Corporate finance: principles and practice

Cover......Page 1
Title Page......Page 4
Copyright Page......Page 5
About the Authors......Page 6
Contents......Page 8
Preface......Page 14
Acknowledgements......Page 16
 Learning objectives......Page 20
 1.1 Two key concepts in corporate finance......Page 21
 1.2 The role of the financial manager......Page 24
 1.3 Corporate objectives......Page 27
 1.4 How is shareholder wealth maximised?......Page 30
 1.5 Agency theory......Page 32
 1.6 Corporate governance......Page 39
 1.7 Conclusion......Page 45
 Key points......Page 47
 Self-test questions......Page 49
 Questions for review......Page 50
 References......Page 51
 Recommended reading......Page 52
 Learning objectives......Page 53
 2.1 Sources of business finance......Page 54
 2.2 Capital markets......Page 57
 2.3 Capital market efficiency......Page 61
 2.4 Assessing financial performance......Page 73
 Key points......Page 92
 Self-test questions......Page 94
 Questions for review......Page 95
 Questions for discussion......Page 96
 References......Page 97
 Recommended reading......Page 99
 Learning objectives......Page 100
 3.2 Working capital policies......Page 101
 3.3 Working capital and the cash conversion cycle......Page 107
 3.4 Overtrading......Page 109
 3.5 Managing inventory......Page 110
 3.6 Managing cash......Page 114
 3.7 Managing receivables......Page 118
 Key points......Page 124
 Self-test questions......Page 125
 Questions for review......Page 126
 Questions for discussion......Page 127
 Recommended reading......Page 129
 Learning objectives......Page 130
 4.1 Equity finance......Page 131
 4.2 The stock exchange......Page 133
 4.3 Rights issues......Page 138
 4.4 Scrip issues, share splits, scrip dividends and share repurchases......Page 145
 4.5 Preference shares......Page 148
 4.6 Conclusion......Page 151
 Key points......Page 152
 Self-test questions......Page 153
 Questions for review......Page 154
 Questions for discussion......Page 155
 Recommended reading......Page 157
 Learning objectives......Page 158
 5.1 Bonds, loan notes, loan stock and debentures......Page 159
 5.2 Bank and institutional debt......Page 165
 5.4 Convertible bonds......Page 168
 5.5 Warrants......Page 172
 5.6 The valuation of fixed-interest bonds......Page 173
 5.7 The valuation of convertible bonds......Page 175
 5.8 Leasing......Page 177
 5.9 Evaluating the financial effect of financing choices......Page 184
 Key points......Page 186
 Self-test questions......Page 188
 Questions for review......Page 189
 Questions for discussion......Page 190
 Recommended reading......Page 191
 Learning objectives......Page 193
 6.1 The payback method......Page 194
 6.2 The return on capital employed method......Page 196
 6.3 The net present value method......Page 199
 6.4 The internal rate of return method......Page 202
 6.5 A comparison of the NPv and IRR methods......Page 206
 6.6 The profitability index and capital rationing......Page 210
 6.7 The discounted payback method......Page 215
 Key points......Page 216
 Self-test questions......Page 217
 Questions for review......Page 218
 Questions for discussion......Page 220
 Recommended reading......Page 222
 Learning objectives......Page 223
 7.1 Relevant project cash flows......Page 224
 7.2 Taxation and capital investment decisions......Page 226
 7.3 Inflation and capital investment decisions......Page 231
 7.4 Investment appraisal and risk......Page 234
 7.5 Appraisal of foreign direct investment......Page 241
 7.6 Empirical investigations of investment appraisal......Page 247
 7.7 Conclusion......Page 250
 Key points......Page 251
 Self-test questions......Page 252
 Questions for review......Page 253
 Questions for discussion......Page 255
 References......Page 258
 Recommended reading......Page 259
 Learning objectives......Page 260
 8.1 The measurement of risk......Page 261
 8.2 The concept of diversification......Page 264
 8.3 Investor attitudes to risk......Page 270
 8.4 Markowitz’s portfolio theory......Page 272
 8.5 Introduction to the capital asset pricing model......Page 277
 8.6 Using the CAPM to value shares......Page 278
 8.7 Empirical tests of the CAPM......Page 288
 8.8 Conclusion......Page 290
 Key points......Page 291
 Questions for review......Page 292
 Questions for discussion......Page 294
 References......Page 296
 Recommended reading......Page 297
 Learning objectives......Page 299
 9.1 Calculating the cost of individual sources of finance......Page 300
 9.2 Calculating weighted average cost of capital......Page 304
 9.3 Average and marginal cost of capital......Page 307
 9.4 The CAPM and investment appraisal......Page 308
 9.5 Practical problems with calculating WACC......Page 313
 9.6 WACC in the real world......Page 315
 9.7 The cost of capital for foreign direct investment......Page 317
 9.8 Gearing: its measurement and significance......Page 320
 9.9 The concept of an optimal capital structure......Page 324
 9.10 The traditional approach to capital structure......Page 325
 9.11 Miller and modigliani (I): the net income approach......Page 327
 9.12 Miller and modigliani (II): corporate tax......Page 329
 9.13 Market imperfections......Page 330
 9.14 Miller and personal taxation......Page 333
 9.15 Pecking order theory......Page 334
 9.16 Conclusion: does an optimal capital structure exist?......Page 335
 Key points......Page 336
 Self-test questions......Page 337
 Questions for review......Page 338
 Questions for discussion......Page 340
 References......Page 342
 Recommended reading......Page 343
 Learning objectives......Page 344
 10.1 Dividends: operational and practical issues......Page 345
 10.3 Dividend irrelevance......Page 348
 10.4 Dividend relevance......Page 350
 10.5 Dividend relevance or irrelevance?......Page 355
 10.6 Dividend policies......Page 356
 10.7 Alternatives to cash dividends......Page 362
 10.8 Empirical evidence on dividend policy......Page 369
 10.9 Conclusion......Page 370
 Key points......Page 371
 Self-test questions......Page 372
 Questions for review......Page 373
 Questions for discussion......Page 375
 References......Page 376
 Recommended reading......Page 377
 Learning objectives......Page 378
 11.1 The terminology of mergers and takeovers......Page 379
 11.2 Justifications for acquisitions......Page 380
 11.3 Trends in takeover activity......Page 385
 11.4 Target company valuation......Page 388
 11.5 The financing of acquisitions......Page 396
 11.6 Strategic and tactical issues......Page 400
 11.7 Divestment......Page 409
 11.8 Private equity......Page 415
 11.9 Empirical research on acquisitions......Page 416
 11.10 Conclusion......Page 420
 Key points......Page 421
 Questions for review......Page 422
 Questions for discussion......Page 424
 References......Page 428
 Recommended reading......Page 429
 Learning objectives......Page 430
 12.1 Interest and exchange rate risk......Page 431
 12.2 Internal risk management......Page 439
 12.3 External risk management......Page 440
 12.4 Futures contracts......Page 443
 12.5 Options......Page 446
 12.6 Swaps......Page 451
 12.7 Issues in interest and exchange risk management......Page 456
 12.8 Political risk......Page 464
 Key points......Page 466
 Self-test questions......Page 467
 Questions for review......Page 469
 Questions for discussion......Page 470
 References......Page 471
 Recommended reading......Page 472
Answers to self-test questions......Page 474
Glossary......Page 493
Present value tables......Page 501
Index......Page 503