Corporate Finance

Preface

About the authors

Acknowledgements

Guided tour of the book

Guided tour of MyFinanceLab



1 The finance function

Learning objectives

Introduction

1.1 Two key concepts in corporate finance

1.2 The role of the financial manager

1.3 Corporate objectives

1.4 How is shareholder wealth maximised?

1.5 Agency theory

1.6 Corporate governance

1.7 Conclusion

Key points

Self-test questions

Questions for review

Questions for discussion

References

Recommended reading



2 Capital markets, market efficiency and ratio analysis

Learning objectives

Introduction

2.1 Sources of business finance

2.2 Capital markets

2.3 Capital market efficiency

2.4 Assessing financial performance

2.5 Conclusion

Key points

Self-test questions

Questions for review

Questions for discussion

References

Recommended reading



3 Short-term finance and the management of working capital

Learning objectives

Introduction

3.1 The objectives of working capital management

3.2 Working capital policies

3.3 Working capital and the cash conversion cycle

3.4 Overtrading

3.5 The management of inventory

3.6 The management of cash

3.7 The management of receivables

3.8 Conclusion

Key points

Self-test questions

Questions for review

Questions for discussion

References

Recommended reading



4Long-term finance: equity finance

Learning objectives

Introduction

4.1 Equity finance

4.2 The stock exchange

4.3 Rights issues

4.4 Scrip issues, share splits, scrip dividends and share repurchases

4.5 Preference shares

4.6 Conclusion

Key points

Self-test questions

Questions for review

Questions for discussion

References

Recommended reading



5 Long-term finance: debt finance, hybrid finance and leasing

Learning objectives

Introduction

5.1 Bonds, loan stock and debentures

5.2 Bank and institutional debt

5.3 International debt finance

5.4 Convertible bonds

5.5 Warrants

5.6 The valuation of fixed-interest bonds

5.7 The valuation of convertible bonds

5.8 Leasing

5.9 Evaluating the financial effect of financial choices

5.10 Conclusion

Key points

Self-test questions

Questions for review

Questions for discussion

References

Recommended reading



6 An overview of investment appraisal methods

Learning objectives

Introduction

6.1 The payback methods

6.2 The return on capital employed method

6.3 The net present value method

6.4 The internal rate of return method

6.5 A comparison of the NPV and IRR methods

6.6 The profitability index and capital rationing

6.7 The discounted payback method

6.8 Conclusion

Key points

Self-test questions

Questions for review

Questions for discussion

References

Recommended reading



7 Investment appraisal: applications and risk

Learning objectives

Introduction

7.1 Relevant project cash flows

7.2 Taxation and capital investment decisions

7.3 Inflation and capital investment decisions

7.4 Investment appraisal and risk

7.5 Appraisal of foreign direct investment

7.6 Empirical investigations of investment appraisal

7.7 Conclusion

Key points

Self-test questions

Questions for review

Questions for discussion

References

Recommended reading



8 Portfolio theory and the capital asset pricing model

Learning objectives

Introduction

8.1 The measurement of risk

8.2 The concept of diversification

8.3 Investor attitude to risk

8.4 Markowitz's portfolio theory

8.5 Introduction to the capital asset pricing model

8.6 Using the CAPM to value shares

8.7 Empirical tests of the CAPM

8.8 Conclusion

Key points

Self-test questions

Questions for review

Questions for discussion

References

Recommended reading



9 The cost of capital and capital structure

Learning objectives

Introduction

9.1 Calculating the cost of individual sources of finance

9.2 Calculation of weighed average cost of capital

9.3 Average and marginal cost of capital

9.4 The CAPM and investment appraisal

9.5 Practical problems with calculating WACC

9.6 WACC in the real world

9.7 The cost of capital for foreign direct investment

9.8 Gearing: its measurement and significance

9.9 The concept of an optimal capital structure

9.10 The traditional approach to capital structure

9.11 Miller and Modigliani (I): the net income approach

9.12 Miller and Modigliani (II): corporate tax

9.13 Market imperfections

9.14 Miller and personal taxation

9.15 Pecking order theory

9.16 Does an optimal capital structure exist? A conclusion

Key points

Self-test questions

Questions for review

Questions for discussion

References

Recommended reading



10 Dividend policy

Learning objectives

Introduction

10.1 Dividends: operational and practical issues

10.2 The effect of dividends on shareholder wealth

10.3 Dividend irrelevance

10.4 Dividend relevance

10.5 Dividend relevance or irrelevance?

10.6 Dividend policies

10.7 Alternatives to cash dividends

10.8 Empirical evidence on dividend policy

10.9 Conclusion

Key points

Self-test questions

Questions for review

Questions for discussion

References

Recommended reading



11 Mergers and takeovers

Learning objectives

Introduction

11.1 The terminology of mergers and takeovers

11.2 Justifications for acquisitions

11.3 Trends in takeover activity

11.4 Target company valuation

11.5 The financing of acquisitions

11.6 Strategic and tactical issues

11.7 Divestment

11.8 Private equity

11.9 Empirical research on acquisitions

11.10 Conclusion

Key points

Self-test questions

Questions for review

Questions for discussion

References

Recommended reading



12 Risk management

Learning objectives

Introduction

12.1 Interest and exchange rate risk

12.2 Internal risk management

12.3 External risk management

12.4 Future contracts

12.5 Options

12.6 Swaps

12.7 issues in interest and exchange risk management

12.8 Political risk

12.9 Conclusion

Key points

Self-test questions

Questions for review

Questions for discussion

References

Recommended reading



Answers to self-test questions

Glossary

Present value tables

Index