Giáo trình Principles of managerial financial 15th global edition by zutter

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global application in managerial finance
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Principles of
Managerial Finance
FIFTEENTH EDITION

Chad J. Zutter • Scott B. Smart

FIFTEENTH
EDITION

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Principles of Managerial Finance

Now in its fifteenth edition, Principles of Managerial Finance continues to help students
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succeed in a rapidly changing financial and managerial environment. A strong pedagogy and
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Smart

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Principles of

Managerial Finance

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FIFTEENTH EDITION
GLOBAL EDITION

Principles of

Managerial Finance
Chad J. Zutter
University of Pittsburgh

Scott B. Smart
Indiana University

Harlow, England • London • New York • Boston • San Francisco • Toronto • Sydney • Dubai • Singapore • Hong Kong
Tokyo • Seoul • Taipei • New Delhi • Cape Town • Sao Paulo • Mexico City • Madrid • Amsterdam • Munich • Paris • Milan

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Dedicated to our good friend and mentor,
Dr. Lawrence J. Gitman,
who trusted us as coauthors and successors
of Principles of Managerial Finance.
CJZ

SBS

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Brief Contents
Contents  9
About the Authors  29
Preface  31
Acknowledgments  44

PART 1 Introduction to Managerial
Finance  47



1
2

The Role of Managerial Finance  48
The Financial Market Environment  87

PART 2 Financial Tools  121



3 Financial Statements and Ratio Analysis  122
4Long- and Short-Term Financial



5

Planning  188
Time Value of Money  235

PART 3 Valuation of Securities  301



6
7

Interest Rates and Bond Valuation  302
Stock Valuation  351

PART 4 Risk and the Required Rate of
Return  391

8
9

PART 6 Long-Term Financial
Decisions  597
13 Leverage and Capital Structure  598
14 Payout Policy  652

PART 7 Short-Term Financial
Decisions  691
15Working Capital and Current Assets
Management  692
16 Current Liabilities Management  735

PART 8 Special Topics in Managerial
Finance  771
17 Hybrid and Derivative Securities  772
18Mergers, LBOs, Divestitures, and Business
Failure  811
19 International Managerial Finance  855

Risk and Return  392
The Cost of Capital  442

PART 5 Long-Term Investment
Decisions  475
10 Capital Budgeting Techniques  476
11 Capital Budgeting Cash Flows  517

12Risk and Refinements in Capital
Budgeting  555

Appendix  895
Glossary  927
Index  955

7

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Contents
About the Authors  29
Preface  31
Acknowledgments  44

PART 1 Introduction to Managerial Finance  47

1

The Role of
Managerial
Finance  48

1.1 Finance and the Firm  50
What Is Finance?  50
What Is a Firm?  51
What Is the Goal of the Firm?  51
in practice

FOCUS ON ETHICS:

Do Corporate Executives Have a Social
Responsibility?  52
The Role of Business Ethics  56
➔ REVIEW QUESTIONS   57
▲ Brookdale Senior
Living––Is Brookdale’s
Management About to Be
Retired? 49

in practice

FOCUS ON PRACTICE:

Must Search Engines Screen Out Fake

News?  58

1.4 Developing Skills for Your
Career  78
Critical Thinking  79
Communication and Collaboration  79
Financial Computing Skills  79
Summary  79
Opener-In-Review  81
Self-Test Problem  81
Warm-Up Exercises  81
Problems  83
Spreadsheet Exercise  86

1.2 Managing the Firm  58
The Managerial Finance Function  59
➔ REVIEW QUESTIONS   67

1.3 Organization Forms, Taxation,
and the Principal-Agent Relationship  67
Legal Forms of Business Organization  67
Agency Problems and Agency Costs  74
Corporate Governance  75
➔ REVIEW QUESTIONS   78

9

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10Contents

2

The Financial
Market
Environment  87

▲ Airbnb––Billions of VC
Funding Gives Airbnb
Plenty of Room 88

2.1 Financial Institutions  89
Commercial Banks, Investment Banks,
and the Shadow Banking System  89

Issuing Common Stock  103

➔ REVIEW QUESTIONS   91

➔ REVIEW QUESTIONS   111

2.2 Financial Markets  91
The Relationship Between Institutions
and Markets  91
The Money Market  92
The Capital Market  93

2.5 Financial Markets in Crisis  111
Financial Institutions and Real Estate
Finance  111
Spillover Effects and Recovery from the
Great Recession  114

in practice

FOCUS ON PRACTICE:

Berkshire Hathaway: Can Buffett Be
Replaced?  94
The Role of Capital Markets  98
in practice

FOCUS ON ETHICS:

Should Insider Trading Be Legal?  100
➔ REVIEW QUESTIONS   101

2.3 Regulation of Financial Markets
and Institutions  101

2.4 The Securities Issuing

Process  103

➔ REVIEW QUESTIONS   114

Summary  115
Opener-In-Review  116
Self-Test Problem  117
Warm-Up Exercises  117
Problems  118
Spreadsheet Exercise  119
INTEGRATIVE CASE 1 Merit Enterprise
Corp.  120

Regulations Governing Financial
Institutions  101
Regulations Governing Financial
Markets  102
➔ REVIEW QUESTIONS   102

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Contents
11

PART 2 Financial Tools  121

3

Financial

Statements and
Ratio Analysis  122

3.1 The Stockholders’ Report  124
The Letter to Stockholders  124
in practice

More Countries Adopt International
Financial Reporting Standards  124
The Four Key Financial Statements  125
in practice

▲ Kroger––Ratios Point to
Trouble at Kroger 123

GLOBAL FOCUS:

FOCUS ON ETHICS:

Earnings Shenanigans  125
Notes to the Financial Statements  131
Consolidating International Financial
Statements  131
➔ REVIEW QUESTIONS   132

3.2 Using Financial Ratios  133
Interested Parties  133
Types of Ratio Comparisons  133
Cautions About Using Ratio Analysis  136
➔ REVIEW QUESTIONS   137

3.3 Liquidity Ratios  138
Current Ratio  138
Quick (Acid-Test) Ratio  140
➔ REVIEW QUESTIONS   141

3.4 Activity Ratios  141
Inventory Turnover  141
Average Collection Period  142
Average Payment Period  144
Total Asset Turnover  144
➔ REVIEW QUESTION   145

3.5 Debt Ratios  145
Debt Ratio  147
Debt-to-Equity Ratio  147

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Times Interest Earned Ratio  148
Fixed-Payment Coverage Ratio  149
➔ REVIEW QUESTIONS   149

3.6 Profitability Ratios  149
Common-Size Income Statements  149
Gross Profit Margin  150
Operating Profit Margin  152
Net Profit Margin  152
Earnings Per Share (EPS)  153
Return on Total Assets (ROA)  154

Return on Equity (ROE)  154
➔ REVIEW QUESTIONS   156

3.7 Market Ratios  156
Price/Earnings (P/E) Ratio  157
Market/Book (M/B) Ratio  159
➔ REVIEW QUESTION   160

3.8 A Complete Ratio Analysis  160
Summary of Whole Foods’ Financial
Condition  160
DuPont System of Analysis  164
➔ REVIEW QUESTIONS   167

Summary  167
Opener-In-Review  169
Self-Test Problems  169
Warm-Up Exercises  170
Problems  171
Spreadsheet Exercise  186

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12Contents

4

Long- and ShortTerm Financial

Planning  188

4.1 The Financial Planning

4.4 Profit Planning: Pro Forma

Process  190

Statements  211

Long-Term Strategic Financial Plans  190
Short-Term (Operating) Financial
Plans  191

Preceding Year’s Financial Statements  212
Sales Forecast  212
➔ REVIEW QUESTION   213

➔ REVIEW QUESTIONS   192

4.2 Measuring the Firm’s Cash

Flow  192
▲ Netflix Inc.––Not
Streaming at Netflix—
Cash Flow 189

Depreciation  192
Depreciation Methods  193
Developing the Statement of Cash

Flows  195
Free Cash Flow  200
in practice

FOCUS ON ETHICS:

Is Excess Cash Always a Good
Thing?  201
in practice

FOCUS ON PRACTICE:
Free Cash Flow at LinkedIn  202

➔ REVIEW QUESTIONS   203

4.3 Cash Planning: Cash

Budgets  203

The Sales Forecast  203
Preparing the Cash Budget  204
Evaluating the Cash Budget  209
Coping with Uncertainty in the Cash
Budget  210
Cash Flow within the Month  211

4.5 Preparing the Pro Forma

Income Statement  213

Considering Types of Costs and
Expenses  214
➔ REVIEW QUESTIONS   215

4.6 Preparing the Pro Forma
Balance Sheet  215
➔ REVIEW QUESTIONS   217

4.7 Evaluation of Pro Forma

Statements  217

➔ REVIEW QUESTIONS   218

Summary  218
Opener-In-Review  220
Self-Test Problems  220
Warm-Up Exercises  222
Problems  222
Spreadsheet Exercise  233

➔ REVIEW QUESTIONS   211

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Contents
13

5

Time Value of
Money  235

5.1 The Role of Time Value in

Finance  237

Future Value Versus Present Value  237
Computational Tools  238
Basic Patterns of Cash Flow  240
➔ REVIEW QUESTIONS   240

▲ Mega Millions Jackpot––
Pay Me Now or Pay Me
Later 236

5.2 Single Amounts  241
Future Value of a Single Amount  241
Present Value of a Single Amount  245
➔ REVIEW QUESTIONS   248
➔ EXCEL REVIEW QUESTIONS   248

5.3 Annuities  249
Types of Annuities  249
Finding the Future Value of an Ordinary

Annuity  250
Finding the Present Value of an Ordinary
Annuity  251
Finding the Future Value of an Annuity
Due  253
Finding the Present Value of an Annuity
Due  254
Finding the Present Value of a
Perpetuity  256
➔ REVIEW QUESTIONS   257
➔ EXCEL REVIEW QUESTIONS   257

5.4 Mixed Streams  258
Future Value of a Mixed Stream  258
Present Value of a Mixed Stream  260
➔ REVIEW QUESTION   261
➔ EXCEL REVIEW QUESTION   261

A General Equation for
Compounding  263
Using Computational Tools for
Compounding  263
Continuous Compounding  264
Nominal and Effective Annual Rates of
Interest  265
➔ REVIEW QUESTIONS   267
in practice

FOCUS ON ETHICS:

Was the Deal for Manhattan a
Swindle?  267

➔ EXCEL REVIEW QUESTIONS   268

5.6 Special Applications of

Time Value  268

Determining Deposits Needed to
Accumulate a Future Sum  268
Loan Amortization  269
Finding Interest or Growth Rates  271
in practice

FOCUS ON PRACTICE:

New Century Brings Trouble for
Subprime Mortgages  271
Finding an Unknown Number of
Periods  274
➔ REVIEW QUESTIONS   276

➔ EXCEL REVIEW QUESTIONS   276

Summary  276
Opener-In-Review  278
Self-Test Problems  278
Warm-Up Exercises  279
Problems  280

Spreadsheet Exercise  296
INTEGRATIVE CASE 2 Track Software,
Inc.  297

5.5 Compounding Interest More

Frequently than Annually  261
Semiannual Compounding  261
Quarterly Compounding  262

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14Contents

PART 3 Valuation of Securities  301

6

Interest Rates
and Bond
Valuation  302

6.1 Interest Rates and Required
Returns  304
Interest Rate Fundamentals  304
Term Structure of Interest Rates  309

in practice

FOCUS ON PRACTICE:
I-Bonds Adjust for Inflation  310

Risk Premiums: Issuer and Issue
Characteristics  315
➔ REVIEW QUESTIONS   316
▲ Aston Martin Bond
Issue––The Name Is
Bond—Junk Bond 303

6.2 Government and Corporate
Bonds  316
Legal Aspects of Corporate Bonds  317
Cost of Bonds to the Issuer  318
General Features of a Bond Issue  319
Bond Yields  320
Bond Prices  320
Bond Ratings  321
Common Types of Bonds  321
International Bond Issues  322
in practice

FOCUS ON ETHICS:

“Can Bond Ratings Be Trusted?”  323

6.3 Valuation Fundamentals  325
Key Inputs  325

Basic Valuation Model  326
➔ REVIEW QUESTIONS   327

6.4 Bond Valuation  327
Bond Fundamentals  328
Bond Valuation  328
Semiannual Interest Rates and Bond
Values  330
Changes in Bond Values  332
Yield to Maturity (YTM)  335
➔ REVIEW QUESTIONS   337
➔ EXCEL REVIEW QUESTIONS   337

Summary  337
Opener-In-Review  339
Self-Test Problems  340
Warm-Up Exercises  340
Problems  342
Spreadsheet Exercise  350

➔ REVIEW QUESTIONS   324

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Contents

15

7

7.1 Differences Between Debt

Stock Valuation  351 and Equity  353

Voice in Management  353
Claims on Income and Assets  353
Maturity  354
Tax Treatment  354
➔ REVIEW QUESTION   354

7.2 Common and Preferred

Stock  354
▲ Tesla Inc.––Stock Prices
Are All About the Future 352

Common Stock  355
Preferred Stock  358
➔ REVIEW QUESTIONS   360

7.3 Common Stock Valuation  360
Market Efficiency and Stock Valuation  360
Common Stock Dividend Valuation
Model  362
in practice

FOCUS ON PRACTICE:

in practice

FOCUS ON ETHICS:

7.4 Decision Making and Common

Stock Value  374

Changes in Expected Dividends  375
Changes in Risk  375
Combined Effect  376
➔ REVIEW QUESTIONS   376

Summary  376
Opener-In-Review  378
Self-Test Problems  379
Warm-Up Exercises  379
Problems  380
Spreadsheet Exercise  388
INTEGRATIVE CASE 3 Encore
International  389

Understanding Human Behavior Helps
Us Understand Investor Behavior  363
Free Cash Flow Valuation Model  367
Other Approaches to Common Stock
Valuation  370
Index Funds and Corporate

Governance  372
➔ REVIEW QUESTIONS   374

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16Contents

PART 4 Risk and the Required Rate of Return  391

8

Risk and
Return  392

8.1 Risk and Return
Fundamentals  394

8.4 Risk and Return: The Capital
Asset Pricing Model (CAPM)  414

What Is Risk?  394
What Is Return?  394

Types of Risk  414
The Model: CAPM  415

in practice

FOCUS ON ETHICS:

If It Seems Too Good to Be True, It
Probably Is  395
Risk Preferences  397
▲ Legg Mason Global
Asset Management––
Miller’s Time 393

➔ REVIEW QUESTIONS   398

8.2 Risk of a Single Asset  398
Risk Assessment  398
Risk Measurement  401

➔ REVIEW QUESTIONS   424

Summary  424
Opener-In-Review  426
Self-Test Problems  426
Warm-Up Exercises  427
Problems  428
Spreadsheet Exercise  440

➔ REVIEW QUESTIONS   406

8.3 Risk of a Portfolio  406
Portfolio Return and Standard

Deviation  406
Correlation  408
Diversification  409
Correlation, Diversification, Risk, and
Return  411
International Diversification  412
in practice

GLOBAL FOCUS:

An International Flavor to Risk
Reduction  413
➔ REVIEW QUESTIONS   414

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9

The Cost of
Capital  442

9.1 Overview of the Cost of

Capital  444
in practice

FOCUS ON ETHICS:
The Cost of Capital Also Rises  444

The Basic Concept  445
Sources of Long-Term Capital  447
➔ REVIEW QUESTIONS   448
▲ J&J––Exceeding
Expectations 443

9.2 Cost of Long-Term Debt  448
Net Proceeds  448
Before-Tax Cost of Debt  449
After-Tax Cost of Debt  451
➔ REVIEW QUESTIONS   452
➔ EXCEL REVIEW QUESTION   452

9.3 Cost of Preferred Stock  452
Preferred Stock Dividends  453
Calculating the Cost of Preferred
Stock  453

9.5 Weighted Average Cost

of Capital  458

Calculating Weighted Average Cost of

Capital (WACC)  458
in practice

FOCUS ON PRACTICE:

Uncertain Times Make for an Uncertain
Weighted Average Cost of Capital  460
Capital Structure Weights  461
➔ REVIEW QUESTIONS   461

Summary  462
Opener-In-Review  463
Self-Test Problem  463
Warm-Up Exercises  464
Problems  465
Spreadsheet Exercise  472
INTEGRATIVE CASE 4 Eco Plastics
Company  473

➔ REVIEW QUESTION   453

9.4 Cost of Common Stock  453
Finding the Cost of Common Stock
Equity  454
Cost of Retained Earnings  457
➔ REVIEW QUESTIONS   458

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PART 5 Long-Term Investment Decisions  475

10

10.1 Overview of Capital
478
Budgeting  
Capital Budgeting
Motives
for
Capital
Expenditure  478
Techniques  476
Steps in the Process  478
Basic Terminology  479
Capital Budgeting Techniques  480
➔ REVIEW QUESTION   481

▲ Maritime Resources
Corp.––The Gold Standard
for Evaluating Gold
Mines 477

10.2 Payback Period  481
Decision Criteria  482

Pros and Cons of Payback Analysis  482
in practice

FOCUS ON PRACTICE:

Limits on Payback Analysis  484
➔ REVIEW QUESTIONS   485

10.3 Net Present Value (NPV)  486
Decision Criteria  486
NPV and the Profitability Index  488
NPV and Economic Value Added  489

10.5 Comparing NPV and IRR
Techniques  494
Net Present Value Profiles  494
Conflicting Rankings  495
Which Approach is Better?  499
in practice

FOCUS ON ETHICS:

Baby You Can Drive My Car—Just Not
a VW Diesel  501
➔ REVIEW QUESTIONS   501

Summary  502
Opener-In-Review  503
Self-Test Problem  504
Warm-Up Exercises  504

Problems  506
Spreadsheet Exercise  516

➔ REVIEW QUESTIONS   490
➔ EXCEL REVIEW QUESTION   490

10.4 Internal Rate of Return
(IRR)  490
Decision Criteria  491
Calculating the IRR  491
➔ REVIEW QUESTIONS   493
➔ EXCEL REVIEW QUESTION   493

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11

Capital Budgeting
Cash Flows  517

11.1 Project Cash Flows  519
Major Cash Flow Types  519

Replacement Versus Expansion
Decisions  520
Sunk Costs and Opportunity Costs  521
in practice

FOCUS ON ETHICS:
Fumbling Sunk Costs  522

After-Tax Proceeds from the Sale of New
and Old Assets  536
Change in Net Working Capital  536
➔ REVIEW QUESTION   537

11.5 Summarizing the Net Cash

Flows  537

➔ REVIEW QUESTIONS   524

➔ REVIEW QUESTION   539

GLOBAL FOCUS:

Changes May Influence Future
Investments in China  524

Company––Brewing Up a
Deal 518

Flow  535

International Capital Budgeting and
Long-Term Investments  523
in practice

▲ Molson Coors Brewing

11.4 Finding the Terminal Cash

11.2 Finding the Initial
Investment  525
Installed Cost of the New Asset  525
After-Tax Proceeds from the Sale of the
Old Asset  525
Change in Net Working Capital  528
Calculating the Initial Investment  529

Summary  539
Opener-In-Review  541
Self-Test Problems  541
Warm-Up Exercises  542
Problems  542
Spreadsheet Exercise  554

➔ REVIEW QUESTIONS   530

11.3 Finding the Operating Cash
Flows  530
Interpreting the Term Cash Flows  531
Interpreting the Term After-Tax  531

Interpreting the Term Incremental  534
➔ REVIEW QUESTIONS   535

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12

Risk and
Refinements
in Capital
Budgeting  555

12.1 Introduction to Risk in Capital

Budgeting  557

Refinements  572

➔ REVIEW QUESTION   557

Comparing Projects with Unequal
Lives  572
Recognizing Real Options  575
Capital Rationing  577

12.2 Behavioral Approaches for

Dealing with Risk  557
Breakeven Analysis  558
Scenario Analysis  559
Simulation  560
in practice

▲ General Motors––
Venezuelan Government
Seizes Factory Owned by
GM 556

12.5 Capital Budgeting

FOCUS ON PRACTICE:

The Monte Carlo Method: The Forecast
Is for Less Uncertainty  562
➔ REVIEW QUESTIONS   562
➔ EXCEL REVIEW QUESTION   562

12.3 International Risk

Considerations  562

➔ REVIEW QUESTIONS   579
➔ EXCEL REVIEW QUESTION   580

Summary  580
Opener-In-Review  581
Self-Test Problem  582
Warm-Up Exercises  582
Problems  584
Spreadsheet Exercise  594
INTEGRATIVE CASE 5 Lasting Impressions
Company  595

➔ REVIEW QUESTION   563

12.4 Risk-Adjusted Discount
Rates  564
Determining Risk-Adjusted Discount Rates
(RADRs)  564
in practice

FOCUS ON ETHICS:

Remain Calm—All Is Well  567
Applying RADRs  567
Portfolio Effects  570
RADRs in Practice  570
➔ REVIEW QUESTIONS   572

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PART 6 Long-Term Financial Decisions  597

13

Leverage
and Capital
Structure  598

13.1 Leverage  600
Breakeven Analysis  601
Operating Leverage  604
in practice

FOCUS ON PRACTICE:

in practice

FOCUS ON ETHICS:

Qualcomm’s Leverage  607
Financial Leverage  608
Total Leverage  611
Repo 105 Man  614
▲ Apple Inc.—Apple
Leverages Its Brand 599

➔ REVIEW QUESTIONS   615

13.2 The Firm’s Capital
Structure  615
Types of Capital  615
External Assessment of Capital
Structure  616
Capital Structure of Non–U.S. Firms  617
Capital Structure Theory  618
Optimal Capital Structure  627

13.4 Choosing the Optimal Capital
Structure  633
Linkage  633
Estimating Value  634
Maximizing Value Versus Maximizing
EPS  635
Some Other Important
Considerations  635
➔ REVIEW QUESTIONS   636

Summary  636
Opener-In-Review  638
Self-Test Problems  639
Warm-Up Exercises  640
Problems  641
Spreadsheet Exercise  651

➔ REVIEW QUESTIONS   629

13.3 EBIT–EPS Approach to
Capital Structure  629
Presenting a Financing Plan
Graphically  630
Comparing Alternative Capital
Structures  631
Considering Risk in EBIT–EPS
Analysis  632
Basic Shortcoming of EBIT–EPS
Analysis  633
➔ REVIEW QUESTION   633

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14

Payout Policy  652

14.1 The Basics of Payout Policy  654
Elements of Payout Policy  654
Trends in Earnings and Dividends  654
Trends in Dividends and Share
Repurchases  656

in practice

FOCUS ON ETHICS:

Buyback Mountain  658
▲ Whirlpool Corporation––

➔ REVIEW QUESTIONS   658

Increasing Dividends 653

14.2 The Mechanics of Payout

Policy  658

Cash Dividend Payment Procedures  659
Share Repurchase Procedures  661
Tax Treatment of Dividends and
Repurchases  662
in practice

FOCUS ON PRACTICE:

Capital Gains and Dividend Tax
Treatment Extended to 2012 and
Beyond for Some  663
Dividend Reinvestment Plans  664
Stock Price Reactions to Corporate
Payouts  664

14.5 Types of Dividend Policies  671
Constant-Payout-Ratio Dividend
Policy  671
Regular Dividend Policy  672
Low-Regular-and-Extra Dividend
Policy  673
➔ REVIEW QUESTION   673

14.6 Other Forms of Dividends  673
Stock Dividends  673
Stock Splits  675
➔ REVIEW QUESTIONS   676

Summary  677
Opener-In-Review  678
Self-Test Problems  679
Warm-Up Exercises  679
Problems  680
Spreadsheet Exercise  687
INTEGRATIVE CASE 6 O’Grady Apparel
Company  688

➔ REVIEW QUESTIONS   665

14.3 Relevance of Payout Policy  665
Residual Theory of Dividends  665
The Dividend Irrelevance Theory  666
Arguments for Dividend Relevance  667
➔ REVIEW QUESTIONS   668

14.4 Factors Affecting Dividend
Policy  668
Legal Constraints  668
Contractual Constraints  670
Growth Prospects  670
Owner Considerations  670
Market Considerations  671
➔ REVIEW QUESTION   671

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