Principles of Corporate Finance

Cover
Principles of Corporate Finance
Dedication
About the Authors
Preface
Guided Tour
Supplements
For Students
Brief Contents
Contents
Part One: Value
	Chapter 1: Introduction to Corporate Finance
		1-1 Corporate Investment and Financing Decisions
			Investment Decisions
			Financing Decisions
			What Is a Corporation?
			The Role of the Financial Manager
		1-2 The Financial Goal of the Corporation
			Shareholders Want Managers to Maximize Market Value
			A Fundamental Result
			The Investment Trade-Off
			Should Managers Look After the Interests of Their Shareholders?
			Agency Problems and Corporate Governance
		1-3 Preview of Coming Attractions
		Summary
		Problem Sets
		Appendix: Why Maximizing Shareholder Value Makes Sense
	Chapter 2: How to Calculate Present Values
		2-1 Future Values and Present Values
			Calculating Future Values
			Calculating Present Values
			Valuing an Investment Opportunity
			Net Present Value
			Risk and Present Value
			Present Values and Rates of Return
			Calculating Present Values When There Are Multiple Cash Flows
			The Opportunity Cost of Capital
		2-2 Looking for Shortcuts—Perpetuities and Annuities
			How to Value Perpetuities
			How to Value Annuities
			Valuing Annuities Due
			Calculating Annual Payments
			Future Value of an Annuity
		2-3 More Shortcuts—Growing Perpetuities and Annuities
			Growing Perpetuities
			Growing Annuities
		2-4 How Interest Is Paid and Quoted
			Continuous Compounding
		Summary
		Problem Sets
		Finance on the Web
	Chapter 3: Valuing Bonds
		3-1 Using the Present Value Formula to Value Bonds
			A Short Trip to Paris to Value a Government Bond
			Back to the United States: Semiannual Coupons and Bond Prices
		3-2 How Bond Prices Vary with Interest Rates
			Duration and Volatility
		3-3 The Term Structure of Interest Rates
			Spot Rates, Bond Prices, and the Law of One Price
			Measuring the Term Structure
			Why the Discount Factor Declines as Futurity Increases—and a Digression on Money Machines
		3-4 Explaining the Term Structure
			Expectations Theory of the Term Structure
			Introducing Risk
			Inflation and Term Structure
		3-5 Real and Nominal Rates of Interest
			Indexed Bonds and the Real Rate of Interest
			What Determines the Real Rate of Interest?
			Inflation and Nominal Interest Rates
		3-6 The Risk of Default
			Corporate Bonds and Default Risk
			Sovereign Bonds and Default Risk
		Summary
		Further Reading
		Problem Sets
		Finance on the Web
	Chapter 4: The Value of Common Stocks
		4-1 How Common Stocks Are Traded
			Trading Results for Boeing
		4-2 How Common Stocks Are Valued
			Valuation by Comparables
			Stock Prices and Dividends
		4-3 Estimating the Cost of Equity Capital
			Using the DCF Model to Set Water, Gas, and Electricity Prices
			Dangers Lurk in Constant-Growth Formulas
		4-4 The Link between Stock Price and Earnings per Share
			Calculating the Present Value of Growth Opportunities for FledglingElectronics
		4-5 Valuing a Business by Discounted Cash Flow
			Valuing the Concatenator Business
			Valuation Format
			Estimating Horizon Value
			Free Cash Flow, Dividends, and Repurchases
		Summary
		Problem Sets
		Finance on the Web
		Mini-Case: Reeby Sports
	Chapter 5: Net Present Value and Other Investment Criteria
		5-1 A Review of the Basics
			Net Present Value’s Competitors
			Three Points to Remember about NPV
		5-2 Book Rate of Return and Payback
			Book Rate of Return
			Payback
			Discounted Payback
		5-3 Internal (or Discounted Cash Flow) Rate of Return
			Calculating the IRR
			The IRR Rule
			Pitfall 1—Lending or Borrowing?
			Pitfall 2—Multiple Rates of Return
			Pitfall 3—Mutually Exclusive Projects
			Pitfall 4—What Happens When There Is More Than One Opportunity Cost of Capital
			The Verdict on IRR
		5-4 Choosing Capital Investments When Resources Are Limited
			An Easy Problem in Capital Rationing
			Uses of Capital Rationing Models
		Summary
		Further Reading
		Problem Sets
		Mini-Case: Vegetron’s CFO Calls Again
	Chapter 6: Making Investment Decisions with the Net Present Value Rule
		6-1 Applying the Net Present Value Rule
			Rule 1: Discount Cash Flows, Not Profits
			Rule 2: Discount Incremental Cash Flows
			Rule 3: Treat Inflation Consistently
			Rule 4: Separate Investment and Financing Decisions
			Rule 5: Remember to Deduct Taxes
		6-2 Corporate Income Taxes
			U.S. Corporate Income Tax Reform
		6-3 Example—IM&C’s Fertilizer Project
			The Three Elements of Project Cash Flows
			Forecasting the Fertilizer Project’s Cash Flows
			Accelerated Depreciation and First-Year Expensing
			Final Comments on Taxes
			Project Analysis
			Calculating NPV in Other Countries and Currencies
		6-4 Using the NPV Rule to Choose among 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
			Problem 4: Cost of Excess Capacity
		Summary
		Further Reading
		Problem Sets
		Mini-Case: New Economy Transport (A)
		New Economy Transport (B)
Part Two: Risk
	Chapter 7: Introduction to Risk and Return
		7-1 Over a Century of Capital Market History in One Easy Lesson
			Arithmetic Averages and Compound Annual Returns
			Using Historical Evidence to Evaluate Today’s Cost of Capital
		7-2 Diversification and Portfolio Risk
			Variance and Standard Deviation
			Measuring Variability
			How Diversification Reduces Risk
		7-3 Calculating Portfolio Risk
			General Formula for Computing Portfolio Risk
			Do I Really Have to Add up 36 Million Boxes?
		7-4 How Individual Securities Affect Portfolio Risk
			Market Risk Is Measured by Beta
			Why Security Betas Determine Portfolio Risk
		7-5 Diversification and Value Additivity
		Summary
		Further Reading
		Problem Sets
		Finance on the Web
	8 Portfolio Theory and the Capital Asset Pricing Model
		8-1 Harry Markowitz and the Birth of Portfolio Theory
			Combining Stocks into Portfolios
			We Introduce Borrowing and Lending
		8-2 The Relationship between Risk and Return
			Some Estimates of Expected Returns
			Review of the Capital Asset Pricing Model
			What If a Stock Did Not Lie on the Security Market Line?
		8-3 Validity and Role of the Capital Asset Pricing Model
			Tests of the Capital Asset Pricing Model
			Assumptions behind the Capital Asset Pricing Model
		8-4 Some Alternative Theories
			Arbitrage Pricing Theory
			A Comparison of the Capital Asset Pricing Model and Arbitrage Pricing Theory
			The Three-Factor Model
		Summary
		Further Reading
		Problem Sets
		Finance on the Web
		Mini-Case: John and Marsha on Portfolio Selection
	9 Risk and the Cost of Capital
		9-1 Company and Project Costs of Capital
			Perfect Pitch and the Cost of Capital
			Debt and the Company Cost of Capital
		9-2 Measuring the Cost of Equity
			Estimating Beta
			The Expected Return on CSX’s Common Stock
			CSX’s After-Tax Weighted-Average Cost of Capital
			CSX’s Asset Beta
		9-3 Analyzing Project Risk
			What Determines Asset Betas?
			Don’t Be Fooled by Diversifiable Risk
			Avoid Fudge Factors in Discount Rates
			Discount Rates for International Projects
		9-4 Certainty Equivalents—Another Way to Adjust for Risk
			Valuation by Certainty Equivalents
			When to Use a Single Risk-Adjusted Discount Rate for Long-Lived Assets
			A Common Mistake
			When You Cannot Use a Single Risk-Adjusted Discount Rate for Long-Lived Assets
		Summary
		Further Reading
		Problem Sets
		Finance on the Web
		Mini-Case: The Jones Family Incorporated
Part Three: Best Practices in Capital Budgeting
	Chapter 10: Project Analysis
		10-1 Sensitivity and Scenario Analysis
			Value of Information
			Limits to Sensitivity Analysis
			Scenario Analysis
		10-2 Break-Even Analysis and Operating Leverage
			Break-Even Analysis
			Operating Leverage and the Break-Even Point
		10-3 Monte Carlo Simulation
			Simulating the Electric Scooter Project
		10-4 Real Options and Decision Trees
			The Option to Expand
			The Option to Abandon
			Production Options
			Timing Options
			More on Decision Trees
			Pro and Con Decision Trees
		Summary
		Further Reading
		Problem Sets
		Mini-Case: Waldo County
	Chapter 11: How to Ensure That Projects Truly Have Positive NPVs
		11-1 How Firms Organize the Investment Process
			The Capital Budget
			Project Authorizations—and the Problem of Biased Forecasts
			Postaudits
		11-2 Look First to Market Values
			The BMW and Your Sporting Idol
		11-3 Economic Rents and Competitive Advantage
		11-4 Marvin Enterprises Decides to Exploit a New Technology—an Example
			Forecasting Prices of Gargle Blasters
			The Value of Marvin’s New Expansion
			Alternative Expansion Plans
			The Value of Marvin Stock
			The Lessons of Marvin Enterprises
		Summary
		Further Reading
		Problem Sets
		Mini-Case: Ecsy-Cola
	Chapter 12: Agency Problems and Investment
		12-1 What Agency Problems Should You Watch Out For?
			Agency Problems Don’t Stop at the Top
			Risk Taking
		12-2 Monitoring
			Boards of Directors
			Auditors
			Lenders
			Shareholders
			Takeovers
		12-3 Management Compensation
			Compensation Facts and Controversies
			The Economics of Incentive Compensation
			The Specter of Short-Termism
		12-4 Measuring and Rewarding Performance: Residual Income and EVA
			Residual Income or Economic Value Added (EVA®)
			Pros and Cons of EVA
		12-5 Biases in Accounting Measures of Performance
			Example: Measuring the Profitability of the Nodhead Supermarket
			Measuring Economic Profitability
			Do the Biases Wash Out in the Long Run?
			What Can We Do about Biases in Accounting Profitability Measures?
		Summary
		Further Reading
		Problem Sets
Part Four: Financing Decisions and Market Efficiency
	Chapter 13: Efficient Markets and Behavioral Finance
		13-1 Differences between Investment and Financing Decisions
			We Always Come Back to NPV
		13-2 The Efficient Market Hypothesis
			A Startling Discovery: Price Changes Are Random
			Random Walks: The Evidence
			Semistrong Market Efficiency: The Evidence
			Strong Market Efficiency: The Evidence
		13-3 Bubbles and Market Efficiency
		13-4 Behavioral Finance
			Sentiment
			Limits to Arbitrage
			Incentive Problems and the Financial Crisis of 2008–2009
		13-5 The Five Lessons of Market Efficiency
		Lesson 1: Markets Have No Memory
		Lesson 2: Trust Market Prices
		Lesson 3: Read the Entrails
		Lesson 4: The Do-It-Yourself Alternative
		Lesson 5: Seen One Stock, Seen Them All
		What If Markets Are Not Efficient? Implications for the Financial Manager
		Summary
		Further Reading
		Problem Sets
		Finance on the Web
	Chapter 14: An Overview of Corporate Financing
		14-1 Patterns of Corporate Financing
			Do Firms Rely Too Much on Internal Funds?
			How Much Do Firms Borrow?
		14-2 Common Stock
			Ownership of the Corporation
			Voting Procedures
			Dual-Class Shares and Private Benefits
			Equity in Disguise
			Preferred Stock
		14-3 Debt
			Debt Comes in Many Forms
			A Debt by Any Other Name
			Variety’s the Very Spice of Life
		14-4 Financial Markets and Intermediaries
			Financial Markets
			Financial Intermediaries
			Investment Funds
			Financial Institutions
		14-5 The Role of Financial Markets and Intermediaries
			The Payment Mechanism
			Borrowing and Lending
			Pooling Risk
			Information Provided by Financial Markets
			The Financial Crisis of 2007–2009
		Summary
		Further Reading
		Problem Sets
		Finance on the Web
	Chapter 15: How Corporations Issue Securities
		15-1 Venture Capital
			The Venture Capital Market
		15-2 The Initial Public Offering
			The Public-Private Choice
			Arranging an Initial Public Offering
			The Sale of Marvin Stock
			The Underwriters
			Costs of a New Issue
			Underpricing of IPOs
			Hot New-Issue Periods
			The Long-Run Performance of IPO Stocks
		15-3 Alternative Issue Procedures for IPOs
			Types of Auction: A Digression
		15-4 Security Sales by Public Companies
			General Cash Offers
			International Security Issues
			The Costs of a General Cash Offer
			Market Reaction to Stock Issues
			Rights Issues
		15-5 Private Placements and Public Issues
		Summary
		Further Reading
		Problem Sets
		Finance on the Web
		Appendix: Marvin’s New-Issue Prospectus
Part Five: Payout Policy and Capital Structure
	Chapter 16: Payout Policy
		16-1 Facts about Payout
			How Firms Pay Dividends
			How Firms Repurchase Stock
		16-2 The Information Content of Dividends and Repurchases
			The Information Content of Share Repurchases
		16-3 Dividends or Repurchases? The Payout Controversy
			Payout Policy Is Irrelevant in Perfect Capital Markets
			Dividends or Repurchases? An Example
			Stock Repurchases and DCF Models of Share Price
			Dividends and Share Issues
		16-4 The Rightists
			Payout Policy, Investment Policy, and Management Incentives
		16-5 Taxes and the Radical Left
			Empirical Evidence on Dividends and Taxes
			Alternative Tax Systems
		16-6 Payout Policy and the Life Cycle of the Firm
			Payout and Corporate Governance
		Summary
		Further Reading
		Problem Sets
	Chapter 17: Does Debt Policy Matter?
		17-1 The Effect of Financial Leverage in a Competitive Tax-Free Economy
			Enter Modigliani and Miller
			The Law of Conservation of Value
			An Example of Proposition 1
		17-2 Financial Risk and Expected Returns
			Proposition 2
			Leverage and the Cost of Equity
			How Changing Capital Structure Affects Beta
			Watch Out for Hidden Leverage
		17-3 No Magic in Financial Leverage
			Today’s Unsatisfied Clienteles Are Probably Interested in Exotic Securities
			Imperfections and Opportunities
		17-4 A Final Word on the After-Tax Weighted-Average Cost of Capital
		Summary
		Further Reading
		Problem Sets
		Mini-Case: Claxton Drywall Comes to the Rescue
	Chapter 18: How Much Should a Corporation Borrow?
		18-1 Corporate Taxes
			How Do Interest Tax Shields Contribute to the Value of Stockholders’ Equity?
			Recasting Johnson & Johnson’s Capital Structure
			MM and Taxes
		18-2 Corporate and Personal Taxes
		18-3 Costs of Financial Distress
			Bankruptcy Costs
			Evidence on Bankruptcy Costs
			Direct versus Indirect Costs of Bankruptcy
			Financial Distress without Bankruptcy
			Debt and Incentives
			Risk Shifting: The First Game
			Refusing to Contribute Equity Capital: The Second Game
			And Three More Games, Briefly
			What the Games Cost
			Costs of Distress Vary with Type of Asset
			The Trade-Off Theory of Capital Structure
		18-4 The Pecking Order of Financing Choices
			Debt and Equity Issues with Asymmetric Information
			Implications of the Pecking Order
			The Trade-Off Theory vs. the Pecking-Order Theory—Some Evidence
			The Bright Side and the Dark Side of Financial Slack
			Is There a Theory of Optimal Capital Structure?
		Summary
		Further Reading
		Problem Sets
		Finance on the Web
	Chapter 19: Financing and Valuation
		19-1 The After-Tax Weighted-Average Cost of Capital
			Review of Assumptions
			Mistakes People Make in Using the Weighted-Average Formula
		19-2 Valuing Businesses
			Valuing Rio Corporation
			Estimating Horizon Value
			WACC vs. the Flow-to-Equity Method
		19-3 Using WACC in Practice
			Some Tricks of the Trade
			Adjusting WACC When Debt Ratios and Business Risks Differ
			Unlevering and Relevering Betas
			The Importance of Rebalancing
			The Modigliani–Miller Formula, Plus Some Final Advice
		19-4 Adjusted Present Value
			APV for the Perpetual Crusher
			Other Financing Side Effects
			APV for Entire Businesses
			APV and Limits on Interest Deductions
			APV for International Investments
		19-5 Your Questions Answered
		Summary
		Further Reading
		Problem Sets
		Finance on the Web
		Appendix: Discounting Safe, Nominal Cash Flows
Part Six: Options
	Chapter 20: Understanding Options
		20-1 Calls, Puts, and Shares
			Call Options and Position Diagrams
			Put Options
			Selling Calls and Puts
			Position Diagrams Are Not Profit Diagrams
		20-2 Financial Alchemy with Options
			Spotting the Option
		20-3 What Determines Option Values?
			Risk and Option Values
		Summary
		Further Reading
		Problem Sets
		Finance on the Web
	Chapter 21: Valuing Options
		21-1 A Simple Option-Valuation Model
			Why Discounted Cash Flow Won’t Work for Options
			Constructing Option Equivalents from Common Stocks and Borrowing
			Valuing the Amazon Put Option
		21-2 The Binomial Method for Valuing Options
			Example: The Two-Step Binomial Method
			The General Binomial Method
			The Binomial Method and Decision Trees
		21-3 The Black–Scholes Formula
			Using the Black–Scholes Formula
			The Risk of an Option
			The Black–Scholes Formula and the Binomial Method
		21-4 Black–Scholes in Action
			Executive Stock Options
			Warrants
			Portfolio Insurance
			Calculating Implied Volatilities
		21-5 Option Values at a Glance
		21-6 The Option Menagerie
		Summary
		Further Reading
		Problem Sets
		Finance on the Web
		Mini-Case: Bruce Honiball’s Invention
	Chapter 22: Real Options
		22-1 The Value of Follow-On Investment Opportunities
			Questions and Answers about Blitzen’s Mark II
			Other Expansion Options
		22-2 The Timing Option
			Valuing the Malted Herring Option
			Optimal Timing for Real Estate Development
		22-3 The Abandonment Option
			Bad News for the Perpetual Crusher
			Abandonment Value and Project Life
			Temporary Abandonment
		22-4 Flexible Production and Procurement
			Aircraft Purchase Options
		22-5 Investment in Pharmaceutical R&D
		22-6 Valuing Real Options
			A Conceptual Problem?
			What about Taxes?
			Practical Challenges
		Summary
		Further Reading
		Problem Sets
Part Seven: Debt Financing
	Chapter 23: Credit Risk and the Value of Corporate Debt
		23-1 Yields on Corporate Debt
			What Determines the Yield Spread?
		23-2 Valuing the Option to Default
			The Value of Corporate Equity
			A Digression: Valuing Government Financial Guarantees
		23-3 Bond Ratings and the Probability of Default
		23-4 Predicting the Probability of Default
			Statistical Models of Default
			Structural Models of Default
		Summary
		Further Reading
		Problem Sets
		Finance on the Web
	Chapter 24: The Many Different Kinds of Debt
		24-1 Long-Term Bonds
			Bond Terms
			Security and Seniority
			Asset-Backed Securities
			Call Provisions
			Sinking Funds
			Bond Covenants
			Privately Placed Bonds
			Foreign Bonds and Eurobonds
		24-2 Convertible Securities and Some Unusual Bonds
			The Value of a Convertible at Maturity
			Forcing Conversion
			Why Do Companies Issue Convertibles?
			Valuing Convertible Bonds
			A Variation on Convertible Bonds: The Bond–Warrant Package
			Innovation in the Bond Market
		24-3 Bank Loans
			Commitment
			Maturity
			Rate of Interest
			Syndicated Loans
			Security
			Loan Covenants
		24-4 Commercial Paper and Medium-Term Notes
			Commercial Paper
			Medium-Term Notes
		Summary
		Further Reading
		Problem Sets
		Mini-Case: The Shocking Demise of Mr. Thorndike
		Appendix: Project Finance 660Appendix Further Reading
	Chapter 25: Leasing
		25-1 What Is a Lease?
		25-2 Why Lease?
			Sensible Reasons for Leasing
			Some Dubious Reasons for Leasing
		25-3 Operating Leases
			Example of an Operating Lease
			Lease or Buy?
		25-4 Valuing Financial Leases
			Example of a Financial Lease
			Who Really Owns the Leased Asset?
			Leasing and the Internal Revenue Service
			A First Pass at Valuing a Lease Contract
			The Story So Far
			Financial Leases When There Is No Interest Tax Shield
		25-5 When Do Financial Leases Pay?
			Leasing around the World
		25-6 Leveraged Leases
		Summary
		Further Reading
		Problem Sets
Part Eight: Risk Management
	Chapter 26: Managing Risk
		26-1 Why Manage Risk?
			Reducing the Risk of Cash Shortfalls or Financial Distress
			Agency Costs May Be Mitigated by Risk Management
			The Evidence on Risk Management
		26-2 Insurance
		26-3 Reducing Risk with Options
		26-4 Forward and Futures Contracts
			A Simple Forward Contract
			Futures Exchanges
			The Mechanics of Futures Trading
			Trading and Pricing Financial Futures Contracts
			Spot and Futures Prices—Commodities
			More about Forward Contracts
			Homemade Forward Rate Contracts
		26-5 Swaps
			Interest Rate Swaps
			Currency Swaps
			Some Other Swaps
		26-6 How to Set Up a Hedge
			Hedging Interest Rate Risk
			Hedge Ratios and Basis Risk
		26-7 Is “Derivative” a Four-Letter Word?
		Summary
		Further Reading
		Problem Sets
		Finance on the Web
		Mini-Case: Rensselaer Advisers
	Chapter 27: Managing International Risks
		27-1 The Foreign Exchange Market
		27-2 Some Basic Relationships
			Interest Rates and Exchange Rates
			The Forward Premium and Changes in Spot Rates
			Changes in the Exchange Rate and Inflation Rates
			Interest Rates and Inflation Rates
			Is Life Really That Simple?
		27-3 Hedging Currency Risk
			Transaction Exposure and Economic Exposure
		27-4 Exchange Risk and International Investment Decisions
			The Cost of Capital for International Investments
		27-5 Political Risk
		Summary
		Further Reading
		Problem Sets
		Finance on the Web
		Mini-Case: Exacta, S.a.
Part Nine: Financial Planning and Working Capital Management
	Chapter 28: Financial Analysis
		28-1 Financial Ratios
		28-2 Financial Statements
		28-3 Home Depot’s Financial Statements
			The Balance Sheet
			The Income Statement
		28-4 Measuring Home Depot’s Performance
			Economic Value Added
			Accounting Rates of Return
			Problems with EVA and Accounting Rates of Return
		28-5 Measuring Efficiency
		28-6 Analyzing the Return on Assets: The Du Pont System
			The Du Pont System
		28-7 Measuring Leverage
			Leverage and the Return on Equity
		28-8 Measuring Liquidity
		28-9 Interpreting Financial Ratios
		Summary
		Further Reading
		Problem Sets
		Finance on the Web
	Chapter 29: Financial Planning
		29-1 Links between Short-Term and Long-Term Financing Decisions
		29-2 Tracing Changes in Cash
			The Cash Cycle
		29-3 Cash Budgeting
		29-4 Dynamic’s Short-Term Financial Plan
			Dynamic Mattress’s Financing Plan
			Evaluating the Plan
			A Note on Short-Term Financial Planning Models
		29-5 Long-Term Financial Planning
			Why Build Financial Plans?
			A Long-Term Financial Planning Model for Dynamic Mattress
			Pitfalls in Model Design
			Choosing a Plan
		29-6 Growth and External Financing
		Summary
		Further Reading
		Problem Sets
		Finance on the Web
	Chapter 30: Working Capital Management
		30-1 The Composition of Working Capital
		30-2 Inventories
		30-3 Credit Management
			Terms of Sale
			The Promise to Pay
			Credit Analysis
			The Credit Decision
			Collection Policy
		30-4 Cash
			How Purchases Are Paid For
			Speeding Up Check Collections
			International Cash Management
			Paying for Bank Services
		30-5 Marketable Securities
			Tax Strategies
			Investment Choices
			Calculating the Yield on Money Market Investments
			Returns on Money Market Investments
			The International Money Market
			Money Market Instruments
		Summary
		Further Reading
		Problem Sets
		Finance on the Web
Part Ten: Mergers, Corporate Control, and Governance
	Chapter 31: Mergers
		31-1 Sensible Motives for Mergers
			Economies of Scale
			Economies of Vertical Integration
			Complementary Resources
			Surplus Funds
			Eliminating Inefficiencies
			Industry Consolidation
		31-2 Some Dubious Reasons for Mergers
			Diversification
			Increasing Earnings per Share: The Bootstrap Game
			Lower Financing Costs
		31-3 Estimating Merger Gains and Costs
			Right and Wrong Ways to Estimate the Benefits of Mergers
			More on Estimating Costs—What If the Target’s Stock Price Anticipates the Merger?
			Estimating Cost When the Merger Is Financed by Stock
			Asymmetric Information
		31-4 The Mechanics of a Merger
			Mergers, Antitrust Law, and Popular Opposition
			The Form of Acquisition
			Merger Accounting
			Some Tax Considerations
			Cross-Border Mergers and Tax Inversion
		31-5 Proxy Fights, Takeovers, and the Market for Corporate Control
			Proxy Contests
			Takeovers
			Valeant Bids for Allergan
			Takeover Defenses
			Who Gains Most in Mergers?
		31-6 Merger Waves and Merger Profitability
			Merger Waves
			Merger Announcements and the Stock Price
			Merger Profitability
			Do Mergers Generate Net Benefits?
		Summary
		Further Reading
		Problem Sets
		Appendix: Conglomerate Mergers and Value Additivity
	Chapter 32: Corporate Restructuring
		32-1 Leveraged Buyouts
			The RJR Nabisco LBO
			Barbarians at the Gate?
			Leveraged Restructurings
			LBOs and Leveraged Restructurings
		32-2 The Private-Equity Market
			Private-Equity Partnerships
			Are Private-Equity Funds Today’s Conglomerates?
		32-3 Fusion and Fission in Corporate Finance
			Spin-Offs
			Carve-Outs
			Asset Sales
			Privatization and Nationalization
		32-4 Bankruptcy
			Is Chapter 11 Efficient?
			Workouts
			Alternative Bankruptcy Procedures
		Summary
		Further Reading
		Problem Sets
	Chapter 33: Governance and Corporate Control around the World
		33-1 Financial Markets and Institutions
			Investor Protection and the Development of Financial Markets
		33-2 Ownership, Control, and Governance
			Ownership and Control in Japan
			Ownership and Control in Germany
			European Boards of Directors
			Shareholders versus Stakeholders
			Ownership and Control in Other Countries
			Conglomerates Revisited
		33-3 Do These Differences Matter?
			Risk and Short-Termism
			Growth Industries and Declining Industries
			Transparency and Governance
		Summary
		Further Reading
		Problem Sets
Part Eleven: Conclusion
	Chapter 34: Conclusion: What We Do and Do Not Know about Finance
		34-1 What We Do Know: The Seven Most Important Ideas in Finance
			1. Net Present Value
			2. The Capital Asset Pricing Model
			3. Efficient Capital Markets
			4. Value Additivity and the Law of Conservation of Value
			5. Capital Structure Theory
			6. Option Theory
			7. Agency Theory
		34-2 What We Do Not Know: 10 Unsolved Problems in Finance
			1. What Determines Project Risk and Present Value?
			2. Risk and Return—What Have We Missed?
			3. How Important Are the Exceptions to the Efficient-Market Theory?
			4. Is Management an Off-Balance-Sheet Liability?
			5. How Can We Explain the Success of New Securities and New Markets?
			6. How Can We Resolve the Payout Controversy?
			7. What Risks Should a Firm Take?
			8. What Is the Value of Liquidity?
			9. How Can We Explain Merger Waves?
			10. Why Are Financial Systems So Prone to Crisis?
		34-3 A Final Word
APPENDIX
GLOSSARY
INDEX