Index Note: Page numbers followed by n subprime mortgage crisis, 13, 168, Annually compounded rate, 46–47 indicate notes. 328–329, 355–356, 779–780 Annual percentage rate (APR), 35–38 transparency and, 861–862 Annuities, 28–33. See also Equivalent A Aggarwal, R., 307, 831n annual cost Aghion, P., 841n defined, 28 Aabar Investments, 853 AGL Resources Inc., 84 equivalent annual cash flow, Abandonment option, 254–256, 561–566 Agnblad, I., 856n 141–145 project life and, 564–565 Agrawal, D., 585n, 586n growing, 33–35 temporary, 565–566 AIG, 13, 355, 581 valuation of, 28–33 valuation of, 562–564 Airbus, 253, 567–569, 568n annual mortgage payments, 31–32 ABB, 856, 857 Aivasian, V., 462n annuities due, 31–32 Abnormal return, 318–319 Alcan, 793 future value, 32–33 Absolute priority, 451–452 Alcoa, 806 growing annuities, 33–35 Accelerated depreciation, 136–138, 139 Allayanis, G., 697 installment plan costing, 30 Accelerated underwritings, 377n Allen, Franklin, 163, 226n, 242, 329n, lottery winnings, 30–31 Accenture, 129 358, 409n, 410n, 412, 747–748, Anthony, R., 300n Accounting income, tax income 846n, 860n, 864, 869, 871n, 875n Antikarov, R. S., 572 versus, 137–138 Allen, J., 844 Antitrust law, mergers and, 805–806 Accounting rates of return, 711–713 Allen, L., 594 Aoki, M., 852n nature of, 711–712 Alliant, 834 AOL, 335, 793, 828 problems with, 712–713 Allied Crude Vegetable Oil Refining A&P, 681 Accounting standards, 705 Corporation, 780 Apex One, 793 Accounts payable, 134–135, 738, 740 Allman-Ward, M., 784 Apollo Management, 823 Accounts receivable, 134–135, Allocated overhead, in net present Apple Computer Inc., 369n, 555 733, 737–738, 757 value analysis, 131 Appropriation requests, 241–242 Accrued interest, 600 Alltel, 793 Aramark, 367 Acharya, V. V., 358 Alpha, efficient market hypothesis Arbitrage Acquisitions. See Mergers and acquisitions and, 318 defined, 57 Adecco, 292 Alternative minimum tax (AMT), limits to, 327–328 Adjusted present value (APV), 486–490 136, 628 market efficiency and, 327–328 additions to debt capacity, 487–489 Altinkilic, O., 378n money machine and, 57 base case, 487 Altman, Edward I., 451n, 590n, 594, risk-neutral option valuation for international projects, 489–490 825n, 843 and, 527–528 issue costs and, 487 A. M. Best, 587n Arbitrage pricing theory (APT), review of, 491–492 Amazon, 77, 174, 188, 189, 193, 200–201 value of interest tax shields, 491–492 217–219, 392 capital asset pricing model Adler, B. E., 844 American Airlines, 627 versus, 200–201 Administrative costs American calls, 503–504, 542, 543 defined, 200 in leasing, 627 American Electric Power, 77 Arcelor, 813 in pooling risks, 649–650 American Express, 378 Archimedes, 526n Adverse selection risk, 649–650 American Jobs Creation Act (JOBS) Archipelago, 75n Agarwal, A., 811n of 2004, 638n Arc Sight, 378 Agency for International American puts, 543 Arithmetic averages, risk and, 158–159 Development, 773n American Shareholders Association, Arthur Andersen, 293 Agency problem, 290–298, 868–869 368 Articles of incorporation, 5 in capital budgeting, 291–292 American Water Works, 378 Ashanti Goldfields, 646n compensation plans, 290–298 Amortizing loan, mortgage as, 31–32 Ashenfelter, O., 307 costs, 13, 291–292, 455–457 Amram, M., 572 Ashland, 779 market-timing scandal, 10–11 Andrade, G., 450–451, 451n, 805, Asian crisis (1997), 605 mitigation, 14–15 805n, 813, 813n, 815, 817 Asian (average) options, 544 monitoring, 292–293 Andress, C., 824n Asked price, bond, 48 Ponzi schemes, 11, 11n Anheuser-Busch, 793 Asked yield to maturity, 48 risk management and, 646, 647–648 Annual coupon, 46–47 Asquith, Paul A., 329n, 333, 333n, 606n I-1 I-2 Index Asset-backed securities (ABS), 602–603, time deposits and certificates market timing and, 463 781 of deposit, 774, 775 signaling and, 363, 395–397 Asset beta BankAmerica, 779 Bell Laboratories, 827 calculating, 220–221 Bank Boston, 797 BellSouth, 827, 827n defined, 220–221 Bankers’ acceptances (BAs), 761, 774, Benartzi, L., 200n Asset sales, 830 776 Benchmark bills, 774 Asset turnover ratio, 713 Bankers Trust, 333 Benefit-cost ratio, 116n Asymmetric information, 460–462, 805 Bank for International Settlements, Benetton, 4 AT&T, 708, 709, 710, 827, 827n, 828, 767n, 768n Benmelech, E., 627n 828n Bank loans, 740, 777–782 Benveniste, L. M., 375n, 383 AT&T Universal Card, 827 syndication of, 779 Berger, P., 836n Auction markets Bank of America, 13, 295, 604, Berglof, E., 856n initial public offering, 375–376 792, 793, 797 Bergman, N. K., 627n nature of, 75 Bank of America National Trust and Berkshire Hathaway, 11n new issue, 375–376 Savings Association, 599 Bermuda options, 544 Auerbach, A. J., 815n Bank of International Settlements, 668n Bernard, V. L., 724 Australia, taxes on dividends in, 408 Bank of New England, 797 Bernardo, A. E., 410n Authorized share capital, 345 Bank of New York, 795 Berndt, A., 579n Automated Clearing House (ACH), Bank of Nova Scotia, 779 Bertrand, M., 463n, 859, 859n 768–769, 769n Bankruptcy, 837–842 Beta Automatic debit, 768–769 alternate procedures, 840–842 asset, 220–221 Automatic dividend reinvestment plans costs of, 448–452, 465 calculating, 176–177 (DRIPs), 393 direct versus indirect, 451–452 cash-flow, 222 Average collection period, 714, 736–737 evidence of, 450–451 changes in capital structure and, Average days in inventory, 736–737 examples, 837 427–428 Average payment period, 737 nature of, 448–450 company, 214–215 Axa, 616 workouts, 840 defined, 174 Bankruptcy Reform Act of 1978, 837, earnings, 222 B 838n estimating, 217–219 BankSouth, 797 for foreign stocks, 175–176 Babus, A., 875n Banque Paribas, 798 impact of borrowing on, 190–192 Bachelier, Louis, 314n, 504 Barberis, N., 200n, 326n, 336 market risk and, 174–177 Bain Capital, 823 Barca, F., 856n portfolio risk and, 174–177, Bait and switch game, in financial Barclays Bank, 772 192–199 distress, 455 Barclays Capital, 371 project, 214–215 Baker, G. P., 836, 836n Baring Brothers, 666 relevering, 484, 485n Baker, M., 336, 402n, 409n, 463n Barnett Banks, 797 unlevering, 428, 484, 485n Balance sheet Barrier options, 544 Bethlehem Steel, 586 debt ratio, 482–484 Bartram, S. M., 688n, 689n, 690 Betton, S., 817 described, 706–707 Barwise, P., 284 Bhagat, S., 830n Baldwin, R. E., 817 Basis risk, 656 Bhandari, J. S., 837n, 844 Balloon payments, 777 Baskin, J., 834n Bharath, S. T., 840n Banco Central Hispanico, 798 Baskin-Robbins, 870 Bhutto, Benazir, 614 Banco Santander, 798 Bausch & Lomb, 283 Biddle, G. C., 332n Bandler, J., 540n Bautista, A. J., 636n Bid price, bond, 48 Bank(s). See also Bank loans; specific Bayerische Vereinsbank, 798 Big Mac Index, 683 banks BBVA, 395 Bikhchandani, S., 874n borrowing and lending via, 306–307 Bearer bonds, 600 Billington, Corey A., 567 concentration accounts, 769 Bear Stearns, 355, 780 Binomial method of option pricing, direct deposit, 768–769 Beatrice, 823 530–534 direct payment, 768–769 Beaver, William H., 589n, 590, 590n Black-Scholes model and, 538 in financial markets, 846–851 Bebchuk, L. A., 308, 841n, 855n decision trees and, 534 as intermediaries, 356–357 Becht, M., 856n, 864 defined, 530 international, 601, 770, 772–773 Bechtel, 366 general binomial method, 533–534 multicurrency accounts, 770 Behavioral finance, 326–329 two-stage, 530–532 paying for services, 770 dividend payments in, 395–396, using, 562–563 payment mechanism and, 356 397, 403 Biomet, 831–832, 834 pooling risk and, 357 limits to arbitrage, 327–328 BK Vision, 348 sweep programs, 767 market efficiency and, 326–329 Black, B., 365n Index I-3 Black, Fischer, 197n, 198n, 204, 409, inflation in, 59–63 Bruner, R., 817 409n, 525, 526, 526n, 535n, 535– interest rates in, 46–64 Brunnermeier, M., 325n, 336, 874n 543, 544, 545, 868 present value formulas in, 46–49 BT, 617 Black Monday (1987), 167–168 spreadsheet functions, 67 Bubbles, 324–325 Black-Scholes option pricing model, term structure of interest rates in, dot.com stocks, 77, 325, 334–335, 535–542 53–59 366, 372 binomial method and, 538 in the U.S., 47–49 subprime crisis, 13, 168, 328–329, development of, 534–536 volatility in, 52–53 355–356, 779–780 using, 536–537 yield to maturity, 47 Buffett, Warren, 11n, 28, 281, 282, 668 to evaluate implied volatilities, yield to maturity in, 49 Bullet payments, 777 541–542 Boness, A. J., 314n Bulow, J. I., 539n for executive stock options, 539, Bookbuilding, 375 Burch, T. R., 828n 540 Book depreciation, 303–304 Burkart, M., 862n to value executive options, 539 Book rate of return, 104, 711 Burlington Northern Santa Fe, to value portfolio insurance, 540 Book-to-market ratio, 202 84, 219 to value warrants, 539–540 Book value, 707 Burroughs, B., 823n, 844 Blackstone Group, 823, 831–832, Boone, P., 859, 859n Business plans, in venture-capital 833, 834n Booth, L., 462n financing, 363 Blockbuster, 806 Bootstrap game, in mergers, 798–800 Business valuation process Blue-sky laws, 369 Booz Allen Hamilton, 368 adjusted present value (APV) in, BMW, 689 Borison, A., 261 487–489 BNP, 798 Borrowing and lending. See also Debt discounted cash flow (DCF) in, BNP Paribas, 617n financing; Financing decisions; 90–93 Board of directors Leasing weighted-average cost of capital control rights and, 347, 851–859 banks and, 306–307 (WACC) in, 216–221 European, 855 internal rate of return and, Butler, G. F., 567n, 569n mergers and, 808–814 109–110 monitoring of agency costs, 292–293 in portfolio theory, 190–192 role of, 5, 14, 292–293 Bort, R., 784 C shareholder pressures on, 15 Bortolotti, B., 377n voting procedures and, 347–349, 350 Bosch, 4, 853 California Air Resources Board Board of Governors of the Federal Boston Red Sox, 90 (CARB), 141–142 Reserve System, 342n, 344n, 346n, Bowie, David, 602–603 California Public Employee Retirement 351n Bowie bonds, 602–603 System (Calpers), 540 Boatmen’s Bancshares, 797 Boyco, M., 831n Call options, 503–504 Bodega Numanthia Termes, 3 BP, 175, 315, 316, 318, 395, 650 defined, 503 Bodie, Zvi, 305n Bradley, M., 93n position diagrams, 503–504 Boeing, 2, 3, 127, 170–172, 174, 186– Branson, Richard, 221–222 relationship between put prices 189, 193, 253, 806 Brasil Telecom, 75 and, 529 Bolton, P., 864 Brau, J.