Principles of corporate finance 3rd edition

Used Book Review; Principles of corporate finance 3rd edition

PART I VALUE Chapter I Why Finance Matters Why Finance Is Challenging and Interesting The importance of capital markets / Understanding value / Time and uncertainty / Understanding people Who Is the Financial Manager? Topics Covered in This Book Summary Quiz

Chapter 2 Present Value and the Opportunity Cost of Capital Introduction to Present Value Calculating present value / Net present value / A comment on risk and present value / Present values and rates of return Foundations of the Net Present Value Rule How the capital market helps to smooth consumption patterns / Now we introduce productive opportunities / A crucial assumption / Imperfect capital markets A Fundamental Result Other corporate goals Summary Further Reading Quiz Questions and Problems



Chapter 3 How to Calculate Present Values Valuing Long-Lived Assets Valuing cash flows in several periods / Why the discount factor declines as futurity increases-and a digression on money machines / How present value tables help the lazy Looking for Shortcuts-Perpetuities and Annuities How to value growing perpetuities / How to value annuities

Compound Interest and Present Values A note on compounding intervals

Present Value of Bonds and Stocks

A Quick Look at How Bonds Are Valued How Common Stocks Are Valued Today's price / But what determines next year's price? A Simple Way to Estimate the Capitalization Rate Using the DCF model to set electricity prices / Some warnings about constant-growth formulas The Link between Stock Price and Earnings per Share Calculating the present value of growth opportunities for Fledgling Electronics / A general expression linking dividends and growth opportunities / What do priceearnings ratios mean? / What do earnings mean? Summary Appendix: Valuing a Business by Discounted Cash Flow Forecasting free cash flow for a business / Valuation format / Estimating horizon value / A further reality check / Conclusion Further Reading Quiz Questions and Problems

5-1 Why Net Present Value Leads to Better Investment Decisions than Other Criteria A Review of the Basics Net Present Value's Competitors Payback The payback rule / Discounted payback Average Return on Book Value Internal (or Discounted Cash Flow) Rate of Return Pitfall i-Lending or borrowing? / Pitfall 2-Multiple rates of return / Pitfall ]Mutually exclusive projects / Pitfall 4- What happens when we can't finesse the term structure of interest rates? / The verdict on IRR Profitability Index or Benefit-Cost Ratio

Chapter 6 Making Investment Decisions with the Net Present Value Rule 6-1 What to Discount Only cash flow is relevant / Estimate cash flows on an incremental basis / Treat inflation consistently 6-2 Example-IM&C Project Separating investment and financing decisions / A further note on estimating cash flow / A further note on depreciation / A final comment on taxes / A final comment on project analysis 6- 3 Project Interactions Case I-Optimal timing of investment / Case 2-Choosing between long- and shortlived equipment / Case 3-Deciding when to replace an existing machine / Case 4Cost of excess capacity / Case 5-Fluctuating load factors 6-4 Choosing the Capital Expenditure Program when Resources Are Limited Profitability index under capital rationing / Some more elaborate capital rationing models / Uses of capital rationing models 6- 5 Summary Appendix: Some Embellishments to the Capital Rationing Model Cash carry-forward / Mutually exclusive projects / Contingent projects / Constraints on nonfinancial resources / Constraints on nonfinancial output Further Reading Quiz Questions and Problems

PART TWO RISK Chapter 7 Introduction to Risk, Return, and the Opportunity Cost of Capital 7 -1 Sixty Years of Capital Market History in One Easy Lesson Using historical evidence to evaluate today's cost of capital 7 - 2 Measuring Portfolio Risk Variance and standard deviation / Measuring variability / How diversification reduces risk 7 - 3 How Individual Securities Affect Portfolio Risk Market risk is measured by beta 7-4 Relationship between Risk and Return Using the capital asset pricing model to ca/cul~te expected returns 7-5 Diversification and Value Additivity Value additivity and the capital asset pricing model-An example 7-6 Summary Further Reading Quiz Questions and Problems

Chapter 8 More about the Relationship between Risk and Return Harry Markowitz and the Birth of Portfolio Theory Combining stocks into portfolios / Choosing portfolios from many stocks / Limits to diversification / Contribution to portfolio risk / Borrowing and lending The Relationship between Risk and Return What would happen if a stock did not lie on the market line? Validity and Role of the Capital Asset Pricing Model Tests of the capital asset pricing model/Assumptions behind the capital asset pricing model/Arbitrage pricing theory Summary Further Reading Quiz Questions and Problems

Chapter 9 Capital Budgeting and the Capital Asset Pricing Model 9-1 Measuring Betas Stability of betas over time / Using a beta book / Industry betas and the divisional cost of capital 9-2 How to Estimate Philadelphia Electric's Cost of Capital-An Example Asset betas and equity betas / Calculating Philadelphia Electric's asset beta and company cost of capital/Business and financial risk 9-3 Setting Discount Rates When You Can't Use a Beta Book A voiding fudge factors in discount rates / What determines asset betas? / Searching for clues 9-4 Another Look at Discounted Cash Flow Certainty equivalents / Certainty equivalent and risk-adjusted discount rate formulas for long-lived assets / Using risk-adjusted discount rates-An example / When you cannot use a single risk-adjusted discount rate for long-lived assets / A common mistake 9-5 Summary Appendix: Using the Capital Asset Pricing Model to Calculate Certainty Equivalents Further Reading Quiz Questions and Problems

PART THREE PRACTICAL PROBLEMS IN CAPITAL BUDGETING Chapter 10 10-1 A Project Is Not a Black Box Sensitivity Analysis Value of information / Limits to sensitivity analysis / Examining the project under different scenarios / Break-even analysis Monte Carlo Simulation Simulating the electric car project / Assessing simulation: You pay for what you get / Misusing simulation 10-3 Decision Trees and Subsequent D,edsions An example: Vegetron / A tougher example: Magna Charter / Bailing out / Abandonment value and capital budgeting / Pro and con decision trees / Decision trees and Monte Carlo simulation

Chapter 11 Where Positive Net Present Values Come From Inconsistent Attitudes and Assumptions The Problems of Bias and Errors Errors in forecasting 11- 3 Look First at Market Values 11-4 Forecasting Economic Rents 11-5 Example-Marvin Enterprises Decides to Exploit a New Technology Forecasting prices of gargle blasters / The value of Marvin's new expansion / Alternative expansion plans / The value of Marvin stock / The lessons of Marvin Enterprises 11-6 Summary Further Reading Quiz Questions and Problems

Chapter 12 Organizing Capital Expenditure and Evaluating Performance Afterward 12-1 Capital Budgets and Project Authorizations Project authorizations / Bottom-up versus top-down / The decision criteria firms actually use 12-2 Problems and Some Solutions Problems of cooperation / Some partial solutions 12-3 Evaluating Performance Controlling projects in progress / Postaudits / Problems in measuring incremental cash flows after the fact / Evaluating operating performance / Accounting rate of return as a performance measure 12-4 Example-Measuring the Profitability of the Nodhead Supermarket Book earnings versus true earnings / Does ROI give the right answer in the long run? 12-5 What Can We Do about Biases in Accounting Profitability Measures?

PART FOUR FINANCING DECISIONS AND MARKET EFFICIENCY Chapter 15 Corporate Financing and the Six Lessons of Market Efficiency We Always Come Back to NPV Differences between investment and financing decisions / Efficient capital markets What Is an Efficient Market? A startling discovery: Price changes are random / Which was the real Standard & Poor's? / A theory to fit the facts / Three forms of the efficient-market theory / Some misconceptions The First Lesson of Market Efficiency: Markets Have No Memory The Second Lesson of Market Efficiency: Trust Market Prices Example: Northwestern Bell's bond repurchase offer The Third Lesson of Market Efficiency: There Are No Financial Illusions Stock splits and dividends / Calculating abnormal returns / Accounting changes The Fourth Lesson of Market Efficiency: The Do-It-Yourself Alternative The Fifth Lesson of Market Efficiency: Seen One Stock, Seen Them All The Sixth Lesson of Market Efficiency: Reading the Entrails Summary Further Reading Quiz Questions and Problems An Overview of Corporate Financing Common Stock Definitions / Stockholders' rights A First Look at Corporate Debt Debt comes in many forms / A debt by any other name Preferred Stock Convertible Securities Variety's the Very Spice of Life The process of innovation Patterns of Corporate Financing Do firms rely too heavily on internal funds? / When do firms need external finance? / Timing debt and equity issues / Dilution fallacies / Has capital structure changed?

How Corporations Issue Securities Venture Capital The Initial Public Offering Arranging a public issue / Pricing a new issue / Costs of a public issue 15-3 General Cash Offers by Public Companies 332 General cash offers and shelf registration / International security issues / The costs of -e the general cash offer / Market reaction to stock issues - 15-4 The Role of the Underwriter Who are the underwriters? / Choosing an underwriter. 15-5 The Private Placement Appendix A: The Privileged Subscription or Rights Issue How rights issues work / How a rights issue affects the stock price / Issue price is irrelevant as long as the rights are exercised / The choice between the cash offer and the rights issue Appendix B: Marvin's New Issue Prospectus.

PART FIVE DIVIDEND POLICY AND CAPITAL STRUCTURE Chapter 16 The Dividend Controversy 16-1 How Dividends Are Paid Some legal limitations on dividends / Dividends come in many forms / Share repurchase 16-2 How Do Companies Decide on Dividend Payments? Lintner's model/The information content of dividends 16-3 Controversy about Dividend Policy Dividend policy is irrelevant in perfect capital markets / Dividend irrelevance-An illustration / Calculating share price / Share repurchase 16-4 The Rightists Do MM ignore risk? / Market imperfections 16-5 Taxes and the Radical Left How taxes affect values / Why pay any dividends at all? / Empirical evidence on dividends and taxes / Dividends and capital gains under the 1986 Tax Reform Act 16-6 The Middle-of- the- Roaders

Chapter 17 Does Debt Policy Matter? 17-1 The Effect of Leverage in a Competitive Tax-Free Economy Enter Modigliani and Miller / The law of the conservation of value / An example of J25 proposition I 17-2 How Leverage Affects Returns Implications of proposition I / Proposition II / The risk-return trade-off 17- 3 The Traditional Position Two warnings / Rates of return on levered equity- The traditional position / Where to look for violations of MM's propositions / Today's unsatisfied clienteles are probably interested in exotic securities / AT&T's stillborn savings bonds / Imperfections and opportunities 17-4 Summary Appendix: MM and the Capital Asset Pricing Model

Chapter 18 How Much Should a Firm Borrow? 18-1 Corporate Taxes How do interest tax shields contribute to the value of stockholders' equity? / Recasting Merck's capital structure / MM and taxes 18-2 Corporate and Personal Taxes Debt policy when interest and equity income are taxed at the same personal rate / Debt policy when interest is taxed at a higher rate than equity income / Merton Miller's "Debt and Taxes" / Miller's model before and after the 1986 Tax Reform Act / A possible compromise theory? 18- 3 Costs of Financial Distress Bankruptcy costs / Evidence on bankruptcy costs / Direct versus indirect costs of bankruptcy / Financial distress without bankruptcy / Risk shifting: The first game / Refusing to contribute equity capital: The second game / And three more games, briefly / What the games cost / Costs of distress vary with type of asset 18-4 Explaining Financing Choices A pecking order theory 18-5 Choosing the Firm's Debt-Equity Ratio A checklist / Planning ahead 18-6 Summary Further Reading Quiz Questions and Problems

Chapter 19 Interactions of Investment and Financing Decisions 19-1 _The Adjusted Present Value Rule The base case / Issue costs / Additions to the firm's debt capacity / The value of interest tax shields / Review of the adjusted present value approach 19-2 Adjusted Discount Rates-An Alternative to Adjusted Present Value Example: The geothermal project / A general definition of the adjusted cost of capital/What happens when future debt levels are uncertain / How useful are adjusted cost of capital formulas? 19-3 The Weighted Average Cost of Capital Formula Now we apply the textbook formula to the geothermal project / Using the textbook formula: An application to the railroad industry / Mistakes people make in using the weighted-average formula 19-4 Discounting Safe, Nominal Cash Flows A general rule / Some further examples / Adjusted discount rates for debt-equivalent cash flows

PART SIX OPTIONS Chapter 20 20-1 Corporate Liabilities and the Valuation of Options Calls, Puts, and Shares Selling calls, puts, and shares 20-2 Holding Calls, Puts, and Shares in Combination The difference between safe and risky bonds / Spotting the option 20-3 What Determines Option Values? 20-4 An Option-Valuation Model Why discounted cash flow won't work for options / Constructing option equivalents from common stocks and borrowing / The risk-neutral method / Valuing options that last for more than one period / Using the Black-Scholes formula

Chapter 21 21-1 Applications of Option Pricing Theory Real Options and the Value of Management Timing of capital investment / Follow-on investment opportunities / Real options and the value of management 21- 2 Some Practical Problems in Valuing Options Valuing the abandonment put-An example / The value of flexibility 21-3 Valuing Options that Last for More Than One Period Option values after 6 months / Option value now / Calculating the option delta / The general binomial method ' 21-4 Some Complications European versus American options / Dividends / Currency options 21- 5 Hedging and Volatility Changing volatility / Transaction costs 21-6 Using Options to Insure Against Risk

Chapter 22 22-1 Warrants and Convertibles What Is a Warrant? Valuing warrants / Two complications: Dividends and dilution / Example: Valuing United Glue's warrants / How the value of United warrants is affected by dilution / Warrants on bonds 22-2 What Is a Convertible Bond? Valuing convertible bonds / Dividends and dilution revisited / Forcing conversion 22-3 The Difference between Warrants and Convertibles 22-4 Why Do Companies Issue Warrants and Convertibles? 22-5 Summary Further Reading Quiz Questions and Problems

PART SEVEN DEBT FINANCING Chapter 23 Valuing Risky Debt 23-1 The Classical Theory of Interest Real interest rates / Inflation and interest rates 23-2 Term Structure and Yields to Maturity Yield to maturity / Problems with yield to maturity / Measuring the term structure / Pricing bonds of different maturity 23-3 Explaining the Term Structure Ms. Long's problem / Mr. Short's problem / The expectations hypothesis / The liquidity, preference theory / Introducing inflation / A comparison of theories of term structure 23-4 Allowing for the Risk of Default Bond ratings / Option pricing and risky debt / Valuing government loan guarantees 23-5 Summary Further Reading Quiz Questions and Problems

Chapter 24 24-1 24-2 The Many Different Kinds of Debt Domestic Bonds, Foreign Bonds, and Eurobonds The Bond Contract Indenture, or trust deed / The bond terms / Registered and bearer bonds 24- 3 Security and Seniority 24-4 Repayment Provisions Sinking funds / Call provisions / Extendable and retractable bonds 24-5 Restrictive Covenants Positive covenants 24-6 Innovation in the Bond Market The causes of innovation / The gains from innovation / Lasting innovations

Appendix A: Excerpts from a Prospectus for a Bond Issue Appendix B: Project Finance An example from the oil industry / Project finance-Some common features / The benefits of project finance Further Reading Quiz Questions and Problems Hedging Financial Risk The Technique of Hedging Duration and Volatility Example and some refinements 25 - 3 Hedging with Futures Commodity and financial futures / The mechanics of futures trading / Spot and futures prices-Financial futures / Spot and futures prices-Commodities 25-4 Forward contracts Homemade forward contracts 25-5 Swaps 25-6 Summary Further Reading Quiz Questions and Problems Chapter 25 25-1 25-2 Chapter 26 Leasing 26-1 What Is a Lease? Example of a financial lease / Who really owns the leased asset? / Leasing and the Internal Revenue Service / Leasing and the accountants 26-2 Why Lease? Sensible reasons for leasing / Some dubious reasons for leasing 26-3 Valuing Financial Leases A first pass at valuing a lease contract / Why leasing would make Greymare's shareholders worse off / The story so far 26-4 When Does teasing Pay? 26-5 Evaluating a Large, Leveraged Lease 26-6 Summary Further Reading Quiz Questions and Problems
PART EIGHT FINANCIAL PLANNING
Chapter 27 27-1 Analyzing Financial Performance Financial Ratios Leverage ratios / Liquidity ratios / Profitability, or efficiency ratios / Market value ratios / Accounting definitions / Choosing a benchmark / Which financial ratios?
Chapter 28 28-1
Chapter 29 29-6 The Earnings Record The meaning of accounting earnings / How inflation affects book returns Applications of Financial Analysis Using financial ratios to estimate market risk / Using financial ratios to predict bond ratings Summary Further Reading Quiz Questions and Problems Approaches to Financial Planning What Is Financial Planning? Financial planning focuses on the big picture / Financial planning is not just forecasting / Financial planning is a communal activity The Contents of a Completed Financial Plan Planned financing / Three requirements for effective planning / Financial planning as managing a portfolio of options Financial Planning Models Executive Fruit's financial model/Pitfalls in model design / There is no finance in corporate financial models Summary Appendix: LONGER Example / Extending the model/Comparison of LONGER with the typical corporate planning model / Shadow prices, or marginal costs Further Reading Quiz Questions and Problems Short-Term Financial Planning The Components of Working Capital Links between Long-Term and Short-Term Financing Decisions Matching maturities / Permanent working-capital requirements / The comforts of surplus cash Tracing Changes in Cash and Working Capital Tracing changes in net working capital/Profits and cash flow Cash Budgeting Preparing the cash budget: lnflow / Preparing the cash budget: Outflow The Short-Term Financing Plan Options for short-term financing / The first financing plan / The second financing plan / A note on short-term financial planning models Summary Further Reading Quiz Questions and Problems

PART NINE SHORT-TERM FINANCIAL DECISIONS

Chapter 30 30-1 Credit Management Terms of Sale Commercial Credit Instruments Credit Analysis Financial ratio analysis / Numerical credit scoring / Constructing better risk indexes 30-4 The Credit Decision When to stop looking for clues / Credit decisions with repeat orders / Some general principles 30-5 Collection Policy Factoring and credit insurance 30-6 Summary Appendix: Bankruptcy Procedures Personal bankruptcies / Business bankruptcies / The choice between liquidation and reorganization Further Reading Quiz Questions and Problems

Chapter 31 31-1 Cash Management Inventories and Cash Balances The extension to cash balances / The Miller-Orr model/Using the Miller-Orr model/Raising cash by borrowing / Cash management in the largest corporations Cash Collection and Disbursement Systems Float / Managing float / Speeding up collections / Controlling disbursements Bank Relations What happens if money pays interest? Summary Further Reading Quiz Questions and Problems

Chapter 32 Short- Term Lending and Borrowing 32-1 Short-Term Lending The money market / Valuing money-market investments / Calculating the yield on money-market investments / u. S. Treasury bills / Agency securities / Short-term tax-exempts / Bank time deposits and certificates of deposit / Commercial paper / Bankers' acceptances / Repurchase agreements 32-2 Floating-Rate Preferred Stock-An Alternative to Money-Market Investments 32- 3 Short- Term Borrowing Credit rationing / Unsecured loans / Loans secured by receivables / Loans secured by inventory 32-4 Term Loans Participation loans / Eurodollar lending

PART TEN MERGERS, INTERNATIONAL FINANCE, AND PENSIONS Chapter 33

Chapter 34
Mergers Estimating the Economic Gains and Costs of Mergers A digression on the right and wrong ways to estimate the benefits of mergers Sensible Motives for Mergers Economies of scale / Economies of vertical integration / Combining complementary resources / Unused tax shields / Mergers as a use for surplus funds / Eliminating inefficiencies Some Dubious Reasons for Mergers Diversification / The bootstrap game: Mergers and earnings per share / Lower financing costs Estimating the Cost of a Merger Estimating cost when the merger is financed by cash / Estimating cost when the acquisition is financed by stock The Mechanics of a Merger Mergers and antitrust law / The form of acquisition / A note on merger accounting / Some tax considerations Merger Tactics Case 1: The fight for Cities Service / Case 2: The bid for Phillips Petroleum / Merger regulation Corporate Restructuring Management buyouts / Divestitures and spin-offs / Limited partnerships and other structures Merger Waves and Profitability Mergers come in waves / Do mergers generate net benefits? Summary Further Reading Quiz Questions and Problems Appendix: Conglomerate Mergers and Value Additivity

International Financial Management The Foreign Exchange Market Some Basic Relationships Interest rates and exchange rates / The forward premium and changes in spot rates / Changes in exchange rates and inflation rates / Interest rates and inflation rates / Is life really that simple? Insuring against Currency Risks International Investment Decisions The Cost of Capital for Foreign Investment 34-6 Financing Foreign Operations Tax and the financing method -g"" 34-7 Political Risk 34-8 Interactions of Investment and Financing Decisions

Chapter 35 Pension Plans
35-1 Types of Pension Plan 35-2 The Pension Plan Balance Sheet Valuing the liabilities / Valuing the assets / Estimating the deficit / Another look at the pension plan balance sheet / ERISA, fund contributions, and pension ~ insurance / Plan terminations / Accounting for the pension plan 35-3 Managing the Pension Fund Risk and pension fund policy / Tax and pension fund policy / Setting objectives . 35-4 Measuring Fund Performance 866 Choosing the performance yardstick / Measuring performance-An example / Some cautions about performance measurement
PART ELEVEN CONCLUSIONS

Chapter 36 Conclusion: What We Do and Do Not Know about Finance 36-1 What We Do Know: The Five Most Important Ideas in Finance 1 Net present value / 2 The capital asset pricing model / 3 Efficient capital markets / 4 Value additivity and the law of the conservation of value / 5 Option theory 36-2 What We Do Not Know: 10 Unsolved Problems in Finance: 1 How are major financial decisions made? / 2 What determines project risk and present value? / 3 Risk and return-Have we missed something? / 4 Are there important exceptions to the efficient-market theory? / 5 Is management an off-balance sheet liability? / 6 How can we explain the success of new securities and new markets? / 7 How can we explain capital ~tructure? / 8 How can we resolve the S30 dividend controversy? / 9 What is the value of liquidity? / 10 How can we explain merger waves? Appendix: Present Value Tables API S36 Glossary

*** More Info ***
Slightly used like new
Hard cover Isbn: 0070073864
Publisher: McGrwaw Hill
Year: 1988
This book is a great used book about the theory and practice of corporate finance. It is for managers who learn from experience how to cope with routine problems. But the best managers are also able to respond rationally to change. To do this you need more than time-honored rules of thumb; you must understand why companies and financial managers behave the way they do. In other words, you need a theory of corporate finance.
It helps you ask the right questions when times change and new problems must be analyzed. Throughout this book it is show how to use financial theory to solve practical problems, and also to illuminate the facts and institutional material that students of corporate finance must absorb. There are also a few cases where theory indicates that the practical rules of thumb employed by today's managers are leading to poor decisions The 1986 Tax Reform Act necessitated major changes to the chapters on capital budgeting, dividend policy, and capital structure. The growth of contested takeovers is discussed with the techniques of modern merger, as well as leveraged buy-outs and other forms of corporate restructuring, mergers and antitrust challenges.