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Corporate Finance Demystified

by: Adair, Troy A., Jr.

Corporate Finance Demystified

by: Adair, Troy A., Jr.

ISBN 13:
9780071459105
ISBN 10:
0071459103
Edition: 1st
Format: Paperback
Copyright: 12/15/2005
Publisher: McGraw-Hill
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Summary

Now anyone can grasp the fundamentals of corporate finance-without formal training, unlimited time, or a genius IQ. In Corporate Finance Demystified, finance professor Troy Adair provides an effective, illuminating, and entertaining way to learn this complex subject.

Acknowledgments

Introduction

xii

PART ONE INTRODUCTION

What Is Corporate Finance?

(12)

What Is Finance?

(2)

The Subfields of Finance

(2)

The Parts of Corporate Finance

(2)

So, Why Is This So Complicated?

(1)

Why Are We Studying Corporate Finance?

(1)

Quiz

(4)

Setting the Stage

(8)

Basic Forms of Business Organization

(2)

Goal of the Financial Manager

(1)

Agency Relationships and Conflicts

(2)

Quiz

(4)

Accounting Statements and Cash Flows

(10)

The Balance Sheet: Assets vs. Liabilities

(2)

The Balance Sheet: Short-Term vs. Long-Term Accounts

(1)

The Income Statement

(1)

Taxes

(1)

Cash Flow From Assets

(1)

Quiz

(4)

Common-Size, Common-Base Year, and Ratio Analysis

(20)

The General Goal of Ratio Analysis: Summarization

(1)

``Good'' and ``Bad'' Values for Ratios

(1)

An Additional Effect of Ratio Analysis: Standardization

(1)

Common-Size Statement Analysis

(3)

Common-Base Year Analysis

(1)

Liquidity Ratios

(3)

Leverage Ratios

(2)

Asset Utilization Ratios

(1)

Profitability Ratios

(1)

Quiz

(6)

PART TWO ``I WILL GLADLY PAY YOU $2 TOMORROW FOR $1 TODAY'': THE TIME VALUE OF MONEY

Present and Future Value

(18)

Using a Financial Calculator or a Spreadsheet Program

(1)

Time Lines

(2)

The TVM Formulas

(3)

Calculator Setup and Notational Conventions

(1)

Using the TVM Formulas

(1)

Example---Car Loan with Delayed First Payment

(2)

Example---Retirement Calculation

(2)

What About Annuities Due?

(2)

Quiz

(3)

Compounding and Interest Rate Conversion: When What You've Got Isn't What You Need

(12)

Interest Rate Flavors

(1)

APRs Explained

(2)

Just Because You Have a New Toy Doesn't Mean You Have To Use It!

(1)

Dealing with Other Nominal Rates

(1)

A Caution on Using Calculators or Textbook Formulas to Convert Rates

(2)

Quiz

(4)

Payment Composition and Amortization Schedules

(12)

Calculating Payment Components for Pure Discount Loans

(1)

Calculating Payment Components for Interest-Only Loans

(1)

Amortized Loans: Constant-Payment Loans

(1)

Amortized Loans: Constant-Principal Loans

(2)

A Final Note on Amortized Loans

(1)

Quiz

(5)

PART THREE VALUATION

Valuing Bonds

(12)

The Conventions of Bond Quotations

(2)

The Mathematics of a Bond

(1)

There are Rates, and then there are Rates that aren't Really Rates

(3)

Solving for Bond Price

100

(1)

Solving for Anything but Bond Price

101

(1)

The Parts of YTM

102

(2)

Quiz

104

(3)

Valuing Stocks

107

(14)

The Conventions of Stock Quotations

108

(1)

The Mathematics of a Stock: Constant Dividends

108

(2)

The Mathematics of a Stock: Constantly Growing Dividends

110

(3)

The Mathematics of a Stock: Constantly Shrinking Dividends

113

(1)

What g > r Really Means

113

(1)

The Mathematics of a Stock: Nonconstant Dividends

114

(3)

Dividend Yield and Expected Capital Gains Yields on Stocks

117

(1)

Quiz

118

(3)

Valuing Projects: The Capital-Budgeting Decision Rules

121

(24)

Why Cash Flow Signs Matter Now

122

(1)

Notational Conventions, Part 2

123

(2)

Net Present Value

125

(1)

The Intuition behind NPV

126

(1)

Payback

127

(2)

Discounted Payback

129

(2)

A Comparison of the Intuitions in Payback and Discounted Payback

131

(1)

Average Accounting Return (AAR)

131

(1)

Internal Rate of Return (IRR)

132

(1)

The Intuition behind IRR

133

(1)

Problems with IRR

133

(4)

Modified IRR (MIRR)

137

(1)

Profitability Index (PI)

138

(1)

Repeated Projects: Equivalent Annual Cost

139

(1)

Quiz

140

(5)

PART FOUR WHERE DO INTEREST RATES COME FROM? RISK, RETURN, AND THE COST OF CAPITAL

Measuring Risk and Return

145

(12)

Using the Past to Predict the Future: Computing the Average and Standard Deviation of Historic Returns

146

(3)

Explicit Guessing: Calculating the Expected Return and Standard Deviation across Expected States of Nature

149

(2)

Choosing Which Method to Use for Average and Standard Deviation

151

(1)

Portfolio Averages and Standard Deviations

151

(2)

Quiz

153

(4)

Calculating Beta

157

(8)

Beta Estimation Methodology

158

(1)

Choosing and Gathering the Necessary Data

159

(1)

Calculating the Beta

160

(1)

Portfolio Betas

161

(1)

Quiz

161

(4)

Analyzing the Security Market Line

165

(8)

The Relationship between the Security Market Line and the CAPM Equation

166

(1)

Estimating the Intercept of the SML

166

(1)

Estimating the Slope of the SML

167

(1)

Estimating the X Variable, Beta

168

(1)

Bringing it All Together

169

(1)

Quiz

169

(4)

The Weighted Average Cost of Capital

173

(10)

The WACC Formula

174

(1)

Calculating the Component Cost of Equity, RE

175

(1)

Calculating the Component Cost of Preferred Stock, Rp

176

(1)

Calculating the Before-Tax Cost of Debt, RD

176

(1)

Calculating the WACC

177

(1)

A Note on Nominal vs. Effective Rates

177

(1)

Quiz

177

(6)

PART FIVE ADVANCED TOPICS IN CORPORATE FINANCE

Estimating Future Cash Flows

183

(14)

Sample Project

184

(1)

Calculating Total Cash Flow: The Formula

184

(1)

Guiding Principles for Calculating Total Cash Flow

185

(1)

Calculating Depreciation

186

(1)

Operating Cash Flow (OCF)

187

(1)

Net Capital Spending

188

(1)

Changes in NWC

189

(2)

Bringing it All Together: Total Cash Flow

191

(1)

Quiz

191

(6)

Scenario Analysis and Sensitivity Analysis

197

(12)

Sample Project

198

(1)

Scenario Analysis

199

(3)

Sensitivity Analysis

202

(4)

When to Use Which

206

(1)

Quiz

206

(3)

Option Valuation

209

(20)

Options: The Basics

210

(1)

Values of Options at Expiration

211

(6)

Valuing a Call Option before Expiration: The Binomial Option Pricing Model

217

(5)

Valuing a Call Option before Expiration: The Black-Scholes Option Pricing Model

222

(2)

Put-Call Parity

224

(1)

Quiz

224

(5)

Appendix A Depreciation Charts

229

(4)

Appendix B Values for the Standard Normal Cumulative Distribution Function

233

(4)

Final Exam

237

(26)

Answers to Quiz and Exam Questions

263

(6)

Index

269

Amazon no longer offers textbook rentals. We do!

Corporate Finance Demystified

Corporate Finance Demystified

9780071459105

0071459103

Summary

Author Biography

Table of Contents

Supplemental Materials

Write a Review

Amazon no longer offers textbook rentals. We do!

Corporate Finance Demystified

Corporate Finance Demystified

9780071459105

0071459103

Summary

Author Biography

Table of Contents

Supplemental Materials

Write a Review

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