Instructor’s Manual Business Finance Theory and Practice Eleventh edition
Eddie McLaney
For further instructor material please visit:
www.pearsoned.co.uk/mclaney ISBN: 978-1-292-13445-1
Pearson Education Limited 2017 Lecturers adopting the main text are permitted to download and photocopy the manual as required.
PEARSON EDUCATION LIMITED Edinburgh Gate Harlow CM20 2JE United Kingdom Tel: +44 (0)1279 623623 Web: www.pearson.com/uk ----------------------------------Eighth edition published 2010 Ninth edition published 2012 Tenth edition published 2015 This edition published 2017 © Pearson Education Limited 2017 The right of Eddie McLaney to be identified as author of this work has been asserted by him in accordance with the Copyright, Designs and Patents Act 1988. ISBN 978-1-292-13445-1 All rights reserved. Permission is hereby given for the material in this publication to be reproduced for OHP transparencies and student handouts, without express permission of the Publishers, for educational purposes only. In all other cases, no part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise without either the prior written permission of the Publishers or a licence permitting restricted copying in the United Kingdom issued by the Copyright Licensing Agency Ltd., Barnard’s Inn, 86 Fetter Lane, London EC4A 1EN. This book may not be lent, resold, hired out or otherwise disposed of by way of trade in any form of binding or cover other than that in which it is published, without the prior consent of the Publishers. All trademarks used herein are the property of their respective owners. The use of any trademark in this text does not vest in the author or publisher any trademark ownership rights in such trademarks, nor does the use of such trademarks imply any affiliation with or endorsement of this book by such owners. Contains public sector information licensed under the Open Government Licence (OGL) v3.0. http://www.nationalarchives.gov.uk/doc/open-government-licence/version/3/. The screenshots in this book are reprinted by permission of Microsoft Corporation. Pearson Education is not responsible for the content of third-party internet sites.
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Contents Chapters
Pages
Solutions to certain end-of-chapter problems
04
Chapter 3
Financial (accounting) statements and their interpretation
05
Chapter 4
Investment appraisal methods
12
Chapter 5
Practical aspects of investment appraisal
16
Chapter 6
Risk in investment appraisal
23
Chapter 7
Portfolio theory and its relevance to real investment decisions
30
Chapter 8
Sources of long-term finance
32
Chapter 9
The secondary capital market (the stock exchange) and its efficiency
34
Chapter 10
Cost of capital estimations and the discount rate
35
Chapter 11
Gearing, the cost of capital and shareholders’ wealth
37
Chapter 12
The dividend decision
41
Chapter 13
Management of working capital
46
Chapter 14
Corporate restructuring (including takeovers and divestments)
49
Chapter 15
International aspects of business finance
51
Chapter 16
Small businesses
52
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Solutions to certain end-of-chapter problems
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CHAPTER 3
Financial (accounting) statements and their interpretation 3.2
Duration Ltd Table of ratios
Return on capital employed
Operating profit Share capital + Reserves + LT liabilities
10 × 100% 78
12.8%
Gross profit margin Gross profit × 100% Sales revenue 20 × 100% 80
25.0%
Operating profit margin Operating profit × 100% Sales revenue 10 × 100% 80
12.5%
Sales revenue to capital employed Sales revenue × 100% Share capital + Reserves + LT liabilities 80 × 100% 78
1.0 times
Current ratio Current assets Current liabilities 20 12
1.67:1
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