Applied Corporate Finance, 3rd Edition

by Aswath Damodaran (Stern School of Business, New York Univ.)

• ISBN13: 9780470384640
• ISBN10: 0470384646
• Edition: 3rd
• Format: Paperback
• Copyright: 2010-03-01
• Publisher: Wiley

Summary

Readable and usable in style and valuable in approach, this text provides the practical and succinct advice that students and practitioners need, rather than a sole concentration on debate theory, assumptions, or models. Like no other text of its kind, the author applies corporate finance to real companies. The new Third Edition has four real-world core companies to study and follow. Perfected suited for MBA programsrs" corporate finance and equity valuation courses, all business decisions are classified into three groups: the investment, financing, and dividend decisions.

Table of Contents

Preface	p. iv
Acknowledgments	p. ix
The Foundations	p. 1
The Firm: Structural Set-up	p. 1
First Principles	p. 2
Corporate Financial Decisions, Firm Value, and Equity Value	p. 5
A Real-World Focus	p. 6
A Resource Guide	p. 7
Some Fundamental Propositions About Corporate Finance	p. 7
Conclusion	p. 8
The Objective in Decision Making	p. 9
Choosing the Right Objective	p. 10
The Classical Objective	p. 11
Maximize Stock Prices: The Best-Case Scenario	p. 14
Maximize Stock Prices: Real-World Conflicts of Interest	p. 14
Alternatives to Stock Price Maximization	p. 37
Maximize Stock Prices: Salvaging a Flawed Objective	p. 40
A Postscript: The Limits of Corporate Finance	p. 53
Conclusion	p. 54
Live Case Study: Corporate Governance Analysis	p. 55
Problems and Questions	p. 57
The Basics of Risk	p. 58
Motivation and Perspective in Analyzing Risk	p. 59
Equity Risk and Expected Returns	p. 60
The Risk in Borrowing: Default Risk and the Cost of Debt	p. 87
Conclusion	p. 94
Live Case Study: Stockholder Analysis	p. 95
Problems and Questions	p. 96
Risk Measurement and Hurdle Rates in Practice	p. 100
Cost of Equity	p. 101
From Cost of Equity to Cost of Capital	p. 155
Conclusion	p. 174
Live Case Study: Risk and Return: Analysis for the Firm	p. 175
Problems and Questions	p. 177
Measuring Return on Investments	p. 182
What Is a Project?	p. 183
Hurdle Rates for Firms Versus Hurdle Rates for Projects	p. 185
Measuring Returns: The Choices	p. 191
Investment Decision Rules	p. 214
Probabilistic Approaches to Investment Analysis	p. 239
Conclusion	p. 254
Live Case Study: Estimating Earnings and Cash Flows	p. 256
Problems and Questions	p. 257
Project Interactions, Side Costs, and Side Benefits	p. 260
Mutually Exclusive Projects	p. 261
Side Costs from Projects	p. 282
Side Benefits from Projects	p. 287
Options Embedded in Projects	p. 293
Measuring the Quality of Existing Investments	p. 307
Conclusion	p. 321
Live Case Study: Estimating Earnings and Cash Flows	p. 323
Problems and Questions	p. 324
Capital Structure: Overview of the Financing Decision	p. 328
The Choices: Types of Financing	p. 329
Financing Behavior	p. 340
The Process of Raising Capital	p. 347
The Tradeoff of Debt	p. 359
No Optimal Capital Structure	p. 372
There is an Optimal Capital Structure	p. 378
How Firms Choose Their Capital Structures	p. 380
Conclusion	p. 385
Live Case Study: Analyzing a Firm's Current Financing Choices	p. 387
Problems and Questions	p. 389
Capital Structure: The Optimal Financial Mix	p. 393
Operating Income Approach	p. 394
Cost of Capital Approach	p. 398
Adjusted Present Value Approach	p. 434
Comparative Analysis	p. 441
Selecting the Optimal Debt Ratio	p. 444
Conclusion	p. 445
Live Case Study: The Optimal Financing Mix	p. 447
Problems and Questions	p. 448
Capital Structure: The Financing Details	p. 455
A Framework for Capital Structure Changes	p. 456
Immediate, Gradual or no Change	p. 456
Choosing the Right Financing Instruments	p. 475
Conclusion	p. 498
Live Case Study: Mechanics of Moving to the Optimal	p. 500
Problems and Questions	p. 502
Dividend Policy	p. 505
Background on Dividend Policy	p. 506
When are Dividends Irrelevant?	p. 519
The "Dividends are Bad" School	p. 522
The "Dividends are Good" School	p. 529
Managerial Interests and Dividend Policy	p. 540
Conclusion	p. 543
Live Case Study: The Tradeoff on Dividend Policy	p. 544
Problems and Questions	p. 545
Analyzing Cash Returned to Stockholders	p. 546
Cash Returned to Stockholders	p. 547
A Cash Flow Approach to Analyzing Dividend Policy	p. 555
A Comparable Firm Approach to Analyzing Dividend Policy	p. 581
Managing Changes in Dividend Policy	p. 585
Conclusion	p. 588
Live Case Study: A Framework for Analyzing Dividends	p. 589
Problems and Questions	p. 591
Valuation: Principles and Practice	p. 595
Discounted Cash Flow Valuation	p. 597
Relative Valuation	p. 649
Reconciling Different Valuations	p. 667
Conclusion	p. 668
Live Case Study: Valuation	p. 669
Problems and Questions	p. 671
Basic Statistics	p. 675
Financial Statements	p. 682
Time Value of Money	p. 694
Option Pricing	p. 707
Glossary	p. 718
Index	p. 721
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