Corporate Finance : A Practical Approach

by Michelle R. Clayman; Martin S. Fridson; George H. Troughton

• ISBN13: 9780470197684
• ISBN10: 0470197684
• Edition: 1
• Format: Hardcover
• Copyright: 2008-05-01
• Publisher: Wiley

Summary

Praise for Corporate Finance: A Practical Approach "This book on corporate finance is a welcome addition to the already impressive work by the CFA Institute." --Don Chew, Editor, Journal of Applied Corporate Finance, Morgan Stanley "Covers the basics of corporate finance--working capital, capital budgeting, M&A, cost of capital, capital structure, and dividend policy--in one volume. Chapters on financial statement analysis and corporate governance give context to the core subjects presented. Corporate Finance: A Practical Approach will be helpful to the student seeking to learn the field and to the experienced practitioner in need of a desk-top reference tool." --Thomas A. King, Treasurer, Progressive Insurance "This text is very comprehensive in its treatment of many issues within corporate finance, making it a great resource for both academics and practitioners." --Tom Arnold, CFA, Assistant Professor of Finance, Robins School of Business, University of Richmond "Corporate Finance teaches future CFA charterholders what they need to know about corporate finance to be successful practitioners. The CFA curriculum, including the substance and pedagogy of this book, is a market-sensitive collaboration between sophisticated practitioners and academics. This approach and this book provide an excellent bridge between the principles and their application to corporate finance." --Douglas R. Emery, Bank of America Scholar and Professor of Finance, University of Miami

Author Biography

Michelle R. Clayman, CFA, is founder, Managing Partner, and Chief Investment Officer of New Amsterdam Partners LLC, an institutional money management firm in New York City. She has been published in the Financial Analysts Journal and the Journal of Investing, and is a frequent commentator for CNBC, Bloomberg, and other financial media outlets.

Martin S. Fridson, CFA, is CEO of FridsonVision LLC in New York City and is known for his innovative work in credit analysis and investment strategy. He is the author of several highly acclaimed books on financial statement analysis, high-yield debt, and financial history and is the youngest person ever inducted into the Fixed Income Analysts Society Hall of Fame.

George H. Troughton, PhD, CFA, is Professor Emeritus of Finance at California State University, Chico. He is a recipient of the C. Stewart Sheppard Award for the advancement of education in the investment profession as well as the Donald L. Tuttle Award for CFA Grading Excellence.

Table of Contents

Foreword

Acknowledgments

Introduction

Parentage

Benefits

Conventional Wisdom

The Texts

Corporate Governance

Introduction

Corporate Governance: Objectives And Guiding Principles

Formes Of Business And Conflicts Of Interest

Sole Proprietorships

Partnerships

Corporations

Specific Sources Of Conflict: Agency Relationships

Manager-Shareholder Conflicts

Director-Shareholder Conflicts

Corporate Governance Evaluation

The Board of Directors

Examples of Codes of Corporate Governance

Environmental, Social, And Governance

Valuation Implications Of Corporate Governance

Capital Budgeting

Introduction

The Capital Budgeting Process

Basic Principles Of Capital Budgeting

Investment Decision Criteria

Net Present Value

Internal Rate of return

Payback Period

Discounted Payback Period

Average Accounting Rate of return

Profitability Index

NPV Profile

Ranking Conflicts between NPV and IRR

The Multiple IRR Problem and the No IRR Problem

Popularity and Usage of the Capital Budgeting Methods

Cash Flow Projections

Table Format with Cash Flows Collected by Year

Table Format with Cash Flows Collected by Type

Equation Format for Organizing Cash Flows

More On Cash Flow Projections

Straight-Line and Accelerated Depreciation Methods

Cash Flows for a Replacement Project

Spreadsheet Modeling

Effects of Inflation on Capital Budgeting Analysis

Project Analysis And Evaluation

Mutually Exclusive Projects with Unequal Lives

Capital Rationing

Risk Analysis of Capital Investments-Stand-Alone Methods

Risk Analysis of Capital Investments-Market Risk Methods

Real Options

Common Capital Budgeting Pitfalls

Other Income Measures And Valuation Models

The Basic Capital Budgeting Model

Economic and Accounting Income

Economic Profit, Residual Income, and Claims Valuation

Summary

Cost Of Capital

Introduction

Cost Of Capital

Taxes and the Cost of Capital

Weights of the Weighted Average

Applying the Cost of Capital to Capital Budgeting and Security Valuation

Costs Of The Different Sources Of Capital

Cost of Debt

Cost of Preferred Stock

Cost of Common Equity

Topics In Cost Of Capital Estimation

Estimating Beta and Determining a Project Beta

Country Risk

Marginal Cost of Capital Schedule

Flotation Costs

What Do CFOs Do?

Capital Structure And Leverage

Introduction

Leverage

Business Risk And Financial Risk

Business Risk and Its Components

Sales Risk

Operating Risk

Financial Risk

Total Leverage

Breakeven Rates and Expected return

The Risks of Creditors and Owners

The Capital Structure Decision

Proposition I without Taxes: Capital Structure Irrelevance

Taxes, the Cost of Capital, and the Value of the Company

Costs of Financial Distress

Agency Costs

Costs of Asymmetric Information

The Optimal Capital Structure According to the Static Trade-Off Theory

Practical Issues In Capital Structure Policy

Debt Ratings

Evaluating Capital Structure Policy

Leverage in an International Setting

Dividends And Dividend Policy. 1

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