Corporate Financial Management

Front Cover
Half Title Page
Title Page
Copyright Page
Brief contents
Contents
Topics covered in the book
Introduction to the book
Acknowledgements
PART 1 Introduction
	Chapter 1 The financial world
		LEARNING OUTCOMES
		Introduction
		The objective of the firm
		Case study 1.1 Experian
		Some possible objectives
		Corporate governance
		Primitive and modern economies
		The role of the financial manager
		The flow of funds and financial intermediation
		Growth in the financial services sector
		The financial system
		Concluding comments
		Key points and concepts
		References and further reading
		Case study recommendations
		Websites
		Self-review questions
		Questions and problems
		Assignments
PART 2 The investment decision
	Chapter 2 Project appraisal: net present value and internal rate of return
		LEARNING OUTCOMES
		Introduction
		Value creation and corporate investment
		Net present value and internal rate of return
		Modified internal rate of return
		Concluding comments
		Key points and concepts
		Appendix 2.1 Mathematical tools for finance
		References and further reading
		Case study recommendations
		Websites
		Self-review questions
		Questions and problems
		Assignments
	Chapter 3 Project appraisal: cash flow and applications
		LEARNING OUTCOMES
		Introduction
		Case study 3.1 Toyota invests £240m to upgrade car plant in boost for Brexit Britain
		Quality of information
		Are profit calculations useful for estimating project viability?
		The replacement decision
		Replacement cycles
		When to introduce a new machine
		Drawbacks of the annual equivalent annuity method
		Timing of projects
		The make or buy decision
		Fluctuating output
		Concluding comments
		Key points and concepts
		References and further reading
		Case study recommendations
		Self-review questions
		Questions and problems
		Assignments
	Chapter 4 The decision-making process for investment appraisal
		LEARNING OUTCOMES
		Introduction
		Evidence on the employment of appraisal techniques
		Payback
		Accounting rate of return
		Internal rate of return: reasons for continued popularity
		The managerial ‘art’ of investment appraisal
		The investment process
		Concluding comments
		Key points and concepts
		References and further reading
		Case study recommendations
		Self-review questions
		Questions and problems
		Assignment
	Chapter 5 Project appraisal: capital rationing, taxation and inflation
		LEARNING OUTCOMES
		Introduction
		Capital rationing
		Taxation and investment appraisal
		Inflation
		Concluding comments
		Key points and concepts
		References and further reading
		Case study recommendations
		Self-review questions
		Questions and problems
		Assignments
PART 3 Risk and return
	Chapter 6 Risk and project appraisal
		LEARNING OUTCOMES
		Case study 6.1 Camelot
		Introduction
		What is risk?
		Adjusting for risk through the discount rate
		Sensitivity analysis
		Scenario analysis
		The risk of insolvency
		Probability analysis
		Problems of using probability analysis
		Evidence of risk analysis in practice
		Real options (managerial options)
		Concluding comments
		Key points and concepts
		References and further reading
		Case study recommendations
		Self-review questions
		Questions and problems
		Assignments
	Chapter 7 Portfolio theory
		LEARNING OUTCOMES
		Introduction
		Holding period returns
		Expected return and standard deviation for shares
		Combinations of investments
		Portfolio expected return and standard deviation
		Dominance and the efficient frontier
		Indifference curves
		Choosing the optimal portfolio
		The boundaries of diversification
		Extension to a large number of securities
		Evidence on the benefits of diversification
		The capital market line
		Problems with portfolio theory
		Concluding comments
		Key points and concepts
		References and further reading
		Case study recommendations
		Self-review questions
		Questions and problems
		Assignments
	Chapter 8 The Capital Asset PricingModel and multi-factor models
		LEARNING OUTCOMES
		Introduction
		Some fundamental ideas and problems
		A short history of shares, bonds and bills
		The Capital Asset Pricing Model
		Factor models
		The arbitrage pricing theory
		The three-factor model
		The five-factor model
		Fundamental beta
		Project appraisal and systematic risk
		Sceptics’ views – alternative perspectives on risk
		Concluding comments
		Key points and concepts
		Appendix 8.1: Note on arithmetic and geometric means
		Appendix 8.2: Why professors do or do not use CAPM-beta
		Comments from professors who use calculated betas
		Comments from professors who use ‘common sense’12 betas
		Comments from professors who do not use betas
		References and further reading
		Case study recommendations
		Self-review questions
		Questions and problems
		Assignments
PART 4 Sources of finance
	Chapter 9 Stock markets
		LEARNING OUTCOMES
		Case study 9.1 Using the stock market both to create wealth and to treat disease
		Introduction
		Stock exchanges around the world
		Globalisation of financial flows
		Why do companies list their shares on more than one exchange?
		The importance of a well-run stock exchange
		The London Stock Exchange
		The UK equity markets available to companies
		Tasks for stock exchanges
		How stock exchanges work
		The ownership of UK shares
		Regulation
		Understanding the figures in the financial pages
		Taxation and corporate finance
		Concluding comments
		Key points and concepts
		References and further reading
		Case study recommendations
		Websites
		Video presentations
		Self-review questions
		Questions and problems
		Assignments
	Chapter 10 Raising equity capital
		LEARNING OUTCOMES
		Case study 10.1 To float or not to float?
		Introduction
		What is equity capital?
		Preference shares
		Some unusual types of shares
		Floating on the Main Market (Official List)
		The new issue process
		Other methods of floating
		How does an AIM flotation differ from one on the Official List?
		The costs of new issues
		Rights issues
		Other equity issues
		Warrants
		Equity finance for unquoted firms
		Crowdfunding
		How an independent private equity fund is establishedand managed
		Disillusionment and dissatisfaction with quotation
		Concluding comments
		Key points and concepts
		Appendix 10.1: Reasons for and against floating
		References and further reading
		Case study recommendations
		Websites
		Video presentations
		Self-review questions
		Questions and problems
		Assignment
	Chapter 11 Long-term debt finance
		LEARNING OUTCOMES
		Introduction
		Some fundamental features of debt finance
		Bonds
		Bank borrowing
		Syndicated loans
		Credit rating
		Mezzanine finance and high-yield ( junk) bonds
		Case study 11.1 The junk bond wizard: Michael Milken
		Convertible bonds
		Valuing bonds
		International sources of debt finance
		Project finance
		Sale and leaseback
		Securitisation
		Islamic banking
		Peer-to-peer lending
		The term structure of interest rates
		Concluding comments
		Key points and concepts
		References and further reading
		Case study recommendations
		Websites
		Video presentations
		Self-review questions
		Questions and problems
		Assignments
	Chapter 12 Short- and medium-term finance,treasury and working capitalmanagement
		LEARNING OUTCOMES
		Introduction
		Short- and medium-term bank finance
		Trade credit
		Factoring
		Case study 12.1 LG Steelworks
		Hire purchase
		Leasing
		Bills of exchange
		Bankers’ acceptances (banks bills, acceptance credits)
		Treasury management
		Financing
		Risk management
		Working capital management
		Investment of temporary surplus funds
		Concluding comments
		Key points and concepts
		References and further reading
		Case study recommendations
		Websites
		Self-review questions
		Questions and problems
		Assignments
	Chapter 13 Stock market efficiency
		LEARNING OUTCOMES
		Introduction
		What is meant by efficiency?
		Random walks
		The three levels of efficiency
		Weak-form tests
		Semi-strong form tests
		Strong-form tests
		Behavioural finance
		Misconceptions about the efficient market hypothesis
		Implications of the EMH for investors
		Implications of the EMH for companies
		Concluding comments
		Key points and concepts
		References and further reading
		Case study recommendations
		Self-review questions
		Questions and problems
		Assignment
PART 5 Corporate value
	Chapter 14 Value-based management
		LEARNING OUTCOMES
		Introduction
		The shareholder wealth-maximising goal
		Three steps of value
		Traditional measurement techniques
		Earnings-based management
		Return on capital employed (ROCE) has failings
		An overview of the application of value principles
		Strategic business unit management
		Corporate strategy
		Targets and motivation
		Case study 14.1 Strategy, planning and budgeting at Lloyds TSB
		Concluding comments
		Key points and concepts
		References and further reading
		Video presentations
		Case study recommendations
		Self-review questions
		Questions and problems
		Assignments
	Chapter 15 Value-creation metrics
		LEARNING OUTCOMES
		Introduction
		Using cash flow to measure value
		Shareholder value analysis
		Economic profit
		Economic value added (EVA®)
		Total shareholder return (TSR)
		Wealth Added Index (WAI)
		Case study 15.1 Vone’s wealth added index
		Market Value Added (MVA)
		Excess return (ER)
		Market to book ratio (MBR)
		Concluding comments
		Key points and concepts
		References and further reading
		Case study recommendations
		Websites
		Self-review questions
		Questions and problems
		Assignments
		Appendix 15.1: Further consideration of the entity and equity EP
	Chapter 16 The cost of capital
		LEARNING OUTCOMES
		Introduction
		A word of warning
		The required rate of return
		The weighted average cost of capital (WACC)
		The cost of equity capital
		The cost of retained earnings
		The cost of debt capital
		Traded debt
		The cost of preference share capital
		Calculating the weights
		Applying the WACC to projects and SBUs
		Empirical evidence of corporate practice
		How large is the equity risk premium?
		Some thoughts on the cost of capital
		Concluding comments
		Key points and concepts
		References and further reading
		Case study recommendations
		Websites
		Video presentations
		Self-review questions
		Questions and problems
		Assignment
	Chapter 17 Valuing shares
		LEARNING OUTCOMES
		Introduction
		Case study 17.1 Amazon.com
		Valuation using net asset value (NAV)
		Valuation using income-flow methods
		Dividend valuation models
		The price-earnings ratio (PER) model
		Valuation using cash flow
		Valuation using owner earnings
		Case study 17.2 N Brown – owner earnings analysis
		EBITDA
		Valuing unquoted shares
		Unusual companies
		Managerial control and valuation
		Allowing for real option values
		Concluding comments
		Key points and concepts
		References and further reading
		Case study recommendations
		Websites
		Self-review questions
		Questions and problems
		Assignments
	Chapter 18 Capital structure
		LEARNING OUTCOMES
		Introduction
		Other ideas
		What do we mean by ‘gearing’?
		The effect of gearing
		The value of the firm and the cost of capital
		Does the cost of capital (WACC) decrease with higher debt levels?
		Modigliani and Miller’s argument in a world with no taxes
		The capital structure decision in a world with tax
		Additional considerations
		Some further thoughts on debt finance
		Concluding comments
		Key points and concepts
		Appendix 18.1: Asset beta
		Appendix 18.2: Adjusted present value (APV)
		References and further reading
		Case study recommendations
		Video presentations
		Self-review questions
		Questions and problems
		Assignments
	Chapter 19 Dividend policy
		LEARNING OUTCOMES
		Introduction
		Defining the problem
		Miller and Modigliani’s dividend irrelevancy proposition
		Dividends as a residual
		Clientele effects
		Taxation
		Dividends as conveyors of information
		Resolution of uncertainty
		Owner control (agency theory)
		Scrip dividends
		Share buy-backs and special dividends
		A round-up of the arguments
		Concluding comments
		Key points and concepts
		References and further reading
		Case study recommendations
		Video presentations
		Self-review questions
		Questions and problems
		Assignments
	Chapter 20 Mergers
		LEARNING OUTCOMES
		Introduction
		The merger decision
		Merger statistics
		Merger motives
		Financing mergers
		The merger process
		The impact of mergers
		Managing mergers
		Concluding comments
		Key points and concepts
		References and further reading
		Case study recommendations
		Websites
		Video presentations
		Self-review questions
		Questions and problems
		Assignment
PART 6 Managing risk
	Chapter 21 Derivatives
		LEARNING OUTCOMES
		Introduction
		A long history
		Options
		Forwards
		Futures
		Case study 21.1 Protecting a portfolio against a major market fall
		Forward rate agreements (FRAs)
		A comparison of options, futures, forwards and FRAs
		Caps
		Swaps
		Derivatives users
		Over-the-counter (OTC) and exchange-traded derivatives
		Concluding comments
		Key points and concepts
		Appendix 21.1: Option pricing
		Appendix 21.2: The relationship between FRAs and swaps
		References and further reading
		Case study recommendations
		Websites
		Self-review questions
		Questions and problems
		Assignments
	Chapter 22 Managing exchange-rate risk
		LEARNING OUTCOMES
		Introduction
		Case study 22.1 What a difference a few percentage point moves on the exchange rate make
		The effects of exchange-rate changes
		Volatility in foreign exchange
		The foreign exchange markets
		Exchange rates
		Types of foreign-exchange risk
		Transaction risk strategies
		Managing translation risk
		Managing economic risk
		Exchange-rate determination
		Concluding comments
		Key points and concepts
		References and further reading
		Case study recommendations
		Websites
		Video presentations
		Self-review questions
		Questions and problems
		Assignments
Appendices
	Appendix I Future value of £1 at compound interest
	Appendix II Present value of £1 at compound interest
	Appendix III Present value of an annuity of £1 at compound interest
	Appendix IV Future value of an annuity of £1 at compound interest
	Appendix V Areas under the standardised normal distribution
	Appendix VI Answers to the mathematical tools exercises inChapter 2, Appendix 2.1
Glossary
Bibliography
Index
Back Cover