Instructor’s Manual
Fundamentals of
Financial Management
twelfth edition
James C. Van Horne
John M. Wachowicz JR.
ISBN 0 273 68514 7
Pearson Education Limited 2005
Lecturers adopting the main text are permitted to photocopy the book as required.
© Pearson Education Limited 2005
,Pearson Education Limited
Edinburgh Gate
Harlow
Essex CM20 2JE
England
and Associated Companies throughout the world
Visit us on the World Wide Web at:
www.pearsoned.co.uk
Previous editions published under the Prentice-Hall imprint
Twelfth edition published under the Financial Times Prentice Hall imprint 2005
© 2001, 1998 by Prentice-Hall, Inc.
© Pearson Education Limited 2005
The rights of James C. Van Horne and John M. Wachowicz JR. to be
identified as authors of this work have been asserted by them in accordance
with the Copyright, Designs and Patent Act 1988.
ISBN: 0 273 68514 7
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 the prior
written permission of the Publishers or a licence permitting restricted copying
in the United Kingdom issued by the Copyright Licensing Agency Ltd,
90 Tottenham Court Road, London W1T 4LP. 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.
Van Horne and Wachowicz: Fundamentals of Financial Management, 12e ii
, © Pearson Education Limited 2005
Introduction
Many approaches might be used in teaching the basic financial management course.
Fundamentals of Financial Management sequences things in order to cover certain foundation
material first, including: the role of financial management; the business, tax, and financial setting;
the mathematics of finance; basic valuation concepts; the idea of a trade off between risk and
return; and financial analysis, planning, and control. Given a coverage of these topics, we then
have found it easier to build upon this base in the subsequent teaching of financial management.
More specifically, the book goes on to investigate current asset and liability decisions and
then moves on to consider longer-term assets and financing. A good deal of emphasis is placed
on working-capital management. This is because we have found that people tend to face
problems here when going into entry-level business positions to a greater extent than they do to
other asset and financing area problems.
Van Horne and Wachowicz: Fundamentals of Financial Management, 12e 1
, Introduction © Pearson Education Limited 2005
Nonetheless, capital budgeting, capital structure decisions, and long-term financing are
very important, particularly considering the theoretical advances in finance in recent years. These
areas have not been slighted. Many of the newer frontiers of finance are explored in the book. In
fact, one of the book's distinguishing features is its ability to expose the student reader to many
new concepts in modern finance. By design, this exposure is mainly verbal with only limited use
of mathematics. The last section of the book deals with the more specialized topics of:
convertibles, exchangeables, and warrants; mergers and other forms of corporate restructuring;
and international financial management.
While the book may be used without any formal prerequisites, often the student will have
had an introductory course in accounting and economics (and perhaps a course in statistics).
Completion of these courses allows the instructor to proceed more rapidly over financial analysis,
capital budgeting, and certain other topics. The book has a total of twelve appendices, which deal
with more advanced issues and/or topics of special interest. The book's continuity is not
adversely affected if these appendices are omitted. While we feel that all of the appendices are
relevant for a thorough understanding of financial management, the instructor can choose those
most appropriate to his or her course.
If the book is used in its entirety, the appropriate time frame is a semester or, perhaps,
two quarters. For the one-quarter basic finance course, we have found it necessary to omit
coverage of certain chapters. However, it is still possible to maintain the book's thrust of providing
a fundamental understanding of financial management. For the one-quarter course, the following
sequencing has proven manageable:
Van Horne and Wachowicz: Fundamentals of Financial Management, 12e 2
Fundamentals of
Financial Management
twelfth edition
James C. Van Horne
John M. Wachowicz JR.
ISBN 0 273 68514 7
Pearson Education Limited 2005
Lecturers adopting the main text are permitted to photocopy the book as required.
© Pearson Education Limited 2005
,Pearson Education Limited
Edinburgh Gate
Harlow
Essex CM20 2JE
England
and Associated Companies throughout the world
Visit us on the World Wide Web at:
www.pearsoned.co.uk
Previous editions published under the Prentice-Hall imprint
Twelfth edition published under the Financial Times Prentice Hall imprint 2005
© 2001, 1998 by Prentice-Hall, Inc.
© Pearson Education Limited 2005
The rights of James C. Van Horne and John M. Wachowicz JR. to be
identified as authors of this work have been asserted by them in accordance
with the Copyright, Designs and Patent Act 1988.
ISBN: 0 273 68514 7
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 the prior
written permission of the Publishers or a licence permitting restricted copying
in the United Kingdom issued by the Copyright Licensing Agency Ltd,
90 Tottenham Court Road, London W1T 4LP. 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.
Van Horne and Wachowicz: Fundamentals of Financial Management, 12e ii
, © Pearson Education Limited 2005
Introduction
Many approaches might be used in teaching the basic financial management course.
Fundamentals of Financial Management sequences things in order to cover certain foundation
material first, including: the role of financial management; the business, tax, and financial setting;
the mathematics of finance; basic valuation concepts; the idea of a trade off between risk and
return; and financial analysis, planning, and control. Given a coverage of these topics, we then
have found it easier to build upon this base in the subsequent teaching of financial management.
More specifically, the book goes on to investigate current asset and liability decisions and
then moves on to consider longer-term assets and financing. A good deal of emphasis is placed
on working-capital management. This is because we have found that people tend to face
problems here when going into entry-level business positions to a greater extent than they do to
other asset and financing area problems.
Van Horne and Wachowicz: Fundamentals of Financial Management, 12e 1
, Introduction © Pearson Education Limited 2005
Nonetheless, capital budgeting, capital structure decisions, and long-term financing are
very important, particularly considering the theoretical advances in finance in recent years. These
areas have not been slighted. Many of the newer frontiers of finance are explored in the book. In
fact, one of the book's distinguishing features is its ability to expose the student reader to many
new concepts in modern finance. By design, this exposure is mainly verbal with only limited use
of mathematics. The last section of the book deals with the more specialized topics of:
convertibles, exchangeables, and warrants; mergers and other forms of corporate restructuring;
and international financial management.
While the book may be used without any formal prerequisites, often the student will have
had an introductory course in accounting and economics (and perhaps a course in statistics).
Completion of these courses allows the instructor to proceed more rapidly over financial analysis,
capital budgeting, and certain other topics. The book has a total of twelve appendices, which deal
with more advanced issues and/or topics of special interest. The book's continuity is not
adversely affected if these appendices are omitted. While we feel that all of the appendices are
relevant for a thorough understanding of financial management, the instructor can choose those
most appropriate to his or her course.
If the book is used in its entirety, the appropriate time frame is a semester or, perhaps,
two quarters. For the one-quarter basic finance course, we have found it necessary to omit
coverage of certain chapters. However, it is still possible to maintain the book's thrust of providing
a fundamental understanding of financial management. For the one-quarter course, the following
sequencing has proven manageable:
Van Horne and Wachowicz: Fundamentals of Financial Management, 12e 2
