Fundamentals of Corporate Finance develops the key concepts of corporate finance with an intuitive approach while emphasizing computational skills. Presenting the topics in a logical and stepped-out manner, this book helps students develop an understanding of key financial concepts while also enabling them to develop the critical judgments necessary to apply financial tools in real-world decision-making situations. It offers a level of rigor that is appropriate for both business and finance majors and yet presents the content in a manner that students find accessible.
This International Adaptation includes new examples to help students better understand how to analyze the ethical dilemmas in business. In addition, select chapters include a new feature called Corporate Finance at Work which provides a broader perspective of the content covered in the chapter. Finally, to address the global context in which firms now operate, this edition adds to the discussion on international financial management by including sections on international accounting issues and Islamic finance.
Table of Contents
1 The Financial Manager and the Firm
1.1 The Role of the Financial Manager
1.2 Forms of Business Organization
1.3 Managing the Financial Function
1.4 The Goal of the Firm
1.5 Agency Conflicts: Separation of Ownership and Control
1.6 The Importance of Ethics in Culture
Summary of Learning Objectives/Self-Study Problems/
Solutions to Self-Study Problems/Discussion Questions/
Questions and Problems/Sample Test Problems
Ethics Case - Incentives and Ethics: Cross-Selling at Wells Fargo
2 The Financial System and the Level of Interest Rates
2.1 The Financial System
2.2 Direct Financing
2.3 Types of Financial Markets
2.4 Market Efficiency
2.5 Financial Institutions and Indirect Financing
2.6 The Determinants of Interest Rate Levels
Summary of Learning Objectives/Summary of Key
Equations/Self-Study Problems/Solutions to Self-Study
Problems/Discussion Questions/Questions and Problems/
Sample Test Problems
3 Financial Statements, Cash Flows, and Taxes
3.1 Financial Statements and Accounting Principles
3.2 The Balance Sheet
3.3 Market Value versus Book Value
3.4 The Income Statement and the Statement of Retained Earnings
3.5 The Statement of Cash Flows
3.6 Tying Together the Financial Statements
3.7 International Accounting Issues
3.8 Corporate Income Tax
Summary of Learning Objectives/Summary of Key
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4 Analyzing Financial Statements
4.1 Background for Financial Statement Analysis
4.2 Common-Size Financial Statements
4.3 Financial Ratios and Firm Performance
4.4 The Dupont System: A Diagnostic Tool
4.5 Selecting a Benchmark
4.6 Using Financial Ratios
Summary of Learning Objectives/Summary of Key
Equations/Self-Study Problems/Solutions to Self-Study
Problems/Discussion Questions/Questions and Problems/
Sample Test Problems
Ethics Case - A Sad Tale: The Demise of Arthur Andersen
5 The Time Value of Money
5.1 The Time Value of Money
5.2 Future Value and Compounding
5.3 Present Value and Discounting
5.4 Additional Concepts and Applications
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6 Discounted Cash Flows and Valuation
6.1 Multiple Cash Flows
6.2 Level Cash Flows: Annuities
6.3 Level Cash Flows: Perpetuities
6.4 Cash Flows That Grow at a Constant Rate
6.5 The Effective Annual Interest Rate
Summary of Learning Objectives/Summary of Key
Equations/Self-Study Problems/Solutions to Self-Study
Problems/Discussion Questions/Questions and Problems/
Sample Test Problems/Appendix: Deriving the Formula for
the Present Value of an Ordinary Annuity/Problem
Ethics Case - Buy It on Credit and Be True to Your University
7 Risk and Return
7.1 Risk and Return
7.2 Holding Period Returns
7.3 Expected Returns
7.4 Variance and Standard Deviation as Measures of Risk
7.5 Arithmetic Average and Geometric (Compounded) Average Returns
7.6 Risk and Diversification
7.7 Systematic Risk
7.8 The Capital Asset Pricing Model
Summary of Learning Objectives/Summary of Key
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Problems/Discussion Questions/Questions and Problems/
Sample Test Problems
Ethics Case - Pay for Performance or Just More Pay? The Conflicting Case for CEO Pay
8 Bond Valuation and the Structure of Interest Rates
8.1 Corporate Bonds
8.2 Bond Valuation
8.3 Bond Yields
8.4 Interest Rate Risk
8.5 The Determinants of Corporate Borrowing Costs
8.6 The Term Structure of Interest Rates
Summary of Learning Objectives/Summary of Key
Equations/Self-Study Problems/Solutions to Self-Study
Problems/Discussion Questions/Questions and Problems/
Sample Test Problems
Ethics Case - The Subprime Mortgage Market Meltdown: How Did It Happen?
9 Stock Valuation
9.1 The Market for Stocks
9.2 Common and Preferred Stock
9.3 Common Stock Valuation
9.4 The General Dividend-Valuation Model
9.5 Stock Valuation: Some Simplifying Assumptions
9.6 The Relation between R and g
9.7 Valuing Preferred Stock
Summary of Learning Objectives/Summary of Key
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Problems/Discussion Questions/Questions and Problems/
Sample Test Problems
Ethics Case - Insider Trading: Exploiting the System
10 The Fundamentals of Capital Budgeting
10.1 An Introduction to Capital Budgeting
10.2 Net Present Value
10.3 The Payback Period
10.4 The Accounting Rate of Return
10.5 Internal Rate of Return
10.6 Investment Decisions with Capital Rationing
10.7 Capital Budgeting in Practice
Summary of Learning Objectives/Summary of Key
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Problems/Discussion Questions/Questions and Problems/
Sample Test Problems
Ethics Case - Going Green: Can Automakers Invest in Environmental Solutions?
11 Cash Flows and Capital Budgeting
11.1 Calculating Project Cash Flows
11.2 Estimating Cash Flows in Practice
11.3 Forecasting Free Cash Flows
11.4 Special Cases
11.5 Harvesting an Asset
Summary of Learning Objectives/Summary of Key
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Problems/Discussion Questions/Questions and Problems/
Sample Test Problems
Ethics Case - Unilever’s Sustainable Living Plan
12 Evaluating Project Economics
12.1 Variable Costs, Fixed Costs, and Project Risk
12.2 Calculating Operating Leverage
12.3 Break-Even Analysis
12.4 The Economic Break-Even Point
12.5 Risk Analysis
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13 The Cost of Capital
13.1 The Firm’s Overall Cost of Capital
13.2 The Cost of Debt
13.3 The Cost of Equity
13.4 Using the WACC in Practice
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14 Working Capital Management
14.1 Working Capital Basics
14.2 The Operating and Cash Conversion Cycles
14.3 Working Capital Management Strategies
14.4 Accounts Receivable
14.5 Inventory Management
14.6 Cash Management and Budgeting
14.7 Financing Working Capital
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15 How Firms Raise Capital
15.1 Bootstrapping
15.2 Venture Capital
15.3 Initial Public Offering
15.4 IPO Pricing and Cost
15.5 General Cash Offer by a Public Company
15.6 Private Markets and Bank Loans
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Sample Test Problems
Ethics Case - Profiting from Death: “Janitor’s Insurance”
16 Capital Structure Policy
16.1 Capital Structure and Firm Value
16.2 The Benefits and Costs of Using Debt
16.3 Two Theories of Capital Structure
16.4 Practical Considerations in Choosing a Capital Structure
Appendix: Leasing
Summary of Learning Objective/Self-Study Problem/
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Questions and Problems
17 Dividends, Stock Repurchases, and Payout Policy
17.1 Dividends
17.2 Stock Repurchases
17.3 Dividends and Firm Value
17.4 Stock Dividends and Stock Splits
17.5 Setting a Dividend Payout
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Solutions to Self-Study Problems/Discussion Questions/
Questions and Problems/Sample Test Problems
18 Business Formation, Growth, and Valuation
18.1 Starting a Business
18.2 The Role of the Business Plan
18.3 Valuing a Business
18.4 Important Issues in Valuation
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19 Financial Planning and Managing Growth
19.1 Financial Planning
19.2 Financial Planning Models
19.3 A Better Financial Planning Model
19.4 Beyond the Basic Planning Models
19.5 Managing and Financing Growth
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20 Corporate Risk Management
20.1 Why Companies Manage Corporate Risks
20.2 Managing Operational, Business, and Financial Risks
20.3 Forwards and Futures
20.4 Swaps
20.5 Financial Options
20.6 Option Valuation
20.7 Real Options
20.8 Agency Costs
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21 International Financial Management
21.1 Introduction to International Financial Management
21.2 Foreign Exchange Markets
21.3 International Capital Budgeting
21.4 Global Money and Capital Markets
21.5 International Banking
21.6 Islamic Finance
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APPENDIX A Future Value and Present Value Tables
APPENDIX B The 2017 Tax Cuts and Jobs Act: Implications for Cash Flow to Investors, the
Cost of Capital, and Capital Structure
GLOSSARY
SUBJECT INDEX
COMPANY INDEX
