Corporate Finance: Asia-Pacific Edition

Cover
Half Title page
Title page
Imprint page
Brief Contents
Contents
Guide to the text
Guide to the online resources
Preface
About the authors
Acknowledgements
Part 1: Introduction
	Chapter 1: The Scope of Corporate Finance
		1.1 Corporate Finance Elements and Functions
			1.1a Elements and Structure of Corporate Finance Learning
			1.1b The Five Basic Corporate Finance Functions
			1.1c Debt and Equity: The Two Flavours of Capital
			1.1d The Role of Financial Intermediaries in Corporate Finance
		1.2 Goals for the Corporate Financial Manager
			1.2a What Should a Financial Manager Try to Maximise?
			1.2b How Can Agency Costs be Controlled in Corporate Finance?
			1.2c Ethics are Important in Corporate Finance
		1.3 The Role of Corporate Finance in Business
			1.3a How Finance Interacts with other Functional Business Areas
			1.3b Legal Forms of Business Organisation
			1.3c Special Forms of Business Organisation
		1.4 Career Opportunities In Finance
			1.4a Corporate Finance
			1.4b Commercial Banking
			1.4c Investment Banking
			1.4d Money Management
			1.4e Consulting
		Study Tools
		Problems
		Case study: The Scope of Corporate Finance
	Chapter 2: Financial Statement and Cash Flow Analysis
		2.1 Financial Statements
			2.1a Balance Sheet
			2.1b Income Statement
			2.1c Statement of Retained Earnings
			2.1d Statement of Cash Flows
			2.1e Notes to Financial Statements
		2.2 Cash Flow Analysis
			2.2a The Company’s Cash Flows
			2.2b Developing and Interpreting the Statement of Cash Flows
		2.3 Assessing Financial Performance Using Ratio Analysis
			2.3a Using Financial Ratios
			2.3b Liquidity Ratios
			2.3c Activity Ratios
			2.3d Debt Ratios
		2.4 Profitability Ratios
			2.4a Dupont System of Analysis
		2.5 Market Ratios
		2.6 Corporate Taxes
			2.6a Ordinary Corporate Income
			2.6b Corporate Capital Gains
		Study tools
		Problems
		Case study: Financial Statement and Cash Flow Analysis
	Chapter 3: The Time Value of Money
		3.1 Introduction to the Time Value of Money
		3.2 Future Value of a Lump Sum Received Today
			3.2a The Concept of Future Value
			3.2b The Equation for Future Value
			3.2c A Graphic View of Future Value
		3.3 Present Value of a Lump Sum Received in the Future
			3.3a The Concept of Present Value
			3.3b The Equation for Present Value
			3.3c A Graphic View of Present Value
		3.4 Additional Applications Involving Lump Sums
		3.5 Future Value of Cash Flow Streams
			3.5a Finding the Future Value of a Mixed Stream
			3.5b Types of Annuities
			3.5c Finding the Future Value of an Ordinary Annuity
			3.5d Finding the Future Value of an Annuity Due
		3.6 Present Value of Cash Flow Streams
			3.6a Finding the Present Value of a Mixed Stream
			3.6b Finding the Present Value of an Ordinary Annuity
			3.6c Finding the Present Value of an Annuity Due
			3.6d Finding the Present Value of a Perpetuity
			3.6e Finding the Present Value of a Growing Perpetuity
		3.7 Advanced Applications of Time Value
			3.7a Compounding More Frequently than Annually
			3.7b Stated Versus Effective Annual Interest Rates
			3.7c Calculating Deposits Needed to Accumulate a Future Sum
			3.7d Loan Amortisation
		Study Tools
		Problems
		Case study: Present Value
		Real-World Case Study: All in the Family
		Sound Bites: Ethics in Corporate Finance – Part 1
Part 2: Valuation, Risk and Return
	Chapter 4: Valuing Bonds
		4.1 Valuation Basics
			4.1a The Fundamental Valuation Model
		4.2 Bond Prices and Interest Rates
			4.2a Bond Vocabulary
			4.2b The Basic Equation (Assuming Annual Interest)
			4.2c Semiannual Compounding
			4.2d Bond Prices and Interest Rates
		4.3 Types of Bonds
			4.3a By Issuer
			4.3b By Features
		4.4 Bond Markets
			4.4a Bond-Price Quotations
			4.4b Bond Ratings
		4.5 The Term Structure of Interest Rates
			4.5a The Yield Curve
			4.5b Using the Yield Curve to Forecast Interest Rates
			4.5c The Liquidity Preference and Preferred Habitat Theories
			4.5d Conclusion
		Study Tools
		Problems
		Case study: Bond Purchase Decision
	Chapter 5: Valuing Shares
		5.1 The Essential Features of Preferred and Ordinary Shares
		5.2 Valuing Preferred and Ordinary Shares
			5.2a Preferred Share Valuation
			5.2b Ordinary Share Valuation Equation
			5.2c Zero Growth
			5.2d Constant Growth
			5.2e Variable Growth
			5.2f How to Estimate Growth
			5.2g What If there are No Dividends?
		5.3 The Free Cash Flow Approach to Ordinary Share Valuation
		5.4 Other Approaches to Ordinary Share Valuation
			5.4a Liquidation Value, Book Value and Residual Income Measurement
			5.4b Market Multiples of Comparable Companies
		5.5 Primary and Secondary Markets for Equity Securities
			5.5a Investment Banking Functions and the Primary Market
			5.5b Secondary Markets for Equity Securities
			5.5c Social Investing through Equity
		Study Tools
		Problems
		Case study: Valuing Shares
	Chapter 6: The Trade-off Between Risk and Return
		6.1 Understanding Returns
			6.1a The Components of Total Return
			6.1b Dollar Returns and Percentage Returns
		6.2 The History of Returns (Or, How To Get Rich Slowly)
			6.2a Nominal and Real Returns on Shares, Bonds and Bills
			6.2b The Risk Dimension
		6.3 Volatility and Risk
			6.3a The Distribution of Historical Share Returns
			6.3b The Variability of Equity Returns
		6.4 The Power of Diversification
			6.4a Systematic and Unsystematic Risk
			6.4b Risk and Return Revisited
		Study Tools
		Problems
		Case study: The Trade-Off between Risk and Return
	Chapter 7: Risk, Return and the Capital Asset Pricing Model
		7.1 Expected Returns
			7.1a The Historical Approach
			7.1b The Probabilistic Approach
			7.1c The Risk-Based Approach
		7.2 Risk and Return for Portfolios
			7.2a Portfolio Expected Return
			7.2b Portfolio Risk
		7.3 Pulling It All Together: The CAPM
		7.4 Are Share Returns Predictable?
		Study Tools
		Problems
		Case study: Risk, Return and the Capital Asset Pricing Model (CAPM)
	Chapter 8: Options
		8.1 Options Vocabulary
			8.1a Option Trading
			8.1b Option Prices
		8.2 Option Payoff Diagrams
			8.2a Call Option Payoffs
			8.2b Put Option Payoffs
			8.2c Payoffs for Portfolios of Options and Other Securities
			8.2d Put–Call Parity
		8.3 Qualitative Analysis of Option Prices
			8.3a Factors that Influence Option Values
		8.4 Option Pricing Models
			8.4a The Binomial Model
			8.4b The Black–Scholes Model
		8.5 Options In Corporate Finance
			8.5a Employee Share Options
			8.5b Warrants and Convertibles
			8.5c Other Option Types
		Study Tools
		Problems
		Case study: Options
		Real-World Case Study: Sharing the Business
		Sound Bites: Ethics in Corporate Finance – Part 2
Part 3: Capital Budgeting
	Chapter 9: Capital Budgeting Process and Decision Criteria
		9.1 Introduction to Capital Budgeting
			9.1a Traits of Ideal Investment Criteria
			9.1b A Capital Budgeting Problem
		9.2 Net Present Value and Economic Value Added
			9.2a Net Present Value Calculations
			9.2b Pros and Cons of NPV
			9.2c Economic Value Added
		9.3 Internal Rate of Return
			9.3a Finding a Project’s IRR
			9.3b Advantages of the IRR Method
			9.3c Problems with the Internal Rate of Return
			9.3d IRR, NPV and Mutually Exclusive Projects
		9.4 Profitability Index
			9.4a Calculating the Profitability Index
		9.5 Payback Methods
			9.5a The Payback Decision Rule
			9.5b Pros and Cons of the Payback Method
			9.5c Discounted Payback
		9.6 Accounting-Based Methods
			9.6a Accounting Rate of Return
			9.6b Pros and Cons of the Accounting Rate of Return
		9.7 Capital Budgeting In Practice
			9.7a Payback Period
			9.7b Internal Rate of Return
			9.7c Additional Analysis
			9.7d Conclusion
		Study Tools
		Problems
		Case study: Capital Budgeting Process and Techniques
	Chapter 10: Cash Flow and Capital Budgeting
		10.1 Types of Cash Flows
			10.1a Cash Flow Versus Accounting Profit
			10.1b Depreciation
			10.1c Fixed Asset
			10.1d Net Working Capital
			10.1e Terminal Value
		10.2 Incremental Cash Flows
			10.2a Sunk Costs
			10.2b Opportunity Costs
			10.2c Cannibalisation
		10.3 Cash Flows for Protect IT Ltd
			10.3a Year 0 Cash Flow
			10.3b Year 1 Cash Flow
			10.3c Year 2 Cash Flow
			10.3d Terminal Value
			10.3e Protect IT Project NPV
		10.4 Special Problems in Capital Budgeting
			10.4a Capital Rationing
			10.4b Equipment Replacement and Equivalent Annual Cost
			10.4c Excess Capacity
		10.5 The Human Face of Capital Budgeting
		Study Tools
		Problems
		Case study: Cash Flow and Capital Budgeting
	Chapter 11: Risk and Capital Budgeting
		11.1 Choosing the Right Discount Rate
			11.1a Cost of Equity
			11.1b Weighted Average Cost of Capital (WACC)
			11.1c The WACC, the CAPM and Taxes
			11.1d The Risk-Adjusted Discount Rate and Cost of Capital
		11.2 A Closer Look at Risk
			11.2a Breakeven Analysis
			11.2b Sensitivity Analysis
			11.2c Scenario Analysis
			11.2d Decision Trees
		11.3 Real Options
			11.3a Why NPV May not Always Give the Right Answer
			11.3b Types of Real Options
			11.3c The Surprising Link between Risk and Real Option Values
		11.4 Strategy and Capital Budgeting
			11.4a Competition and NPV
			11.4b Strategic Thinking, Real Options and Systemic Risk
		Study Tools
		Problems
		Case study: Cost of Capital and Project Risk
		Real-World Case Study: Cannibals in the Market!
		Sound Bites: Ethics in Corporate Finance – Part 3
Part 4: Financial Strategy
	Chapter 12: Raising Long-term Financing
		12.1 The Basic Choices in Long-Term Financing
			12.1a The Need to Fund a Financial Deficit
			12.1b The Choice Between Internal and External Financing
			12.1c Raising Capital From Financial Intermediaries or on Capital Markets
			12.1d The Expanding Role of Securities Markets in Corporate Finance
		12.2 Investment Banking and the Public Sale of Securities
			12.2a Conflicts of Interest Facing Investment Banks
			12.2b Legal Rules Governing Public Security Sales
		12.3 The Market for Initial Public Offerings (IPOS)
			12.3a Patterns Observed in the US IPO Market
			12.3b The Investment Performance of US Initial Public Offerings
			12.3c Non-US Initial Public Offerings
			12.3d International Share Issues
			12.3e Share Issue Privatisations
			12.3f Advantages and Disadvantages of an IPO
			12.3g Specialised Initial Public Offerings: Ecos, Spin-Offs, Reverse Lbos and Tracking Stocks
		12.4 Seasoned Equity Offerings
			12.4a Share Price Reactions to Seasoned Equity Offerings
			12.4b Rights Offerings
			12.4c Private Placements
		Study Tools
		Problems
		Case study: Raising Long-Term Financing
	Chapter 13: Capital Structure
		13.1 Financial Leverage and Its Effects
			13.1a How Leverage Increases the Risk of Expected Earnings Per Share
			13.1b The Fundamental Principle of Financial Leverage
			13.1c Leverage Increases Expected Return – but Does It Increase Value?
		13.2 The Modigliani and Miller Propositions
			13.2a M&M Proposition I: Capital Structure Irrelevance
			13.2b M&M Proposition II: How Increasing Leverage Affects The Cost of Equity
			13.2c Does Debt Policy Matter?
		13.3 The M&M Capital Structure Model with Taxes
			13.3a The M&M Model With Corporate Taxes
			13.3b Determining the Present Value of Interest Tax Shields
			13.3c The M&M Model with Corporate and Personal Taxes
		13.4 The Trade-Off Model of Capital Structure
			13.4a Costs of Insolvency and Financial Distress
			13.4b Agency Costs and Capital Structure
			13.4c The Trade-Off Model Revisited
			13.4d Does the Trade-Off Model Guide Practice?
		13.5 The Pecking-Order Theory
			13.5a Assumptions Underlying the Pecking-Order Theory
			13.5b Evidence on Pecking-Order and Trade-Off Theories
		13.6 Do We Have a Winning Model?
		Study Tools
		Problems
		Case study: Adding Value with Capital Structure
	Chapter 14: Long-Term Debt and Leasing
		14.1 Characteristics of Long-Term Debt Financing
			14.1a The Choice between Public and Private Debt Issues
			14.1b Loan Covenants
			14.1c Cost of Long-Term Debt
		14.2 Corporate Loans
			14.2a Term Loans
			14.2b Syndicated Loans
		14.3 Corporate Bonds
			14.3a Popular Types of Bonds
			14.3b Legal Aspects of Corporate Bonds
			14.3c Methods of Issuing Corporate Bonds
			14.3d General Characteristics of a Bond Issue
			14.3e High-Yield Bonds
			14.3f International Corporate Bond Financing
			14.3g Bond Refunding Options
		14.4 Leasing
			14.4a The Basic Lease
			14.4b Lease Arrangements
			14.4c The Lease Contract
			14.4d The Lease-Versus-Purchase Decision
			14.4e Effects of Leasing on Future Financing
			14.4f Advantages and Disadvantages of Leasing
		Study Tools
		Problems
		Case study: Long-Term Debt and Leasing
	Chapter 15: Payout Policy
		15.1 Payout Policy Fundamentals
			15.1a Cash Dividend Payment Procedures
			15.1b Types of Dividend Payout Policies
			15.1c Bonus Shares and Share Splits
			15.1d Share Repurchases
		15.2 Factors Affecting Dividend and Share Repurchase Decisions
			15.2a CFO Views on Dividends and Repurchases
			15.2b Further Evidence on Dividend and Share Repurchase Practices
		15.3 Dividends in Perfect and Imperfect Worlds
			15.3a Payout Policy Irrelevance in a World with Perfect Capital Markets
			15.3b Miller and Modigliani Meet the (Imperfect) Real World
		15.4 Real-World Influences on Payout Policy
			15.4a Personal Income Taxes
			15.4b Trading and Other Transactions Costs
			15.4c The Residual Theory of Dividends
			15.4d Paying Dividends as a Means of Communicating Information
			15.4e What Type of Information is Being Communicated?
			15.4f Dividend Payments as Solutions to Agency Problems
		15.5 Payout Policy: Key Lessons
		Study Tools
		Problems
		Case study: Dividend Policy
	Chapter 16: Exchange Rates and International Investment Decisions
		16.1 Exchange Rate Fundamentals
			16.1a Fixed Versus Floating Exchange Rates
			16.1b Exchange Rate Quotes
			16.1c The Foreign Exchange Market
			16.1d Natural Exchange Rate Risk Hedges
		16.2 Long-Term Investment Decisions
			16.2a Capital Budgeting
			16.2b Cost of Capital
		Study Tools
		Problems
		Case study: International Financial Management
		Real-World Case Study: ‘Plane’ and Simple?
	Chapter 17: Mergers, Acquisitions and Corporate Control
		17.1 Merger Waves and International Acquisition Activity
			17.1a International Activity
		17.2 Why Do Companies Make Acquisitions?
			17.2a Explaining Mergers and Acquisitions
			17.2b Calculating the Effect of a Merger on Earnings Per Share
		17.3 Do Mergers Create Value?
			17.3a Merger Valuation Methods
			17.3b Shareholder Gains (or Losses) in Mergers – Returns to Bidder and Target
			17.3c Method of Payment
			17.3d Returns to Bondholders
			17.3e How do Target CEOs Make Out?
		17.4 Merger and Acquisition Transaction Details
			17.4a Types of Mergers
			17.4b LBOS, MBOS and Recapitalisations
			17.4c Takeover Defences and Divestitures
		17.5 Accounting Treatment of Mergers and Acquisitions
		17.6 Regulation of Mergers and Acquisitions
			17.6a Antitrust Regulation
			17.6b International Regulation of Mergers and Acquisitions
			17.6c Other Legal Issues Concerning Corporate Control
		17.7 Corporate Governance
			17.7a Duties of the Board in the Context of M&A
		Study Tools
		Problems
		Case study: Mergers, Corporate Control and Corporate Governance
		Real-World Case Study: Restructuring Finances to End Litigation
		Sound Bites: Ethics in Corporate Finance – Part 4
Part 5: Financial Lifecycle
	Chapter 18: Financial Planning
		18.1 Overview of the Planning Process
			18.1a Successful Long-Term Planning
			18.1b The Role of Finance in Long-Term Planning
		18.2 Planning for Growth
			18.2a Sustainable Growth
			18.2b Pro Forma Financial Statements
		18.3 Planning and Control
			18.3a Short-Term Financing Strategies
			18.3b The Cash Budget
		Study Tools
		Problems
		Case study: Financial Planning
	Chapter 19: Introduction to Financial Risk Management
		19.1 Overview of Financial Risk Management
			19.1a Risk Factors
			19.1b The Hedging Decision
		19.2 Forward Contracts
			19.2a Forward Prices
			19.2b Currency Forward Contracts
			19.2c Interest Rate Forward Contracts
		19.3 Futures Contracts
			19.3a Hedging with Futures Contracts
			19.3b Concerns When Using Futures Contracts
		19.4 Options and Swaps
			19.4a Options
			19.4b Swaps
		19.5 Financial Engineering
		Study Tools
		Problems
		Case study: Risk Management
	Chapter 20: Entrepreneurial Finance and Venture Capital
		20.1 The Challenges of Financing Entrepreneurial Growth Companies
		20.2 Venture Capital and Private Equity Financing
			20.2a Types of Venture Capital Funds
			20.2b Investment Patterns of Venture Capital and Private Equity Companies
			20.2c Industrial and Geographic Distribution of Venture Capital Investment
			20.2d Venture Capital and Private Equity Investment by Stage of Company Development
			20.2e The Economic Effect of Venture Capital and Private Equity Investment
		20.3 The Organisation and Operations of Venture Capital and Private Equity Companies
			20.3a Organisation and Funding of Venture Capital and Private Equity Limited Partnerships
			20.3b How Venture Capitalists and Private Equity Managers Structure their Investments
			20.3c Why Venture Capitalists and Private Equity Managers Use Convertible Securities
			20.3d The Pricing of Venture Capital and Private Equity Investments
			20.3e The Profitability of Venture Capital and Private Equity Investments
			20.3f Exit Strategies Employed by Venture Capitalists and Private Equity Managers
		20.4 International Markets for Venture Capital and Private Equity
			20.4a European Venture Capital and Private Equity Fund Raising and Investment
			20.4b Venture Capital and Private Equity Markets Outside the United States and Western Europe
		Study Tools
		Problems
		Case study: Entrepreneurial Finance and Venture Capital
	Chapter 21: Cash Conversion, Inventory and Receivables Management
		21.1 The Cash Conversion Cycle
			21.1a Operating Cycle
			21.1b Cash Conversion Cycle
			21.1c Shortening the Cash Conversion Cycle
		21.2 Cost Trade-Offs In Short-Term Financial Management
		21.3 Inventory Management
			21.3a Investing in Inventory
			21.3b Techniques for Controlling Inventory
		21.4 Accounts Receivable Standards and Terms
			21.4a Effective Accounts Receivable Management
			21.4b Credit Standards
			21.4c Credit Terms
		21.5 Collecting, Monitoring and Applying Cash to Receivables
			21.5a Collection Policy
			21.5b Credit Monitoring
			21.5c Cash Application
		Study Tools
		Problems
		Case study: Cash Conversion, Inventory and Receivables Management
	Chapter 22: Cash, Payables and Liquidity Management
		22.1 Cash Management
			22.1a Float
			22.1b Cash Position Management
		22.2 Collections
			22.2a Types of Collection Systems
			22.2b Lockbox Systems
			22.2c Cash Concentration
			22.2d Funds Transfer Mechanisms
		22.3 Accounts Payable and Disbursements
			22.3a Overview of the Accounts Payable Process
			22.3b Cash Discounts
			22.3c Disbursement Products and Methods
			22.3d Developments in Accounts Payable and Disbursements
		22.4 Short-Term Investing and Borrowing
			22.4a Motives for Holding Cash and Short-Term Investments
			22.4b Short-Term Investing
			22.4c Short-Term Borrowing
		Study Tools
		Problems
		Case study: Liquidity Management
	Chapter 23: Insolvency and Financial Distress
		23.1 Insolvency and Business Failure
		23.2 Insolvency Processes
			23.2a The Voluntary Administrator’s Role (Australia)
			23.2b Deed of Arrangement
			23.2c Other Processes in External Administration
			23.2d Affected Parties in Administration
		23.3 Priority of Claims
		23.4 Predicting Insolvency
		Study Tools
		Problems
		Case study: Insolvency and Financial Distress
		Sound Bites: Ethics in Corporate Finance – Part 5
Glossary
Name and Company Index
Subject Index