Corporate Finance: A Systematic Approach

Preface
Contents
1 Introduction
	1.1 Decision Making and Cost–Benefit Analysis
	1.2 Risks and Returns
	1.3 Derivatives and Corporate Finance
	1.4 Behavioral Finance and Corporate Finance
2 The Ownership and Objectives of the Firm
	2.1 The Ownership of the Firm—A Story of Robin Hood
	2.2 Power (Authority), Entrepreneur, and Objectives and Boundary of the Firm
	2.3 Choice Set, Risk Attitude, and Types of Contract
	2.4 Legal Forms of Firms, and the Market Value and Capital Structure of the Firm
	Appendix: Equivalency between Maximizing Profits and Maximizing Resource Providers’ Wealth
	References
3 Basic Concepts of Valuation
	3.1 The Time Value of Money Versus Choice Set
	3.2 Present Value, Future Value and Compounding
	3.3 Annuity and Perpetuities
	3.4 Annual Interest Rate and Effective Annual Rate
	3.5 Bond Price Volatility and Term Structure of Interest Rates
4 Financial Statements and Financial Ratios
	4.1 Understanding Financial Statements
	4.2 Financial Ratios Analysis
5 Opportunity Cost and Investment Criteria
	5.1 Cost, Budgeting, and Accounting Numbers
	5.2 From Financial Statements to Cash Flows
	5.3 Fundamental Cost and Benefit Analysis: Net Present Value Method
	5.4 Opportunity Cost Versus Sunk Expense
	References
6 Internal Rate of Return, Profitability Index and Payback Period Methods
	6.1 Internal Rate of Return and Modified Internal Rate of Return
	6.2 Profitability Index
	6.3 Payback Period
	6.4 Empirical Evidence of the Use of Investment Criteria
	References
7 Risk and Return
	7.1 Risk-Averse, Risk-Love and Risk-Neutral
	7.2 Mean–Variance Portfolio Analysis
	7.3 Capital Asset Pricing Model and Two-Factor Model
	7.4 Some Alternative Models
	References
8 Capital Structure in a Perfect Market
	8.1 The Modigliani–Miller First Proposition: Capital Structure Irrelevancy
	8.2 The Modigliani–Miller Second Proposition: Debt/Equity Ratio, Return, and Risk to Equityholder
	References
9 Derivatives and Corporate Finance
	9.1 Forward and Futures Contracts: Expectation Matters
	9.2 Put-Call Parity, Option Greeks, and Corporate Finance
	9.3 The Binomial Option Pricing Model and Corporate Finance
	9.4 The NPV Analysis Under Uncertainty
	9.5 P-Index: The Measure of Risk Structure of Asset
	Appendix: Do Arbitrage When System 2 of the Gordan Theorem Fails
	References
10 Real Options
	10.1 The Option (Choice) to Expand
	10.2 The Option (Choice) to Abandon
	10.3 Timing Options (Choices)
	Reference
11 Behavioral Finance and Corporate Finance
	11.1 Behavioral Economics Versus Traditional Economics
	11.2 Behavioral Finance and Corporate Finance
	Appendix A: Opportunity Cost in Practice
	Appendix B: Expected Utility Theory and Risky Assets
	References
12 Capital Structure in an Imperfect Market
	12.1 Transaction Costs with Low Debt
	12.2 Transaction Costs with High Debt
	12.3 Pecking Order Theory and Trade-Off Theory
	References
13 Payout Policy
	13.1 Payout Policy with Zero Transaction Costs: Financial Diversification Irrelevancy
	13.2 Payout Policy with Transaction Costs
	References
14 Mergers and Acquisitions, and Corporate Governance
	14.1 Ways to Merge and Take-Over
	14.2 Defensive Tactics
	14.3 Role of the Board
	14.4 Corporate Governance in Practice
15 International Corporate Finance
	15.1 Advantages and Disadvantages of Multinational Corporations
	15.2 Purchasing Power Parity and Interest Rate Parity
Author Index
Subject Index