Fundamentals of Corporate Finance

Fundamentals of Corporate Finance......Page 1
SECTION 1......Page 12
The Firm and the Financial Manager 3......Page 14
Organizing a Business......Page 15
The Role of the Financial Manager......Page 18
Financial Institutions and Markets......Page 21
Who Is the Financial Manager?......Page 24
Goals of the Corporation......Page 28
Summary......Page 35
The Time Value of Money......Page 44
Future Values and Compound Interest......Page 45
Present Values......Page 49
Multiple Cash Flows......Page 57
Level Cash Flows: Perpetuities and Annuities......Page 61
Inflation and the Time Value of Money......Page 72
Effective Annual Interest Rates......Page 78
Summary......Page 80
Financial Planning......Page 92
What Is Financial Planning?......Page 93
Financial Planning Models......Page 97
Planners Beware......Page 104
External Financing and Growth......Page 107
Summary......Page 111
APPENDIX A......Page 120
Accounting and Finance......Page 122
The Balance Sheet......Page 123
The Income Statement......Page 128
The Statement of Cash Flows......Page 130
Accounting for Differences......Page 132
Taxes......Page 134
Summary......Page 137
Financial Statement Analysis......Page 144
Financial Ratios......Page 145
The Du Pont System......Page 156
Using Financial Ratios......Page 158
Measuring Company Performance......Page 161
The Role of Financial Ratios......Page 162
Summary......Page 164
SECTION 2......Page 174
Working Capital Management and Short-Term Planning......Page 176
Working Capital......Page 178
Links between Long-Term and Short-Term Financing......Page 183
Tracing Changes in Cash and Working Capital......Page 186
Cash Budgeting......Page 188
A Short-Term Financing Plan......Page 191
Sources of Short-Term Financing......Page 196
The Cost of Bank Loans......Page 198
Summary......Page 201
Cash and Inventory Management......Page 212
Cash Collection, Disbursement, and Float......Page 213
Managing Float......Page 216
Inventories and Cash Balances......Page 222
Summary......Page 230
Credit Management and Collection......Page 238
Terms of Sale......Page 240
Credit Agreements......Page 242
Credit Analysis......Page 243
The Credit Decision......Page 247
Collection Policy......Page 250
Bankruptcy......Page 251
Summary......Page 255
SECTION 3......Page 264
Valuing Bonds......Page 266
Bond Characteristics......Page 267
Bond Prices and Yields......Page 270
Summary......Page 284
Valuing Stocks......Page 290
Stocks and the Stock Market......Page 291
Book Values, Liquidation Values, and Market Values......Page 294
Valuing Common Stocks......Page 298
Simplifying the Dividend Discount Model......Page 302
Growth Stocks and Income Stocks......Page 307
Summary......Page 312
Introduction to Risk, Return, and the Opportunity Cost of Capital......Page 322
Rates of Return: A Review......Page 323
Seventy-Three Years of Capital Market History......Page 324
Measuring Risk......Page 330
Risk and Diversification......Page 335
Thinking about Risk......Page 342
Summary......Page 345
SECTION 4......Page 350
Net Present Value and Other Investment Criteria......Page 352
Net Present Value......Page 354
Other Investment Criteria......Page 360
Investment Criteria When Projects Interact......Page 367
Capital Rationing......Page 376
Summary......Page 378
Using Discounted Cash-Flow Analysis to Make Investment Decisions......Page 388
Discount Cash Flows, Not Profits......Page 390
Discount Incremental Cash Flows......Page 392
Discount Nominal Cash Flows by the Nominal Cost of Capital......Page 396
Separate Investment and Financing Decisions......Page 397
Calculating Cash Flow......Page 398
Example: Blooper Industries......Page 401
Summary......Page 408
Risk, Return, and Capital Budgeting......Page 418
Measuring Market Risk......Page 419
Risk and Return......Page 425
Capital Budgeting and Project Risk......Page 433
Summary......Page 436
The Cost of Capital......Page 446
Geothermal’s Cost of Capital......Page 447
Calculating the Weighted-Average Cost of Capital......Page 449
Measuring Capital Structure......Page 457
Calculating Required Rates of Return......Page 458
Big Oil’s Weighted-Average Cost of Capital......Page 461
Interpreting the Weighted-Average Cost of Capital......Page 462
Summary......Page 465
SECTION 5......Page 474
Project Analysis......Page 476
How Firms Organize the Investment Process......Page 477
Some “What-If ” Questions......Page 480
Break-Even Analysis......Page 484
Flexibility in Capital Budgeting......Page 492
Summary......Page 496
An Overview of Corporate Financing......Page 504
Common Stock......Page 505
Preferred Stock......Page 510
Corporate Debt......Page 511
Convertible Securities......Page 518
Patterns of Corporate Financing......Page 519
Summary......Page 522
How Corporations Issue Securities......Page 528
Venture Capital......Page 530
The Initial Public Offering......Page 531
The Underwriters......Page 537
General Cash Offers by Public Companies......Page 539
The Private Placement......Page 542
Summary......Page 543
Appendix: Hotch Pot’s New Issue Prospectus......Page 550
APPENDIX B......Page 556
Leasing......Page 558
Operating Leases......Page 559
Financial Leases......Page 560
Accounting and Leasing......Page 561
Taxes, the IRS, and Leases......Page 563
The Cash Flows from Leasing......Page 564
Lease or Buy?......Page 566
Leverage and Capital Structure......Page 570
The Effect of Financial Leverage......Page 571
SECTION 6......Page 576
Mergers, Acquisitions, and Corporate Control......Page 578
22.1 The Market for Corporate Control......Page 580
22.2 Sensible Motives for Mergers......Page 583
22.3 Dubious Reasons for Mergers......Page 586
22.4 Evaluating Mergers......Page 588
22.5 Merger Tactics......Page 593
22.6 Leveraged Buyouts......Page 596
22.7 Mergers and the Economy......Page 599
22.8 Summary......Page 601
International Financial Management......Page 608
23.1 Foreign Exchange Markets......Page 609
23.2 Some Basic Relationships......Page 613
23.3 Hedging Exchange Rate Risk......Page 623
23.4 International Capital Budgeting......Page 624
23.5 Summary......Page 628
APPENDIX C......Page 636
Glossary......Page 646