efforts keep the business fun!

Finally, and most important, many thanks to our families for patiently pro- viding support, understanding, and good humor throughout the revision process. To them we will be forever grateful.

Lawrence J. Gitman La Jolla, California

Chad J. Zutter Pittsburgh, Pennsylvania

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To the Student