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How do international factors affect decision making? Although the same basic principles of capital budgeting apply to both foreign and domestic operations, there are some key differences. For example, cash flows must be converted into the parent company's currency, so they are subject to exchange rate risk. In addition, the cost of capital may be different for a foreign project compared with an equivalent domestic project.

For this Assignment, complete Problem 19-17, Parts a, b, and c on page 697 of your course text. This case examines the effects of exchange rates on net present values and rates of return.

In addition to solving for the rates of return from the U.S. and Swiss points of view, write a paper in apa format that summarizes your key learning points from this case. Be sure to include your calculations as an appendix.

Excel sheet should be used to display work and word document should be used to summarize key learning points from case

Submit your Assignment (both your Excel and Word files).

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15e

Australia ● Brazil ● Mexico ● Singapore ● United Kingdom ● United States

EugEnE F. Brigham University of Florida

JoEl F. houston University of Florida

Fundamentals of FinanCial

managEmEnt

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This is an electronic version of the print textbook. Due to electronic rights restrictions, some third party content may be suppressed. Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. The publisher reserves the right to remove content from this title at any time if subsequent rights restrictions require it. For valuable information on pricing, previous editions, changes to current editions, and alternate formats, please visit www.cengage.com/highered to search by ISBN#, author, title, or keyword for materials in your areas of interest.

Important Notice: Media content referenced within the product description or the product text may not be available in the eBook version.

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Copyright 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203

Printed in the United States of America Print Number: 01 Print Year: 2018

Fundamentals of Financial Management, Fifteenth edition Eugene F. Brigham and Joel F. Houston

Senior Vice President, Higher Ed Product, Content, and Market Development: Erin Joyner

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© 2019, 2016 Cengage Learning, Inc.

Unless otherwise noted, all content is © Cengage

ALL RIGHTS RESERVED. No part of this work covered by the copyright herein may be reproduced or distributed in any form or by any means, except as permitted by U.S. copyright law, without the prior written permission of the copyright owner.

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Library of Congress Control Number: 2017959753

ISBN: 978-1-337-39525-0

Cengage 20 Channel Center Street Boston, MA 02210 USA

Cengage is a leading provider of customized learning solutions with employees residing in nearly 40 different countries and sales in more than 125 countries around the world. Find your local representative at www.cengage.com.

Cengage products are represented in Canada by Nelson Education, Ltd.

To learn more about Cengage platforms and services, visit www.cengage.com

To register or access your online learning solution or purchase materials for your course, visit www.cengagebrain.com.

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MindTap for Fundamentals of Financial Management MindTap, featuring all-new Excel Online integration powered by Microsoft, is a complete

digital solution for the corporate finance course. It has enhancements that take students

from learning basic financial concepts to actively engaging in critical-thinking applications,

while learning valuable Excel skills for their future careers.

EvErything you nEEd in onE placE. Cut prep time with MindTap preloaded, organized course materials. Teach more efficiently with interactive multimedia, assignments, quizzes, and more.

EmpowEr your studEnts to rEach thEir potEntial. Built-in metrics provide insight into student engagement. Identify topics needing extra instruction. Instantly communicate with struggling students to speed progress.

your coursE. your contEnt. MindTap gives you complete control over your course. You can rearrange textbook chapters, add your own notes, and embed a variety of content—including Open Educational Resources (OER).

a dEdicatEd tEam, whEnEvEr you nEEd it. MindTap is backed by a personalized team eager to help you every step of the way. We’ll help set up your course, tailor it to your specific objectives, and stand by to provide support.

iii

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practicE problEms All of the end-of-chapter problems are available in algorithmic format for either student practice of applying content presented in the chapter or alternative graded assignment. MindTap is a highly customizable assessment delivery platform, so you can pick and choose from a large bank of algorithmic problem sets to assign to your students.

bluEprint practicE problEms Blueprint Practice Problems combine conceptual and application-driven problems with a tutorial emphasis. Students will know with certainty their level of competency for every chapter, which will improve course outcomes.

Elevate Critical thinking through a variety of unique assessment tools

iv

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gradEd homEwork MindTap offers an assignable, algorithmic homework tool that is based on our proven and popular Aplia product for Finance. These homework problems include rich explanations and instant grading, with opportunities to try another algorithmic version of the

problem to bolster confidence with problem solving.

FinancE in action casEs MindTap offers a series of Finance in Action analytical cases that assess students’ ability to perform higher-

level problem solving and critical thinking/ decision making.

tEsting Mindtap offers the ability to modify existing assignments and to create new assignments by adding questions from the Test Bank.

v

Copyright 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

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Cengage Learning and Microsoft have partnered in MindTap to provide students with a

uniform, authentic Excel assignment experience. It provides instant feedback, built-in video

tips, and easily accessible spreadsheet work. These features allow you to spend more time

teaching finance applications and less time teaching and troubleshooting Excel.

These new algorithmic activities offer pre-populated data directly in Microsoft Excel Online, which runs seamlessly on all major platforms and browsers. Students each receive their own version of the problem data in order to use Excel Online to perform the necessary financial analysis calculations. Their work is constantly saved in Cengage cloud storage as part of homework assignments in MindTap. It’s easily retrievable so students can review their answers without cumbersome file management and numerous downloads/uploads.

Access to Excel Online as used in these activities is completely free for students as part of the MindTap course for Fundamentals of Financial Management, 15e. It is not in any way connected to personal Office 365 accounts/ local versions of Excel, nor are Microsoft accounts required to complete these activities in MindTap.

Microsoft Excel Online activities are aimed at meeting students where they are with unparalleled support and immediate feedback.

Building valuable Excel skills for future business careers while making data-driven decisions

vi

Copyright 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

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ExcEl vidEo tips Each activity includes a walk- through video of a similar problem being worked in Excel Online to offer suggested formulas to use for solving the problem. It also offers tips and strategies, which assist in understanding the underlying financial concepts while working within Excel.

calculation stEps and ExcEl solutions Each activity offers configurable displays that include the correct answers, the manual calculation steps, and an Excel solution (with suggested formulas) that matches the exact version of the problem the student received. Students can check their work against the correct solution to identify improvement areas. Instructors always have access to review the student’s answers and Excel work from the MindTap progress app to better assist in error analysis and troubleshooting.

Microsoft Excel Online activities aimed at meeting students where they are with unparalleled

support and immediate feedback

vii

Copyright 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

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viii

Encouraging those ‘aha!’ moments with all new Exploring Finance visualizations

All-new in MindTap for Fundamentals of Financial Management, 15e, Exploring Finance

activities offer instructors and students interactive visualizations that engage with

“lean forward” interactivity. Exploring Finance activities provide instructors visual,

interactive tools that can be used to help students “see” the statistical concept being

presented directly within MindTap.

Copyright 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

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ix

Exploring Finance visualizations are found at the chapter level of the MindTap learning path for easy retrieval in class to show on projector screens.

Exploring Finance visualizations have a pre-built activity in the learning path within MindTap that allows students to manipulate the values and then respond to questions that reinforce their understanding of the concept being conveyed. These activities can be assigned as practice or for a grade and often offer an interactive, conceptual activity immediately reinforcing student understanding.

Copyright 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

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x

adaptivE whErE it counts The new Adaptive Test Prep App helps students prepare for test success by allowing them to generate multiple practice tests across chapters until they have confidence they have mastered the material.

The adaptive test program grades practice tests and indicates the areas that have or have not been mastered. Students are presented with an

Adaptive Study Plan that takes them directly to the pertinent pages in the text where the practice question materials are referenced.

help students prepare for exam success with adaptive test Prep, only available in mindtap

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xi

FEEdback is kEy Students also receive robust explanations of the problems to assist in further understanding. Many of the quantitative test questions feature video feedback that offers students step-by- step instruction to reinforce their understanding and bolster their confidence.

Copyright 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

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xii

getting Down the Basics is important

In order for you to take students further into the applications of finance, it’s important

that they have a firm handle on the basic concepts and methods used. In MindTap for

Fundamentals of Financial Management, we provide students with just-in-time tools

that—coupled with your guidance—ensure that

they build a solid foundation.

prEparing For FinancE Students are more confident and prepared when they have the opportunity to brush up on their knowledge of the prerequisite concepts required to be successful in finance. Tutorials/problems to review prerequisite concepts that students should know. Topics covered include Accounting, Economics, Mathematics, and Statistics, as well as coverage of various Financial Calculators and Excel.

WHY IS THIS IMPORTANT TO ME? For many students, the idea of taking finance is intimidating. Beyond that, students report that they become more engaged with the course material when they see its relevance in business. The “Why is this important to me?” activity asks the student to complete a short self-assessment activity to demonstrate how they may already have personal knowledge about the important finance concepts they will learn in the chapter material. It is intended to help the student, especially the non-finance major, better understand the relevance in the financial concepts they will learn.

Copyright 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

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xiii

problEm walk-through vidEos Embedded in the interactive MindTap Reader and linked to select problems in MindTap, Problem Walk-Through Videos provide step-by-step instructions designed to walk students through solving a problem from start to finish. Students can play and replay the tutorials as they work through homework assignments or prepare for quizzes and tests—almost as though they had you by their side the whole time. Ideal for homework, study outside the classroom, or distance learning, Problem Walk- Through Videos extend your reach to give students extra instructional help whenever and wherever it’s most useful.

concEpt clips Embedded throughout the new interactive MindTap Reader, Concept Clips present key finance topics to students in an entertaining and memorable way via short animated video clips. These video animations provide students with auditory and visual representation of the important terminology for the course.

Copyright 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

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xiv

Customizable Course and mobile on-the-go study tools based on Your needs MindTap for Fundamentals of Financial Management, 15e offers features that allow you to

customize your course based on the topics you cover.

lEarning path customization The learning path is structured by chapter so you can easily hide activities you wish to not cover, or change the order to better align with your course syllabus. RSS feeds and YouTube links can easily be added to the learning path or embedded directly within the MindTap Reader.

mindtap ErEadEr Provides Convenience Students can read their full course eBook on their smartphone. This means they can complete reading assignments anyplace, anytime. They can take notes, highlight important passages, and have their text read aloud, whether they are on- or off-line.

MindTap

Mobile Empower

students to

learn on their

terms—anyti me,

anywhere,

on- or off-line .

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xv

thE gradEbook Keep Students Motivated Students can instantly see their grades and how they are doing in the course. If they didn’t do well on an assignment, they can implement the flashcards and practice quizzes for that chapter.

notiFications Keep Students Connected Students want their smartphones to help them remember important dates and milestones— for both the social and academic parts of their lives. The MindTap Mobile App pushes course notifications directly to them, making them more aware of what’s ahead with:

Due date reminders Changes to activity due dates, score

updates, and instructor comments Messages from their instructor Technical announcements about

the platform

Flashcards and Quizzing Cultivate Confidence and Elevate Outcomes Students have instant access to readymade flashcards specific to their course. They can also create flashcards tailored to their own learning needs. Study games present a fun and engaging way to encourage recall of key concepts. Students can use pre-built quizzes or generate a self-quiz from any flashcard deck.

Copyright 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

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xvi

crEatE a sEamlEss usEr ExpEriEncE With LMS Integration, your students are ready to learn on the first day of class. In just a few simple steps, both you and your students can access Cengage resources using a LMS login.

contEnt customization with dEEp linking Focus student attention on what matters most. Use our Content Selector to create a unique learning path that blends your content with links to learning activities, assignments, and more.

automatic gradE synchronization* Need to have your course grades recorded in your LMS gradebook? No problem. Simply select the activities you want synched, and grades will automatically be recorded in your LMS gradebook.

* Grade synchronization is currently available with Blackboard, BrightSpace (powered by D2L), Canvas, and Angel 8.

LMS Integration

Cengage’s LMS

Integration is designed

to help you seamlessly

integrate our digital

resources within your

institution’s Learning

Management System.

LMS integration is available with the Learning

Management Systems instructors use most. Our integrations work with

any LMS that supports IMS Basic LTI Open Standards. Enhanced features,

including grade synchronization, are the result of active collaborations

with our LMS partners.

xvi

Copyright 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

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Brief Contents

xvii

Preface xxviii About the Authors xxxviii

Part 1 Introduction to Financial Management 1 Chapter 1 An Overview of Financial Management 2 Chapter 2 Financial Markets and Institutions 27

Part 2 Fundamental Concepts in Financial Management 61 Chapter 3 Financial Statements, Cash Flow,

and Taxes 62 Chapter 4 Analysis of Financial Statements 105 Chapter 5 Time Value of Money 148

Part 3 Financial Assets 193 Chapter 6 Interest Rates 194 Chapter 7 Bonds and Their Valuation 228 Chapter 8 Risk and Rates of Return 270 Chapter 9 Stocks and Their Valuation 316

Part 4 Investing in Long-Term Assets: Capital Budgeting 355 Chapter 10 The Cost of Capital 356 Chapter 11 The Basics of Capital Budgeting 385 Chapter 12 Cash Flow Estimation and Risk Analysis 417 Chapter 13 Real Options and Other Topics in Capital

Budgeting 453

Part 5 Capital Structure and Dividend Policy 473 Chapter 14 Capital Structure and Leverage 474 Chapter 15 Distributions to Shareholders: Dividends

and Share Repurchases 517

Part 6 Working Capital Management and Financial Forecasting 551 Chapter 16 Working Capital Management 552 Chapter 17 Financial Planning and Forecasting 592

Part 7 Special Topics in Financial Management 619 Chapter 18 Derivatives and Risk Management 620 Chapter 19 Multinational Financial Management 664

Copyright 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

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xviii Brief Contents

Chapter 20 Hybrid Financing: Preferred Stock, Leasing, Warrants, and Convertibles 700

Chapter 21 Mergers and Acquisitions 734

Appendixes APPENDIX A Solutions to Self-Test Questions

and Problems A-1 APPENDIX B Answers to Selected

End-of-Chapter Problems B-1 APPENDIX C Selected Equations and Tables C-1

Index I-1

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xix

Contents Preface xxviii About the Authors xxxviii

Part 1 Introduction to Financial Management 1

ChaPtEr 1 an overview of Financial management 2 Striking the Right Balance 2

PUTTING THINGS IN PERSPECTIVE 4 1-1 What Is Finance? 4

1-1A Areas of Finance 4 1-1B Finance Within an Organization 5 1-1C Finance Versus Economics and

Accounting 5 1-2 Jobs in Finance 6 1-3 Forms of Business Organization 7 1-4 The Main Financial Goal: Creating Value

for Investors 9 1-4A Determinants of Value 9 1-4B Intrinsic Value 10 1-4C Consequences of Having a …