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Corporate Finance: Theory & Practice

ISBN: 9781861529268 | 1861529260
Edition: 7th
Format: Paperback
Publisher: Cengage Learning EMEA Higher Education
Pub. Date: 5/22/2003

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SummaryTable of Contents
This bestseller offers a complete introduction to financial management and corporate finance modules for a one-year university course. It is a relatively non-mathematical text and its simple explanations of a complex area have made it extremely popular with students. The author?s educational and training expertise is reflected at every stage of the book: worked examples are given after each explanation, followed by a chapter summary, ?quickie? questions and more detailed practice questions. The ?quickie? questions are all answered at the back o... MORE
Prefacexvii
Book planxx
PART 1 INTRODUCTION
1(30)
Financial decision making
3... MORE
The nature of financial decisions
3(1)
The decision process
4(2)
Financial decision making
6(5)
Technology and financial decision making
11(1)
Summary
12(1)
Notes
12(1)
Quickie questions
13(1)
Decision objectives
14(17)
Wealth maximization and the company
14(1)
Ownership and control
15(1)
Regulation of the relationship between directors and shareholders
16(7)
Incentive scheme criteria
23(3)
When incentive schemes and regulation are ineffective
26(1)
Conclusion
27(1)
Summary
28(1)
Notes
29(1)
Further reading
29(1)
Quickie questions
30(1)
Problems
30(1)
PART 2 INVESTMENT DECISIONS
31(146)
Traditional methods of investment appraisal
33(17)
Introduction
33(1)
The payback method
34(7)
Return on capital employed
41(3)
Conclusions
44(1)
Summary
44(1)
Notes
45(2)
Further reading
47(1)
Quickie questions
47(1)
Problems
48(2)
Investment--consumption decision model
50(17)
Introduction to the model
50(1)
The time value of money
51(2)
The basic graphical analysis
53(2)
Introduction of capital markets
55(2)
The separation theorem
57(4)
The conclusions of the basic model
61(1)
Payback and ROCE
62(1)
Summary
62(1)
Notes
63(2)
Further reading
65(1)
Quickie questions
65(1)
Problem
66(1)
The discounted cash flow approach
67(27)
Net present value
67(6)
Alternative interpretations of NPV
73(5)
Internal rate of return
78(5)
Discounted payback
83(1)
Truncated NPV
84(1)
Summary
85(1)
Appendix: compounding and discounting
85(4)
Notes
89(1)
Further reading
90(1)
Quickie questions
90(1)
Problems
91(3)
Net present value and internal rate of return
94(31)
NPV and project interdependence
94(5)
IRR rule and interdependent projects
99(9)
Extending the time horizon
108(1)
Multiple IRRs
109(4)
Other problems with the IRR rule
113(1)
The modified IRR
114(1)
NPV versus IRR: Conclusion
115(1)
The replacement cycle problem
116(3)
Summary
119(1)
Notes
120(1)
Further reading
121(1)
Quickie questions
121(1)
Problems
122(3)
Project cash flows
125(23)
Investment appraisal and inflation
125(5)
Inflation and the IRR rule
130(1)
Investment appraisal and taxation
131(1)
Financing cash flows
132(4)
Investment appraisal and the relevant cash flow
136(5)
Summary
141(1)
Appendix: the UK corporate tax system
141(1)
Notes
142(1)
Further reading
143(1)
Quickie questions
143(1)
Problems
144(4)
Capital rationing
148(29)
Introduction
148(2)
Hard and soft capital rationing
150(2)
Single-period capital rationing
152(6)
Multi-period capital rationing
158(10)
Summary
168(1)
Appendix: linear programming
169(2)
Notes
171(1)
Further reading
171(1)
Quickie questions
172(1)
Problems
173(4)
PART 3 RISK ANALYSIS
177(176)
Simple risk techniques
179(25)
Risk and return
179(1)
Expected net present value
180(6)
The abandonment decision
186(5)
Sensitivity analysis
191(3)
The risk-adjusted discount rate
194(2)
Summary
196(1)
Notes
197(1)
Further reading
197(1)
Quickie questions
198(1)
Problems
199(5)
Risk and return
204(22)
Introduction to uncertainty
204(2)
The expected utility model
206(7)
Risk, return and the investment decision
213(9)
Summary
222(1)
Notes
223(1)
Further reading
223(1)
Quickie questions
224(1)
Problem
224(2)
Portfolio theory
226(29)
Two-asset portfolios
226(8)
Multi-asset portfolios
234(3)
Introduction of a risk-free investment
237(6)
The capital market line
243(5)
Diversification within companies
248(1)
Summary
249(2)
Notes
251(1)
Further reading
251(1)
Quickie questions
252(1)
Problems
252(3)
The capital asset pricing model
255(36)
The security market line
255(4)
The CAPM expression
259(3)
The beta value
262(9)
The validity of the CAPM
271(5)
Arbitrage pricing theory
276(2)
Betas and project investment appraisal
278(3)
Summary
281(1)
Appendix: The security market line
282(3)
Notes
285(1)
Further reading
285(1)
Quickie questions
286(1)
Problems
287(4)
Option valuation
291(34)
Introduction
291(1)
The basic characteristics of options
291(2)
Option terminology
293(1)
The valuation of options
293(5)
The Black and Scholes model
298(4)
The building blocks of investment
302(5)
Put--call parity theorem
307(3)
Using share options
310(4)
The option `Greeks'
314(4)
The binomial model
318(2)
Summary
320(1)
Appendix: the area under the normal curve
321(2)
Notes
323(1)
Further reading
323(1)
Quickie questions
323(1)
Problems
323(2)
Interest rate risk
325(28)
Introduction
325(1)
The money markets
325(2)
Forward forward loans
327(1)
Forward rate agreements
328(3)
Interest rate guarantees
331(2)
Option contract markets
333(1)
Interest rate futures
334(9)
Caps, collars and floors
343(1)
Interest rate swaps
344(4)
Summary
348(1)
Notes
348(1)
Further reading
349(1)
Quickie questions
349(1)
Problems
350(3)
PART 4 FINANCING DECISIONS
353(198)
Financial markets
355(24)
Introduction
355(1)
Market efficiency
355(3)
Market efficiency and share dealing
358(2)
The empirical evidence of EMH
360(5)
The term structure of interest rates
365(4)
Pure expectations hypothesis
369(6)
Summary
375(1)
Notes
376(1)
Further reading
377(1)
Quickie questions
378(1)
Problems
378(1)
The cost of capital
379(41)
The financing decision
379(1)
The cost of equity capital
380(3)
Expected return, dividends and market price
383(2)
Applying the dividend valuation model
385(8)
CAPM and the cost of equity capital
393(2)
CAPM versus the DVM
395(2)
The cost of debt capital
397(12)
Cost of preference shares
409(1)
Convertible debt
410(4)
Summary
414(1)
Notes
414(2)
Further reading
416(1)
Quickie questions
416(1)
Problems
417(3)
Weighted average cost of capital
420(22)
The project discount rate
420(3)
The calculation of K0
423(4)
The WACC and project risk
427(3)
Summary
430(1)
Appendix: Differing corporate and private costs of debt
431(6)
Notes
437(1)
Further reading
437(1)
Quickie questions
438(1)
Problems
438(4)
Capital structure in a simple world
442(20)
Introduction
442(1)
An optimal capital structure
442(4)
Business and financial risk
446(4)
The arbitrage proof
450(7)
Summary
457(1)
Notes
458(1)
Further reading
458(1)
Quickie questions
459(1)
Problems
459(3)
Capital structure in a complex world
462(26)
Taxation and capital structure
462(5)
Using the M and M equations
467(5)
M and M in the real world
472(5)
Further views on capital structure
477(5)
Conclusion
482(1)
Summary
482(1)
Notes
483(1)
Further reading
484(1)
Quickie questions
484(1)
Problems
485(3)
Capital structure in practice
488(18)
The pecking order theory
488(3)
Real-world considerations
491(2)
Earnings per share and gearing
493(3)
Degree of operating gearing
496(4)
Summary
500(1)
Notes
501(1)
Further reading
501(1)
Quickie questions
501(1)
Problems
502(4)
Investment and financing interactions
506(28)
Company valuation and investment appraisal
506(1)
The dividend and interest valuation model
507(1)
Adjusted present value model
507(1)
The M and M valuation model
508(1)
The traditional valuation model
508(1)
Approaches to investment appraisal
509(5)
Asset betas and gearing
514(7)
Risk-adjusted WACC
521(3)
Lease or purchase decision
524(5)
Summary
529(1)
Notes
529(1)
Further reading
529(1)
Quickie questions
530(1)
Problems
531(3)
The dividend decision
534(17)
Dividend policy in perfect capital markets
534(4)
Traditional view of the dividend decision
538(4)
Dividend policy in an imperfect market
542(2)
The empirical evidence
544(1)
Conclusion
545(1)
Summary
546(1)
Notes
547(1)
Further reading
547(1)
Quickie questions
548(1)
Problems
548(3)
PART 5 MERGERS AND ACQUISITIONS
551(42)
Acquisition decisions
553(24)
Introduction
553(1)
Synergy
554(3)
Valuing synergy
557(1)
Acquisition premiums
558(2)
Organic growth versus growth via acquisition
560(2)
The coinsurance effect
562(2)
Bootstrapping EPS
564(3)
Diversification
567(1)
Takeover defence
568(3)
Financing acquisitions
571(1)
Summary
572(2)
Notes
574(1)
Further reading
574(1)
Quickie questions
574(1)
Problems
575(2)
Company valuation
577(16)
Introduction
577(1)
Asset basis
577(2)
Earnings basis
579(3)
Dividend basis
582(1)
Free cash flow basis
582(2)
Intellectual capital
584(2)
Summary
586(1)
Further reading
587(1)
Quickie questions
587(1)
Problems
588(5)
PART 6 INTERNATIONAL ISSUES
593(74)
Foreign exchange
595(20)
Introduction
595(1)
Exchange rates
595(5)
Foreign exchange markets
600(5)
Exchange rate systems
605(3)
Determinants of FX rates
608(4)
Summary
612(1)
Notes
613(1)
Further reading
613(1)
Quickie questions
613(1)
Problems
614(1)
Foreign exchange hedging
615(27)
Definitions
615(1)
Transaction risk hedging
616(5)
FX futures contracts
621(5)
Forward versus futures
626(1)
FX options contracts
627(2)
Setting up an option hedge
629(5)
Early exercise
634(1)
Contingent exposure to FX risk
635(1)
Traded options versus OTC options
635(1)
Summary
636(1)
Notes
637(1)
Further reading
637(1)
Quickie questions
637(2)
Problems
639(3)
Foreign direct investment
642(25)
Introduction
642(2)
Project cash flows
644(4)
Project discount rate
648(5)
Translation risk
653(3)
Economic risk
656(3)
Country/political risk
659(1)
Management charges and transfer pricing
660(1)
Summary
661(1)
Notes
662(1)
Further reading
662(1)
Quickie questions
663(1)
Problems
663(4)
Tables667(6)
Answers to quickie questions673(26)
Answers to problems699(84)
Index783

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