ISE Fundamentals of Corporate Finance

Cover
Fundamentals of Corporate Finance 11e
Dedication
About the Authors
Preface
Unique Features
Supplements
Acknowledgments
Contents in Brief
Contents
Part One: Introduction
	Chapter 1: Goals and Governance of the Corporation
		1.1: Investment and Financing Decisions
			The Investment (Capital Budgeting) Decision
			The Financing Decision
		1.2: What Is a Corporation?
			Other Forms of Business Organization
		1.3: Who Is the Financial Manager?
		1.4: Goals of the Corporation
			Shareholders Want Managers to Maximize Market Value
		1.5: Agency Problems, Executive Compensation, and Corporate Governance
			Executive Compensation
			Corporate Governance
		1.6: The Ethics of Maximizing Value
		1.7: Careers in Finance
		1.8: Preview of Coming Attractions
		1.9: Snippets of Financial History
		Summary
		Questions and Problems
	Chapter 2: Financial Markets and Institutions
		2.1: The Importance of Financial Markets and Institutions
		2.2: The Flow of Savings to Corporations
			The Stock Market
			Other Financial Markets
			Financial Intermediaries
			Financial Institutions
			Total Financing of U.S. Corporations
		2.3: Functions of Financial Markets and Intermediaries
			Transporting Cash across Time
			Risk Transfer and Diversification
			Liquidity
			The Payment Mechanism
			Information Provided by Financial Markets
		2.4: The Crisis of 2007_2009
		Summary
		Questions and Problems
	Chapter 3: Accounting and Finance
		3.1: The Balance Sheet
			Book Values and Market Values
		3.2: The Income Statement
			Income versus Cash Flow
		3.3: The Statement of Cash Flows
			Free Cash Flow
		3.4: Accounting Practice and Malpractice
		3.5: Taxes
			Corporate Tax
			Personal Tax
		Summary
		Questions and Problems
	Chapter 4: Measuring Corporate Performance
		4.1: How Financial Ratios Relate to Shareholder Value
		4.2: Measuring Market Value and Market Value Added
		4.3: Economic Value Added and Accounting Rates of Return
			Accounting Rates of Return
			Problems with EVA and Accounting Rates of Return
		4.4: Measuring Efficiency
		4.5: Analyzing the Return on Assets: The Du Pont System
			The Du Pont System
		4.6: Measuring Financial Leverage
			Leverage and the Return on Equity
		4.7: Measuring Liquidity
		4.8: Interpreting Financial Ratios
		4.9: The Role of Financial Ratios
		Summary
		Questions and Problems
		Minicase
Part Two: Value
	Chapter 5: The Time Value of Money
		5.1: Future Values and Compound Interest
		5.2: Present Values
			Finding the Interest Rate
		5.3: Multiple Cash Flows
			Future Value of Multiple Cash Flows
			Present Value of Multiple Cash Flows
		5.4: Reducing the Chore of the Calculations: Part 1
			Using Financial Calculators to Solve Simple Time-Value-of-Money Problems
			Using Spreadsheets to Solve Simple Time-Value-of-Money Problems
		5.5: Level Cash Flows: Perpetuities and Annuities
			How to Value Perpetuities
			How to Value Annuities
			Future Value of an Annuity
			Annuities Due
		5.6: Reducing the Chore of the Calculations: Part 2
			Using Financial Calculators to Solve Annuity Problems
			Using Spreadsheets to Solve Annuity Problems
		5.7: Effective Annual Interest Rates
		5.8: Inflation and the Time Value of Money
			Real versus Nominal Cash Flows
			Inflation and Interest Rates
			Valuing Real Cash Payments
			Real or Nominal?
		Summary
		Questions and Problems
		Minicase
	Chapter 6: Valuing Bonds
		6.1: Bond Pricing
		6.2: Interest Rates and Bond Prices
			Interest Rate Risk and Bond Maturity
		6.3: Yield to Maturity
		6.4: Bond Rates of Return
		6.5: The Yield Curve
			Nominal and Real Rates of Interest
		6.6: Corporate Bonds and the Risk of Default
			Protecting against Default Risk
			Not All Corporate Bonds Are Plain Vanilla
		Summary
		Questions and Problems
	Chapter 7: Valuing Stocks
		7.1: Stocks and the Stock Market
			Reading Stock Market Listings
		7.2: Market Values, Book Values, and Liquidation Values
		7.3: Valuing Common Stocks
			Valuation by Comparables
			Price and Intrinsic Value
			The Dividend Discount Model
		7.4: Simplifying the Dividend Discount Model
			Case 1: The Dividend Discount Model with No Growth
			Case 2: The Dividend Discount Model with Constant Growth
			Case 3: The Dividend Discount Model with Nonconstant Growth
		7.5: Valuing a Business by Discounted Cash Flow
			Valuing the Concatenator Business
			Repurchases and the Dividend Discount Model
		7.6: There Are No Free Lunches on Wall Street
			Random Walks and Efficient Markets
		7.7: Market Anomalies and Behavioral Finance
			Market Anomalies
			Bubbles and Market Efficiency
			Behavioral Finance
		Summary
		Questions and Problems
		Minicase
	Chapter 8: Net Present Value and Other Investment Criteria
		8.1: Net Present Value
			A Comment on Risk and Present Value
			Valuing Long-Lived Projects
			Choosing between Alternative Projects
		8.2: The Internal Rate of Return Rule
			A Closer Look at the Rate of Return Rule
			Calculating the Rate of Return for Long-Lived Projects
			A Word of Caution
			Some Pitfalls with the Internal Rate of Return Rule
		8.3: The Profitability Index
			Capital Rationing
			Pitfalls of the Profitability Index
		8.4: The Payback Rule
			Discounted Payback
		8.5: More Mutually Exclusive Projects
			Problem 1: The Investment Timing Decision
			Problem 2: The Choice between Long- and Short-Lived Equipment
			Problem 3: When to Replace an Old Machine
		8.6: A Last Look
		Summary
		Questions and Problems
		Minicase
		Appendix: More on the IRR Rule
			Using the IRR to Choose between Mutually Exclusive Projects
			Using the Modified Internal Rate of Return When There Are Multiple IRRs
	Chapter 9: Using Discounted Cash-Flow Analysis to Make Investment Decisions
		9.1: Identifying Cash Flows
			Discount Cash Flows, Not Profits
			Discount Incremental Cash Flows
			Discount Nominal Cash Flows by the Nominal Cost of Capital
			Separate Investment and Financing Decisions
		9.2: Corporate Income Taxes
		9.3: An ExampleÑBlooper Industries
			Forecasting Blooper's Cash Flows
			Calculating the NPV of Blooper's Mine
			Further Notes and Wrinkles Arising from Blooper's Project
		Summary
		Questions and Problems
		Minicase
	Chapter 10: Project Analysis
		10.1: The Capital Investment Process, Some Problems, and Some Solutions
		10.2: Some ÒWhat-IfÓ Questions
			Sensitivity Analysis
			Stress Tests and Scenario Analysis
		10.3: Break-Even Analysis
			Accounting Break-Even Analysis
			NPV Break-Even Analysis
			Operating Leverage
		10.4: Real Options and the Value of Flexibility
			The Option to Expand
			A Second Real Option: The Option to Abandon
			A Third Real Option: The Timing Option
			A Fourth Real Option: Flexible Production Facilities
		Summary
		Questions and Problems
		Minicase
Part Three: Risk
	Chapter 11: Introduction to Risk, Return, and the Opportunity Cost of Capital
		11.1: Rates of Return: A Review
		11.2: A Century of Capital Market History
			Market Indexes
			The Historical Record
			Using Historical Evidence to Estimate Today's Cost of Capital
		11.3: Measuring Risk
			Variance and Standard Deviation
			A Note on Calculating Variance
			Measuring the Variation in Stock Returns
		11.4: Risk and Diversification
			Diversification
			Asset versus Portfolio Risk
			Market Risk versus Specific Risk
		11.5: Thinking about Risk
			Message 1: Some Risks Look Big and Dangerous but Really Are Diversifiable
			Message 2: Market Risks Are Macro Risks
			Message 3: Risk Can Be Measured
		Summary
		Questions and Problems
	Chapter 12: Risk, Return, and Capital Budgeting
		12.1: Measuring Market Risk
			Measuring Beta
			Betas for Amazon and McDonald's
			Total Risk and Market Risk
		12.2: What Can You Learn from Beta?
			Portfolio Betas
			The Portfolio Beta Determines the Risk of a Diversified Portfolio
		12.3: Risk and Return
			Why the CAPM Makes Sense
			The Security Market Line
			Using the CAPM to Estimate Expected Returns
			How Well Does the CAPM Work?
		12.4: The CAPM and the Opportunity Cost of Capital
			The Company Cost of Capital
			What Determines Project Risk?
			DonÕt Add Fudge Factors to Discount Rates
		Summary
		Questions and Problems
	Chapter 13: The Weighted-Average Cost of Capital and Company Valuation
		13.1: Geothermal's Cost of Capital
		13.2: The Weighted-Average Cost of Capital
			Calculating Company Cost of Capital as a Weighted Average
			Use Market Weights, Not Book Weights
			Taxes and the Weighted-Average Cost of Capital
			What If There Are Three (or More) Sources of Financing?
			The NPV of GeothermalÕs Expansion
			Checking Our Logic
		13.3: Interpreting the Weighted-Average Cost of Capital
			When You Can and Can't Use WACC
			Some Common Mistakes
			How Changing Capital Structure Affects Expected Returns
			What Happens When the Corporate Tax Rate Is Not Zero
		13.4: Practical Problems: Measuring Capital Structure
		13.5: More Practical Problems: Estimating Expected Returns
			The Expected Return on Bonds
			The Expected Return on Common Stock
			The Expected Return on Preferred Stock
			Adding It All Up
			Real-Company WACCs
		13.6: Valuing Entire Businesses
			Calculating the Value of the Deconstruction Business
		Summary
		Questions and Problems
		Minicase
Part Four: Financing
	Chapter 14: Introduction to Corporate Financing
		14.1: Creating Value with Financing Decisions
		14.2: Patterns of Corporate Financing
			Are Firms Issuing Too Much Debt?
		14.3: Common Stock
			Stock Splits
			Ownership of the Corporation
			Voting Procedures
			The Wall Street Walk
			Classes of Stock
		14.4: Preferred Stock
		14.5: Corporate Debt
			Debt Comes in Many Forms
			Innovation in the Debt Market
		14.6: Convertible Securities
		Summary
		Questions and Problems
	Chapter 15: How Corporations Raise Venture Capital and Issue Securities
		15.1: Venture Capital
			Venture Capital Companies
		15.2: The Initial Public Offering
			Arranging a Public Issue
			Other New-Issue Procedures
			The Underwriters
		15.3: General Cash Offers by Public Companies
			General Cash Offers and Shelf Registration
			Costs of the General Cash Offer
			Market Reaction to Stock Issues
		15.4: The Private Placement
		Summary
		Questions and Problems
		Minicase
		Appendix: Hotch PotÕs New-Issue Prospectus
Part Five: Debt and Payout Policy
	Chapter 16: Debt Policy
		16.1: How Borrowing Affects Value in a Tax-Free Economy
			MMÕs Argument-A Simple Example
			How Borrowing Affects Earnings per Share
			How Borrowing Affects Risk and Return
		16.2: Debt and the Cost of Equity
			No Magic in Financial Leverage
		16.3: Debt, Taxes, and the Weighted-Average Cost of Capital
			Debt and Taxes at River Cruises
			How Interest Tax Shields Contribute to the Value of Stockholders' Equity
			Corporate Taxes and the Weighted-Average Cost of Capital
			The Implications of Corporate Taxes for Capital Structure
		16.4: Costs of Financial Distress
			Bankruptcy Costs
			Costs of Bankruptcy Vary with Type of Asset
			Financial Distress without Bankruptcy
		16.5: Explaining Financing Choices
			The Trade-Off Theory
			A Pecking Order Theory
			The Two Faces of Financial Slack
			Is There a Theory of Optimal Capital Structure?
		Summary
		Questions and Problems
		Minicase
		Appendix: Bankruptcy Procedures
	Chapter 17: Payout Policy
		17.1: How Corporations Pay Out Cash to Shareholders
			How Firms Pay Dividends
			Stock Dividends
			Stock Repurchases
		17.2: The Information Content of Dividends and Repurchases
		17.3: Dividends or Repurchases? The Payout Controversy
			Dividends or Repurchases? An Example
			Repurchases and the Dividend Discount Model
			Dividends and Share Issues
		17.4: Why Dividends May Increase Value
		17.5: Why Dividends May Reduce Value
			Taxation of Dividends and Capital Gains under Current Tax Law
			Taxes and PayoutÑA Summary
		17.6: Payout Policy and the Life Cycle of the Firm
		Summary
		Questions and Problems
		Minicase
Part Six: Financial Analysis and Planning
	Chapter 18: Long-Term Financial Planning
		18.1: What Is Financial Planning?
			Why Build Financial Plans?
		18.2: Financial Planning Models
			Components of a Financial Planning Model
		18.3: A Long-Term Financial Planning Model for Dynamic Mattress
			Pitfalls in Model Design
			Choosing a Plan
			Valuing Dynamic Mattress
		18.4: External Financing and Growth
		Summary
		Questions and Problems
		Minicase
	Chapter 19: Short-Term Financial Planning
		19.1: Links between Long-Term and Short-Term Financing
			Tax Strategies
			Reasons to Hold Cash
		19.2: Tracing Changes in Cash
		19.3: Cash Budgeting
			Preparing the Cash Budget
		19.4: Dynamic's Short-Term Financial Plan
			Dynamic Mattress's Financing Plan
			Evaluating the Plan
			A Note on Short-Term Financial Planning Models
		Summary
		Questions and Problems
		Minicase
	Chapter 20: Working Capital Management
		20.1: Working Capital
			Components of Working Capital
			Working Capital and the Cash Cycle
		20.2: Accounts Receivable and Credit Policy
			Terms of Sale
			Credit Agreements
			Credit Analysis
			The Credit Decision
			Collection Policy
		20.3: Inventory Management
		20.4: Cash Management
			Check Handling and Float
			Other Payment Systems
			Electronic Funds Transfer
			International Cash Management
		20.5: Investing Idle Cash: The Money Market
			Money Market Investments
			Calculating the Yield on Money Market Investments
			Yields on Money Market Investments
			The International Money Market
		20.6: Managing Current Liabilities: Short-Term Debt
			Bank Loans
			Commercial Paper
		Summary
		Questions and Problems
		Minicase
Part Seven: Special Topics
	Chapter 21: Mergers, Acquisitions, and Corporate Control
		21.1: Types of Mergers
		21.2: Sensible Motives for Mergers
			Economies of Scale and Scope
			Economies of Vertical Integration
			Complementary Resources
			Changes in Corporate Control
			Industry Consolidation
			Industrial Logic Does Not Guaranty Success
		21.3: Dubious Reasons for Mergers
			Improved Diversification
			The Bootstrap Game
			Management Bias
		21.4: The Mechanics of a Merger
			The Form of Acquisition
			Mergers, Antitrust Law, and Popular Opposition
		21.5: Evaluating Mergers
			Mergers Financed by Cash
			Mergers Financed by Stock
			A Warning
			Another Warning
		21.6: The Market for Corporate Control
		21.7: Proxy Contests
		21.8: Takeovers
		21.9: Leveraged Buyouts
			Barbarians at the Gate?
		21.10: Divestitures, Spin-Offs, and Carve-Outs
		21.11: The Benefits and Costs of Mergers
			Who Gains and Loses from Mergers?
			Buyers versus Sellers
			Mergers and Society
		Summary
		Questions and Problems
		Minicase
	Chapter 22: International Financial Management
		22.1: Foreign Exchange Markets
			Spot Exchange Rates
			Forward Exchange Rates
		22.2: Some Basic Relationships
			Exchange Rates and Inflation
			Real and Nominal Exchange Rates
			Inflation and Interest Rates
			The Forward Exchange Rate and the Expected Spot Rate
			Interest Rates and Exchange Rates
		22.3: Hedging Currency Risk
			Transaction Risk
			Economic Risk
		22.4: International Capital Budgeting
			Net Present Values for Foreign Investments
			The Cost of Capital for Foreign Investment
			Avoiding Fudge Factors
			Political Risk
		Summary
		Questions and Problems
		Minicase
	Chapter 23: Options
		23.1: Calls and Puts
			Selling Calls and Puts
			Payoff Diagrams Are Not Profit Diagrams
			Financial Alchemy with Options
			Some More Option Magic
		23.2: What Determines Option Values?
			Upper and Lower Limits on Option Values
			The Determinants of Option Value
			Option-Valuation Models
		23.3: Spotting the Option
			Options on Real Assets
			Options on Financial Assets
		Summary
		Questions and Problems
	Chapter 24: Risk Management
		24.1: Why Hedge?
		24.2: Reducing Risk with Options
		24.3: Forward and Futures Contracts
			The Mechanics of Futures Trading
			Commodity and Financial Futures
			Forward Contracts
		24.4: Valuing Futures and Forward Contracts
		24.5: Swaps
			Interest Rate Swaps
			Currency Swaps
		24.6: Innovation in the Derivatives Market
		24.7: Is 'Derivative' a Four-Letter Word?
		Summary
		Questions and Problems
Part Eight: Conclusion
	Chapter 25: What We Do and Do Not Know about Finance
		25.1: What We Do Know: The Six Most Important Ideas in Finance
			Net Present Value (Chapter 5)
			Risk and Return (Chapters 11 and 12)
			Efficient Capital Markets (Chapter 7)
			MMÕs Irrelevance Propositions (Chapters 16 and 17)
			Option Theory (Chapter 23)
			Agency Theory
		25.2: What We Do Not Know: Nine Unsolved Problems in Finance
			What Determines Project Risk and Present Value?
			Risk and ReturnÑHave We Missed Something?
			Are There Important Exceptions to the Efficient-Market Theory?
			Is Management an Off-Balance-Sheet Liability?
			How Can We Explain Capital Structure?
			How Can We Resolve the Payout Controversy?
			How Can We Explain Merger Waves?
			What Is the Value of Liquidity?
			Why Are Financial Systems Prone to Crisis?
			What Should Be the Goals of the Corporation?
		25.3: A Final Word
		Questions and Problems
Appendix A
Glossary
Index