Principles of Corporate Finance

Cover Page......Page 1
Half Title Page......Page 2
Other Books By......Page 3
Title Page......Page 4
Copyright Page......Page 5
Dedication......Page 6
About the Authors......Page 7
Preface......Page 8
Guided Tour......Page 12
Supplements......Page 16
Brief Contents......Page 19
Contents......Page 20
1 Goals and Governance of the Firm......Page 30
Investment Decisions......Page 31
Financing Decisions......Page 33
What Is a Corporation?......Page 34
1-2 The Role of the Financial Manager and the Opportunity Cost of Capital......Page 35
The Investment Trade-off......Page 36
A Fundamental Result......Page 38
Should  Managers Look After the Interests of Their Shareholders?......Page 39
Should Firms Be Managed for Shareholders or All Stakeholders?......Page 40
1-4 Agency Problems and Corporate Governance......Page 41
Pushing Subprime Mortgages: Value Maximization Run Amok, or an Agency Problem?......Page 42
Agency Problems Are Mitigated by Good Systems of Corporate Governance......Page 43
Summary......Page 44
Problem Sets......Page 45
Appendix: Foundations of the Net Present Value Rule......Page 47
2 How to Calculate Present Values......Page 49
Calculating Future Values......Page 50
Calculating Present Values......Page 51
Net Present Value......Page 52
Risk and Present Value......Page 53
Calculating Present Values When There Are Multiple Cash Flows......Page 54
How to Value Perpetuities......Page 56
How to Value Annuities......Page 57
Calculating Annual Payments......Page 60
Future Value of an Annuity......Page 61
Growing Perpetuities......Page 62
Growing Annuities......Page 63
2-4 How Interest Is Paid and Quoted......Page 64
Continuous Compounding......Page 65
Problem Sets......Page 68
Real-Time Data Analysi......Page 72
3 Valuing Bonds......Page 74
A Short Trip to Paris to Value a Government Bond......Page 75
Back to the United States: Semiannual Coupons and Bond Prices......Page 76
3-2 How Bond Prices Vary with Interest Rates......Page 78
Duration and Volatility......Page 79
3-3 The Term Structure of Interest Rates......Page 82
Spot Rates, Bond Prices, and the Law of One Price......Page 83
Measuring the Term Structure......Page 84
Why the Discount Factor Declines as Futurity Increases—and a Digression on Money Machines......Page 85
3-4 Explaining the Term Structure......Page 86
Expectations Theory of the Term Structure......Page 87
3-5 Real and Nominal Rates of Interest......Page 88
Indexed Bonds and the Real Rate of Interest......Page 90
What Determines the Real Rate of Interest?......Page 91
Inflation and Nominal Interest Rates......Page 92
3-6 Corporate Bonds and the Risk of Default......Page 94
Corporate Bonds Come in Many Forms......Page 96
Summary......Page 97
Problem Sets......Page 98
Real-Time Data Analysis......Page 102
4 The Value of Common Stocks......Page 103
4-1 How Common Stocks Are Traded......Page 104
4-2 How Common Stocks Are Valued......Page 105
Valuation by Comparables......Page 106
Today’s Price......Page 107
But What  Determines Next Year’s Price?......Page 108
4-3 Estimating the Cost of Equity Capital......Page 110
Using the DCF Model to Set Gas and Electricity Prices......Page 111
Dangers Lurk in Constant-Growth Formulas......Page 112
4-4 The Link between Stock Price and Earnings per Share......Page 116
Calculating the Present Value of Growth Opportunitiesfor Fledgling Electronics......Page 117
Valuing the Concatenator Business......Page 119
Estimating Horizon Value......Page 120
A Further Reality Check......Page 121
Summary......Page 123
Problem Sets......Page 124
Mini-Case: Reeby Sports......Page 128
5-1 A Review of the Basics......Page 130
Three Points to Remember about NPV......Page 132
NPV Depends on Cash Flow, Not on Book Returns......Page 133
5-2 Payback......Page 134
5-3 Internal (or Discounted-Cash-Flow) Rate of Return......Page 136
Calculating the IRR......Page 137
Pitfall 1—Lending or Borrowing?......Page 138
Pitfall 2—Multiple Rates of Return......Page 139
Pitfall 3—Mutually Exclusive Projects......Page 140
Pitfall 4—What Happens When There Is More thanOne Opportunity Cost of Capital?......Page 142
The Verdict on IRR......Page 143
An Easy Problem in Capital Rationing......Page 144
Uses of Capital Rationing Models......Page 146
Summary......Page 148
Problem Sets......Page 149
Mini-Case: Vegetron’s CFO Calls Again......Page 153
6 Making Investment Decisions with the Net Present Value Rule......Page 156
Rule 1: Only Cash Flow Is Relevant......Page 157
Rule 2: Estimate Cash Flows on an Incremental Basis......Page 158
Rule 3: Treat Inflation Consistently......Page 160
6-2 Example—IM&C’S Fertilizer Project......Page 161
Investments in Working Capital......Page 163
A Further Note on Depreciation......Page 165
A Final Comment on Taxes......Page 166
Project Analysis......Page 167
Calculating NPV in Other Countries and Currencies......Page 168
6-3 Investment Timing......Page 169
Investing to Produce Reformulated Gasoline at California Refineries......Page 170
Choosing between Long- and Short-Lived Equipment......Page 171
Equivalent Annual Cash Flow and Technological Change......Page 172
Deciding When to Replace an Existing Machine......Page 173
Problem Sets......Page 175
Mini-Case: New Economy Transport (A) and (B)......Page 182
7-1 Over a Century of Capital Market History in One Easy Lesson......Page 185
Arithmetic Averages and Compound Annual Returns......Page 187
Using Historical Evidence to Evaluate Today’s Cost of Capital......Page 188
Dividend Yields and the Risk Premium......Page 191
Variance and Standard Deviation......Page 192
Measuring Variability......Page 195
How Diversification Reduces Risk......Page 197
7-3 Calculating Portfolio Risk......Page 199
General Formula for Computing Portfolio Risk......Page 201
Limits to Diversification......Page 202
Market Risk Is Measured by Beta......Page 203
Why Security Betas Determine Portfolio Risk......Page 204
7-5 Diversification and Value Additivity......Page 206
Summary......Page 207
Problem Sets......Page 208
Real-Time Data Analysis......Page 213
8-1 Harry Markowitz and the Birth of Portfolio Theory......Page 214
Combining Stocks into Portfolios......Page 215
We Introduce Borrowing and Lending......Page 219
8-2 The Relationship between Risk and Return......Page 221
Some Estimates of Expected Returns......Page 222
What If a Stock Did Not Lie on the Security Market Line?......Page 223
8-3 Validity and Role of the Capital Asset Pricing Model......Page 224
Tests of the Capital Asset Pricing Model......Page 225
8-4 Some Alternative Theories......Page 228
Arbitrage Pricing Theory......Page 229
The Three-Factor Model......Page 230
Summary......Page 232
Problem Sets......Page 233
Real-Time Data Analysis......Page 239
Mini-Case: John and Marsha on Portfolio Selection......Page 240
9 Risk and the Cost of Capital......Page 242
9-1 Company and Project Costs of Capital......Page 243
Perfect Pitch and the Cost of Capital......Page 244
Debt and the Company Cost of Capital......Page 245
Estimating Beta......Page 246
The Expected Return on Union Pacific Corporation’s Common Stock......Page 248
Union Pacific’s Asset Beta......Page 249
9-3 Analyzing Project Risk......Page 250
What Determines Asset Betas?......Page 251
Don’t Be Fooled by Diversifiable Risk......Page 253
Avoid Fudge Factors in Discount Rates......Page 254
Valuation by Certainty Equivalents......Page 256
When to Use a Single Risk-Adjusted Discount Rate for Long-Lived Assets......Page 258
When You Cannot Use a Single Risk-Adjusted Discount Ratefor Long-Lived Assets......Page 259
Summary......Page 261
Problem Sets......Page 262
Mini-Case: The Jones Family, Incorporated......Page 266
10 Project Analysis......Page 269
Project Authorizations—and the Problem of Biased Forecasts......Page 270
Postaudits......Page 271
10-2 Sensitivity Analysis......Page 272
Value of Information......Page 273
Break-Even Analysis......Page 274
Operating Leverage and the Break-Even Point......Page 277
10-3 Monte Carlo Simulation......Page 278
Simulating the Electric Scooter Project......Page 279
The Option to Expand......Page 282
The Option to Abandon......Page 283
Timing Options......Page 285
More on Decision Trees......Page 286
Summary......Page 289
Further Reading......Page 290
Problem Sets......Page 291
Mini-Case: Waldo County......Page 295
11-1 Look First to Market Values......Page 297
The Cadillac and the Movie Star......Page 298
11-2 Economic Rents and Competitive Advantage......Page 302
11-3 Marvin Enterprises Decides to Exploit a New Technology: an Example......Page 305
Forecasting Prices of Gargle Blasters......Page 307
Alternative Expansion Plans......Page 308
The Value of Marvin Stock......Page 309
The Lessons of Marvin Enterprises......Page 310
Summary......Page 312
Problem Sets......Page 313
Mini-Case: Ecsy-Cola......Page 318
12-1 Incentives and Compensation......Page 319
Agency Problems in Capital Budgeting......Page 320
Monitoring......Page 321
Management Compensation......Page 323
Incentive Compensation......Page 325
12-2 Measuring and Rewarding Performance: Residual Income and EVA......Page 327
Pros and Cons of EVA......Page 329
Example: Measuring the Profitability of the Nodhead Supermarket......Page 330
Measuring Economic Profitability......Page 332
Do the Biases Wash Out in the Long Run?......Page 333
Earnings and Earnings Targets......Page 334
Further Reading......Page 336
Problem Sets......Page 337
13 Efficient Markets and Behavioral Finance......Page 341
13-1 We Always Come Back to NPV......Page 342
A Startling Discovery: Price Changes Are Random......Page 343
Three Forms of Market Efficiency......Page 346
Efficient Markets: The Evidence......Page 347
13-3 The Evidence against Market Efficiency......Page 350
Do Investors Respond Slowly to New Information?......Page 351
Bubbles and Market Efficiency......Page 353
13-4 Behavioral Finance......Page 355
Limits to Arbitrage......Page 356
Incentive Problems and the Subprime Crisis......Page 357
Lesson 1: Markets Have No Memory......Page 358
Lesson 3: Read the Entrails......Page 359
Lesson 4: There Are No Financial Illusions......Page 360
Lesson 6: Seen One Stock, Seen Them All......Page 361
What If Markets Are Not Efficient? Implications for the Financial Manager......Page 362
Summary......Page 364
Further Reading......Page 365
Problem Sets......Page 366
Real-Time Data Analysis......Page 369
14-1 Patterns of Corporate Financing......Page 370
Do Firms Rely Too Much on Internal Funds?......Page 371
How Much Do Firms Borrow?......Page 372
14-2 Common Stock......Page 374
Ownership of the Corporation......Page 375
Dual-class Shares and Private Benefits......Page 376
Equity in Disguise......Page 378
Preferred Stock......Page 379
Debt Comes in Many Forms......Page 380
Variety’s the Very Spice of Life......Page 382
14-4 Financial Markets and Institutions......Page 383
The Financial Crisis of 2007–2009......Page 384
The Role of Financial Institutions......Page 385
Summary......Page 386
Further Reading......Page 387
Problem Sets......Page 388
Real-Time Data Analysis......Page 390
15-1 Venture Capital......Page 391
The Venture Capital Market......Page 393
15-2 The Initial Public Offering......Page 395
Arranging an Initial Public Offering......Page 396
The Sale of Marvin Stock......Page 398
The Underwriters......Page 399
Costs of a New Issue......Page 400
Underpricing of IPOs......Page 401
Hot New-Issue Periods......Page 403
15-3 Alternative Issue Procedures for IPOs......Page 404
General Cash Offers......Page 405
International Security Issues......Page 406
Market Reaction to Stock Issues......Page 407
Rights Issues......Page 409
15-5 Private Placements and Public Issues......Page 410
Summary......Page 411
Problem Sets......Page 412
Appendix: Marvin’s New-Issue Prospectus......Page 416
16-1 Facts about Payout......Page 420
16-2 How Firms Pay Dividends and Repurchase Stock......Page 421
How Firms Repurchase Stock......Page 422
16-3 How Do Companies Decide on Payouts?......Page 423
16-4 The Information in Dividends and Stock Repurchases......Page 424
The Information Content of Share Repurchases......Page 425
16-5 The Payout Controversy......Page 426
Dividend Policy Is Irrelevant in Perfect Capital Markets......Page 427
Dividend Irrelevance—An Illustration......Page 428
Calculating Share Price......Page 429
Stock Repurchase and Valuation......Page 430
16-6 The Rightists......Page 431
Payout Policy, Investment Policy, and Management Incentives......Page 432
16-7 Taxes and the Radical Left......Page 433
Empirical Evidence on Dividends and Taxes......Page 434
The Taxation of Dividends and Capital Gains......Page 435
Alternative Tax Systems......Page 436
16-8 The Middle-of-the-Roaders......Page 438
Payout Policy and the Life Cycle of the Firm......Page 439
Summary......Page 440
Problem Sets......Page 441
17 Does Debt Policy Matter?......Page 447
17-1 The Effect of Financial Leverage in a Competitive Tax-free Economy......Page 448
Enter Modigliani and Miller......Page 449
The Law of Conservation of Value......Page 450
An Example of Proposition 1......Page 451
17-2 Financial Risk and Expected Returns......Page 453
Proposition 2......Page 454
How Changing Capital Structure Affects Beta......Page 456
17-3 The Weighted-Average Cost of Capital......Page 457
Two Warnings......Page 458
Rates of Return on Levered Equity—The Traditional Position......Page 459
Today’s Unsatisfied Clienteles Are Probably Interested in Exotic Securities......Page 460
Imperfections and Opportunities......Page 461
17-4 A Final Word on the After-Tax Weighted-Average Cost of Capital......Page 462
Further Reading......Page 463
Problem Sets......Page 464
18-1 Corporate Taxes......Page 469
Recasting Merck’s Capital Structure......Page 471
MM and Taxes......Page 472
18-2 Corporate and Personal Taxes......Page 473
18-3 Costs of Financial Distress......Page 476
Bankruptcy Costs......Page 477
Evidence on Bankruptcy Costs......Page 479
Direct versus Indirect Costs of Bankruptcy......Page 480
Debt and Incentives......Page 481
Risk Shifting: The First Game......Page 482
And Three More Games, Briefly......Page 483
What the Games Cost......Page 484
Costs of Distress Vary with Type of Asset......Page 486
The Trade-off Theory of Capital Structure......Page 487
Debt and Equity Issues with Asymmetric Information......Page 489
The Trade-off Theory vs. the Pecking-Order Theory—Some Recent Tests......Page 491
The Bright Side and the Dark Side of Financial Slack......Page 492
Summary......Page 494
Further Reading......Page 495
Problem Sets......Page 496
Real-Time Data Analysis......Page 499
19-1 The After-Tax Weighted-Average Cost of Capital......Page 500
Review of Assumptions......Page 503
19-2 Valuing Businesses......Page 504
Valuing Rio Corporation......Page 505
Estimating Horizon Value......Page 507
Some Tricks of the Trade......Page 508
Adjusting WACC when Debt Ratios and Business Risks Differ......Page 511
The Importance of Rebalancing......Page 513
The Modigliani–Miller Formula, Plus Some Final Advice......Page 514
19-4 Adjusted Present Value......Page 515
APV for the Perpetual Crusher......Page 516
APV for Businesses......Page 517
APV for International Investments......Page 518
19-5 Your Questions Answered......Page 519
Summary......Page 521
Further Reading......Page 522
Problem Sets......Page 523
Appendix: Discounting Safe, Nominal Cash Flows......Page 527
20 Understanding Options......Page 531
Call Options and Position Diagrams......Page 532
Selling Calls, Puts, and Shares......Page 534
Position Diagrams Are Not Profit Diagrams......Page 535
20-2 Financial Alchemy with Options......Page 536
Spotting the Option......Page 541
20-3 What Determines Option Values?......Page 542
Risk and Option Values......Page 546
Problem Sets......Page 548
Real-Time Data Analysis......Page 553
Why Discounted Cash Flow Won’t Work for Options......Page 554
Constructing Option Equivalents from Common Stocks and Borrowing......Page 555
Valuing the Google Put Option......Page 557
Example: The Two-Stage Binomial Method......Page 559
The General Binomial Method......Page 562
21-3 The Black–Scholes Formula......Page 563
Using the Black–Scholes Formula......Page 565
The Risk of an Option......Page 566
21-4 Black–Scholes in Action......Page 567
Warrants......Page 568
Portfolio Insurance......Page 569
Calculating Implied Volatilities......Page 570
21-5 Option Values at a Glance......Page 571
21-6 The Option Menagerie......Page 572
Further Reading......Page 573
Problem Sets......Page 574
Real-Time Data Analysis......Page 577
Mini-Case: Bruce Honiball’s Invention......Page 578
Appendix: How Dilution Affects Option Value......Page 579
22-1 The Value of Follow-on Investment Opportunities......Page 583
Questions and Answers about Blitzen’s Mark II......Page 585
22-2 The Timing Option......Page 587
Valuing the Malted Herring Option......Page 588
Optimal Timing for Real Estate Development......Page 589
The Zircon Subductor Project......Page 590
Abandonment Value and Project Life......Page 593
Temporary Abandonment......Page 594
22-4 Flexible Production......Page 595
22-5 Aircraft Purchase Options......Page 596
22-6 A Conceptual Problem?......Page 598
Practical Challenges......Page 599
Summary......Page 600
Problem Sets......Page 601
23-1 Yields on Corporate Debt......Page 606
What Determines the Yield Spread?......Page 608
23-2 The Option to Default......Page 610
How the Default Option Affects a Bond’s Risk and Yield......Page 612
A Digression: Valuing Government Financial Guarantees......Page 615
23-3 Bond Ratings and the Probability of Default......Page 616
Credit Scoring......Page 617
Market-Based Risk Models......Page 619
23-5 Value at Risk......Page 621
Further Reading......Page 623
Problem Sets......Page 624
Real-Time Data Analysis......Page 625
24 The Many Different Kinds of Debt......Page 626
24-1 Domestic Bonds, Foreign Bonds, and Eurobonds......Page 627
Indenture, or Trust Deed......Page 628
The Bond Terms......Page 629
24-3 Security and Seniority......Page 630
Asset-Backed Securities......Page 631
Call Provisions......Page 632
24-5 Debt Covenants......Page 634
24-6 Convertible Bonds and Warrants......Page 636
The Value of a Convertible at Maturity......Page 637
Why Do Companies Issue Convertibles?......Page 638
Valuing Convertible Bonds......Page 639
A Variation on Convertible Bonds: The Bond–Warrant Package......Page 640
24-7 Private Placements and Project Finance......Page 641
Project Finance......Page 642
Project Finance—Some Common Features......Page 643
24-8 Innovation in the Bond Market......Page 644
Summary......Page 646
Further Reading......Page 647
Problem Sets......Page 648
Mini-Case: The Shocking Demise of Mr. Thorndike......Page 652
25-1 What Is a Lease?......Page 654
Sensible Reasons for Leasing......Page 655
Some Dubious Reasons for Leasing......Page 657
Example of an Operating Lease......Page 659
Lease or Buy?......Page 660
25-4 Valuing Financial Leases......Page 661
Who Really Owns the Leased Asset?......Page 662
A First Pass at Valuing a Lease Contract......Page 663
The Story So Far......Page 665
25-5 When Do Financial Leases Pay?......Page 666
25-6 Leveraged Leases......Page 667
Further Reading......Page 669
Problem Sets......Page 670
26-1 Why Manage Risk?......Page 674
Agency Costs May Be Mitigated by Risk Management......Page 676
26-2 Insurance......Page 677
How BP Changed Its Insurance Strategy......Page 679
26-3 Reducing Risk with Options......Page 680
Futures Exchanges......Page 681
The Mechanics of Futures Trading......Page 683
Trading and Pricing Financial Futures Contracts......Page 685
Spot and Futures Prices—Commodities......Page 686
More about Forward Contracts......Page 687
Homemade Forward Rate Contracts......Page 688
Interest Rate Swaps......Page 689
Total Return Swaps......Page 692
26-6 How to Set Up a Hedge......Page 693
26-7 Is “Derivative” a Four-Letter Word?......Page 695
Summary......Page 697
Further Reading......Page 698
Problem Sets......Page 699
Real-Time Data Analysis......Page 704
27-1 The Foreign Exchange Market......Page 705
27-2 Some Basic Relationships......Page 707
Interest Rates and Exchange Rates......Page 708
The Forward Premium and Changes in Spot Rates......Page 709
Changes in the Exchange Rate and Inflation Rates......Page 710
Is Life Really That Simple?......Page 711
27-3 Hedging Currency Risk......Page 716
Transaction Exposure and Economic Exposure......Page 717
27-4 Exchange Risk and International Investment Decisions......Page 719
The Cost of Capital for International Investments......Page 721
27-5 Political Risk......Page 723
Summary......Page 725
Further Reading......Page 726
Problem Sets......Page 727
Real-Time Data Analysis......Page 730
Mini-Case: Exacta, s.a.......Page 731
28-1 Financial Statements......Page 733
28-2 Lowe’s Financial Statements......Page 734
The Balance Sheet......Page 735
The Income Statement......Page 736
28-3 Measuring Lowe’s Performance......Page 737
Economic Value Added (EVA)......Page 738
Accounting Rates of Return......Page 740
Problems with EVA and Accounting Rates of Return......Page 741
28-4 Measuring Efficiency......Page 742
28-5 Analyzing the Return on Assets: the Du Pont System......Page 743
The Du Pont System......Page 744
28-6 Measuring Leverage......Page 745
Leverage and the Return on Equity......Page 746
28-7 Measuring Liquidity......Page 747
28-8 Interpreting Financial Ratios......Page 749
Further Reading......Page 753
Problem Sets......Page 754
Real-time Data Analysis......Page 759
29-1 Links between Long-Term and Short-Term Financing Decisions......Page 760
29-2 Tracing Changes in Cash......Page 763
The Cash Cycle......Page 765
Preparing the Cash Budget: Inflows......Page 766
Preparing the Cash Budget: Outflows......Page 767
Dynamic’s Financing Plan......Page 769
Evaluating the Plan......Page 770
A Note on Short-Term Financial Planning Models......Page 771
Why Build Financial Plans?......Page 772
A Long-Term Financial Planning Model for Dynamic Mattress......Page 773
Choosing a Plan......Page 776
29-6 Growth and External Financing......Page 777
Summary......Page 778
Problem Sets......Page 779
Real-Time Data Analysis......Page 785
30 Working Capital Management......Page 786
30-1 Inventories......Page 787
Terms of Sale......Page 789
The Promise to Pay......Page 790
The Credit Decision......Page 791
Collection Policy......Page 794
30-3 Cash......Page 795
How Purchases Are Paid For......Page 796
Speeding up Check Collections......Page 798
Paying for Bank Services......Page 799
Calculating the Yield on Money-Market Investments......Page 800
The International Money Market......Page 801
Money-Market Instruments......Page 802
Bank Loans......Page 806
Commercial Paper......Page 810
Summary......Page 811
Problem Sets......Page 813
Real-Time Data Analysis......Page 820
31-1 Sensible Motives for Mergers......Page 821
Economies of Vertial Integration......Page 824
Eliminating Inefficiencies......Page 825
Industry Consolidation......Page 826
Increasing Earnings per Share: The Bootstrap Game......Page 827
Lower Financing Costs......Page 829
31-3 Estimating Merger Gains and Costs......Page 830
Right and Wrong Ways to Estimate the Benefits of Mergers......Page 831
More on Estimating Costs—What If the Target’s Stock Price Anticipates the Merger?......Page 832
Estimating Cost When the Merger Is Financed by Stock......Page 833
Mergers, Antitrust Law, and Popular Opposition......Page 834
The Form of Acquisition......Page 835
Merger Accounting......Page 836
31-5 Proxy Fights, Takeovers, and the Market for Corporate Control......Page 837
Takeovers......Page 838
Oracle Bids for PeopleSoft......Page 839
Takeover Defenses......Page 840
Who Gains Most in Mergers?......Page 842
Merger Waves......Page 843
Do Mergers Generate Net Benefits?......Page 844
Summary......Page 845
Problem Sets......Page 846
Appendix: Conglomerate Mergers and Value Additivity......Page 849
32-1 Leveraged Buyouts......Page 851
RJR Nabisco......Page 852
Barbarians at the Gate?......Page 853
LBOs and Leveraged Restructurings......Page 855
32-2 Fusion and Fission in Corporate Finance......Page 856
Spin-offs......Page 857
Carve-outs......Page 858
Privatization and Nationalization......Page 859
32-3 Private Equity......Page 860
Private-Equity Partnerships......Page 861
Are Private-Equity Funds Today’s Conglomerates?......Page 863
32-4 Bankruptcy......Page 866
Is Chapter 11 Efficient?......Page 868
Alternative Bankruptcy Procedures......Page 869
Summary......Page 871
Further Reading......Page 872
Problem Sets......Page 873
33-1 Financial Markets and Institutions......Page 875
Investor Protection and the Development of Financial Markets......Page 878
Ownership and Control in Japan......Page 880
Ownership and Control in Germany......Page 881
Ownership and Control in Other Countries......Page 884
Conglomerates Revisited......Page 887
Risk and Short-termism......Page 888
Growth Industries and Declining Industries......Page 889
Transparency and Governance......Page 890
Summary......Page 892
Problem Sets......Page 893
1. Net Present Value......Page 895
4. Value Additivity and the Law of Conservation of Value......Page 896
7. Agency Theory......Page 897
2. isk and Return—What Have We Missed?......Page 898
3. How Important Are the Exceptions to the Efficient-Market Theory?......Page 899
4. Is Management an Off-Balance-Sheet Liability?......Page 900
6. How Can We Resolve the Payout Controversy?......Page 901
8. What Is the Value of Liquidity?......Page 902
9. How Can We Explain Merger Waves?......Page 903
34-3 A Final Word......Page 904
Appendix: Answers to Select Basic Problems......Page 905
Present Value Tables......Page 915
Glossary......Page 921
Index......Page 940
Last Page......Page 968