Corporate Finance: Principles and Practice

by Watson, Denzil; Head, Antony

• ISBN13: 9780273651321
• ISBN10: 0273651323
• Edition: 2nd
• Format: Paperback
• Copyright: 2000-12-01
• Publisher: Trans-Atlantic Pubns

Table of Contents

Preface	xi
The finance function	1	(22)
Learning Objectives
Introduction
The role of the financial manager	2	(3)
Corporate objectives	5	(2)
How is shareholders' wealth maximised?	7	(2)
Agency theory	9	(6)
Vignette 1.1 Shareholders place corporate responsibility high on agenda	14	(1)
Corporate governance	15	(3)
Vignette 1.2 Most companies `flout code on corporate governance'	17	(1)
Conclusion	18	(5)
Key Points
Questions
Questions for Review
Questions for Discussion
References
Recommended Reading
Capital markets, market efficiency and ratio analysis	23	(29)
Learning Objectives
Introduction
Sources of business finance	24	(3)
The capital markets	27	(6)
Ratio analysis	33	(12)
Conclusion	45	(7)
Key Points
Questions
Questions for Review
Questions for Discussion
References
Recommended Reading
An overview of investment appraisal methods	52	(60)
Learning Objectives
Introduction
The payback period	53	(2)
The accounting rate of return method	55	(3)
Example Calculation of the accounting rate of return	56	(2)
The net present value method	58	(4)
Example Calculation of the net present value	59	(3)
The internal rate of return method	62	(5)
Example Calculation of internal rates of return	63	(4)
A comparison of the NPV and IRR methods	67	(5)
The profitability index and capital rationing	72	(3)
The discounted payback method	75	(1)
Conclusion	76	(8)
Key Points
Questions
Questions for Review
Questions for Discussion
References
Recommended Reading
Investment appraisal: applications and risk
Learning Objectives
Introduction	83	(1)
Relevant project cash flows	84	(1)
Taxation and capital investment decisions	85	(4)
Example NPV calculation involving taxation	88	(1)
Inflation and capital investment decisions	89	(3)
Example NPV calculation involving inflation	91	(1)
Investment appraisal and risk	92	(8)
Example Application of sensitivity analysis	94	(6)
Empirical investigations of investment appraisal	100	(5)
Conclusion	105	(7)
Key Points
Questions
Questions for Review
Questions for Discussion
References
Recommended Reading
Sources of long-term finance: equity finance	112	(24)
Learning Objectives
Introduction
Equity finance	113	(1)
The new issues market	114	(6)
Example Tender issue	116	(4)
Rights issues	120	(6)
Vignette 5.1 Opinions split on Pearson discounted rights issue	125	(1)
Scrip issues, stock splits, scrip dividends and share repurchases	126	(1)
Preference shares	127	(2)
Conclusion	129	(7)
Key Points
Questions
Questions for Review
Questions for Discussion
References
Recommended Reading
Sources of long-term finance: debt finance, hybrid finance and leasing	136	(82)
Learning Objectives
Introduction
Loan stock and debentures	137	(2)
Bank and institutional debt	139	(1)
International debt finance	140	(1)
Hybrid finance	141	(3)
The valuation of fixed interest debt securities	144	(1)
The valuation of convertible loan stock	145	(3)
Example Valuation of a convertible loan stock	147	(1)
Leasing	148	(7)
Example Evaluation of leasing vs buying	152	(3)
Conclusion	155	(8)
Key Points
Questions
Questions for Review
Questions for Discussion
References
Recommended Reading
Dividend policy
Learning Objectives
Introduction	162	(1)
Dividends: operational and practical issues	163	(3)
Dividend irrelevance	166	(2)
Dividend relevance	168	(4)
Vignette 7.1 M&S buoyed by relief	169	(3)
Dividend relevance or irrelevance?	172	(1)
Dividend payout strategies	172	(3)
Alternatives to cash dividends	175	(3)
Vignette 7.2 Cadbury defends the bid price	176	(1)
Vignette 7.3 Corporate cashpoints	177	(1)
Empirical evidence on dividends	178	(2)
Conclusion	180	(8)
Key Points
Questions
Questions for Review
Questions for Discussion
References
Recommended Reading
The cost of capital and capital structure
Learning Objectives
Introduction	187	(1)
Calculating the cost of individual sources of finance	188	(3)
Calculating the weighted average cost of capital	191	(2)
Example Calculation of the WACC	192	(1)
Average vs marginal cost of capital	193	(2)
The practical application of the WACC	195	(2)
Gearing: its measurement and implications	197	(2)
The concept of an optimal capital structure	199	(2)
The traditional approach to capital structure	201	(1)
Miller and Modigliani (I) - net income approach	202	(3)
Miller and Modigliani (II) and market imperfections	205	(3)
Miller and personal taxation	208	(1)
Pecking order theory	209	(1)
Does an optimal capital structure exist? A conclusion	210	(8)
Key Points
Questions
Questions for Review
Questions for Discussion
References
Recommended Reading
Portfolio theory and the capital asset pricing model	218	(61)
Learning Objectives
Introduction
The measurement of risk	219	(3)
The concept of diversification	222	(4)
Investor attitudes to risk	226	(1)
Markowitz's portfolio theory	227	(2)
An introduction to the capital asset pricing model	229	(1)
Using the CAPM to value shares	230	(8)
Vignette 9.1 Equity risk	236	(2)
The CAPM and investment appraisal	238	(5)
Example The CAPM in the investment appraisal process	241	(2)
Empirical tests of the CAPM	243	(3)
Conclusion	246	(8)
Key Points
Questions
Questions for Review
Questions for Discussion
References
Recommended Reading
Working capital management
Learning Objectives
Introduction	253	(1)
The objectives of working capital management	254	(1)
Working capital policies	254	(4)
Working capital and the cash conversion cycle	258	(2)
Example Calculation of required working capital	258	(2)
Overtrading	260	(1)
The management of stock	261	(4)
Example Use of the EOQ model	263	(2)
The management of cash	265	(4)
The management of debtors	269	(4)
Example Evaluation of a change in debtor policy	271	(1)
Example Cost-benefit analysis of factoring	272	(1)
Conclusion	273	(6)
Key Points
Questions
Questions for Review
Questions for Discussion
References
Recommended Reading
Mergers and take-overs	279	(95)
Learning Objectives
Introduction
Terminology associated with mergers and take-overs	280	(1)
Justifications for acquisitions	281	(6)
Example Boot-strapping	285	(2)
Trends in take-over activity	287	(2)
Valuation of the target company	289	(7)
Example Take-over (Simpson and Stant)	289	(7)
The financing of acquisitions	296	(4)
Strategic and tactical issues	300	(6)
Empirical research on acquisitions	306	(3)
Conclusion	309	(8)
Key Points
Questions
Questions for Review
Questions for Discussion
References
Recommended Reading
Risk management
Learning Objectives
Introduction	316	(1)
Interest and exchange rate risk	317	(4)
Internal risk management	321	(2)
External risk management	323	(2)
Example Forward rate agreement	324	(1)
Futures contracts	325	(2)
Example Using interest rate futures	326	(1)
Example Using US currency futures	326	(1)
Options	327	(6)
Example Using interest rate options	330	(1)
Example Using exchange rate options	330	(3)
Swaps	333	(5)
Example Plain vanilla interest rate swap	334	(2)
Example Fixed to floating currency swap	336	(2)
Issues in risk management	338	(4)
Conclusion	342	(8)
Key Points
Questions
Questions for Review
Questions for Discussion
References
Recommended Reading
International investment decisions
Learning Objectives
Introduction	349	(1)
The reasons for foreign investment	350	(2)
Different forms of international trade	352	(4)
Vignette 13.1 New access to top trading partner	353	(3)
The evaluation of foreign investment decisions	356	(7)
Vignette 13.2 Positive experience in difficult markets	357	(4)
Example Foreign direct investment evaluation	361	(2)
The cost of capital for foreign direct investment	363	(3)
Political risk	366	(2)
Conclusion	368	(6)
Key Points
Questions
Questions for Review
Questions for Discussion
References
Recommended Reading
Appendix: Answers to end-of-chapter questions	374	(51)
Glossary	425	(7)
Present value tables	432	(2)
Index	434