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Solutio of Gitman's Finance.Doc
PART 6

Special Topics in Managerial Finance

CHAPTERS IN THIS PART

16 Hybrid and Derivative Securities

17 Mergers, LBOs, Divestitures, and Business Failure

18 International Managerial Finance

INTEGRATIVE CASE 6:
ORGANIC SOLUTIONS
CHAPTER 16

Hybrid and Derivative Securities

INSTRUCTOR’S RESOURCES

Overview

This chapter focuses on other sources of long-term financing: leasing, convertible bonds, convertible preferred stock, and warrants. The basic features, costs, and advantages of these financing methods are discussed. The basic types of leases (operating and financial), leasing arrangements, and legal aspects of leasing are presented, as well as the procedure used to analyze a lease versus purchase decision. The student learns how to evaluate convertible securities and stock-purchase warrants. The use and features of stock options are presented. The chapter concludes with a discussion of the use of options to hedge foreign currency exposure.

PMF DISK

This chapter 's topics are not covered on either the PMF Tutor or the PMF Problem-Solver.

PMF Templates

A spreadsheet template is provided for the following problem:

Problem Topic
16-4 Lease-versus-purchase

Study Guide

The following Study Guide examples are suggested for classroom presentation:

Example Topic 3 Stock warrants 4 Lease-versus-purchase analysis
ANSWERS TO REVIEW QUESTIONS

16-1 Hybrid securities contain characteristics of both debt and equity. Hybrid securities are a form of financing used by the firm. Derivative securities are neither debt nor equity. They are securities that derive their value from another "underlying" asset. Derivatives are not used by the firm for raising funds but are used for managing certain aspects of the firm 's risk.

16-2 Leasing is a financing technique that allows a firm to obtain the use of certain fixed assets by making periodic, contractual payments that are tax deductible. An operating lease
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