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Corporate Financial
Management, 6th Edition
ST
LECTURER’S
UV
GUIDE
IA
_A
Glen Arnold, Deborah Lewis
PP
Comprehensive Lecturer’s Guide for Instructors
RO
and Students
||| ||| || ||| || | || ||| | || ||| |
VE
9781292140445
© Glen Arnold & Deborah Lewis. All rights reserved.
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Reproduction or distribution without permission is prohibited.
© MEDGEEK
, TABLE OF CONTENTS
Lecturer’s Guide – Corporate Financial Management (6th Edition)
Authors: Glen Arnold and Deborah Lewis
ISBN: 9781292140445
ST
PART I: INTRODUCTION AND PROJECT APPRAISAL
Chapter 1: The financial world
Chapter 2: Project appraisal: net present value and internal rate of return
UV
Chapter 3: Project appraisal: cash flow and applications
Chapter 4: The decision-making process for investment appraisal
Chapter 5: Project appraisal: capital rationing, taxation and inflation
Chapter 6: Risk and project appraisal
PART II: RISK AND RETURN
IA
Chapter 7: Portfolio theory
Chapter 8: The Capital Asset Pricing Model and multi-factor models
_A
PART III: SOURCES OF FINANCE
Chapter 9: Stock markets
Chapter 10: Raising equity capital
Chapter 11: Long-term debt finance
PP
Chapter 12: Short- and medium-term finance, treasury and working capital management
Chapter 13: Stock market efficiency
PART IV: CORPORATE VALUE AND COST OF CAPITAL
RO
Chapter 14: Value-based management
Chapter 15: Value-creation metrics
Chapter 16: The cost of capital
Chapter 17: Valuing shares
PART V: CAPITAL STRUCTURE AND DIVIDENDS
VE
Chapter 2: Project appraisal: net present value and internal rate of return
Chapter 18: Capital structure
Chapter 19: Dividend policy
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PART VI: MERGERS AND RISK MANAGEMENT
Chapter 20: Mergers
Chapter 21: Derivatives
Chapter 22: Managing exchange-rate risk
, CHAPTER 1
The financial world
ST
Learning outcomes
At the end of this chapter, the reader will have a balanced perspective on the purpose and
value of the finance function, at both the corporate and the national level. More specifically,
UV
the reader should be able to:
• describe alternative views on the purpose of the business and show the importance to any
organisation of clarity on this point;
• describe the impact of the divorce of corporate ownership from day-to-day managerial
control;
IA
• explain the role of the financial manager;
• detail the value of financial intermediaries;
_A
• show an appreciation of the function of the major financial institutions and markets.
Key points and concepts
• Firms should clearly define the objective of the enterprise to provide a focus for decision
PP
making.
• Sound financial management is necessary for the achievement of all stakeholder goals.
• Some stakeholders will have their returns satisficed – given just enough to make their
contribution. One (or more) group(s) will have their returns maximised – given any
RO
surplus after all others have been satisfied.
• The assumed objective of the firm for finance is to maximise shareholder wealth.
Reasons:
• practical, a single objective leads to clearer decisions;
VE
• the contractual theory;
• survival in a competitive world;
• it is better for society;
• counters the tendency of managers to pursue goals for their own benefit;
D?
• they own the firm.
8
© Pearson Education Limited 2019
, Arnold & Lewis, Corporate Financial Management, 6e, Instructor’s Manual
• Maximising shareholder wealth is maximising purchasing power or maximising the
flow of discounted cash flow to shareholders over a long time horizon.
• Profit maximisation is not the same as shareholder wealth maximisation. Some factors a
profit comparison does not allow for:
ST
• future prospects;
• risk;
• accounting problems;
•
UV
communication;
• additional capital.
• Corporate governance. Large corporations usually have a separation of ownership and
control. This may lead to managerialism where the agent (the managers) takes decisions
primarily with their interests in mind rather than those of the principals (the shareholders).
This is a principal–agent problem. Some solutions:
IA
• corporate governance regulation;
• link managerial rewards to shareholder wealth improvement;
• sackings;
_A
• selling shares and the takeover threat;
• improve information flow.
• Financial institutions and markets encourage growth and progress by mobilising
PP
savings and encouraging investment.
• Financial managers contribute to firms’ success primarily through investment and
finance decisions. Their knowledge of financial markets, investment appraisal methods,
treasury, risk management and value analysis techniques is vital for company growth and
stability.
RO
• Financial institutions encourage the flow of saving into investment by acting as brokers
and asset transformers, thus alleviating the conflict of preferences between the primary
investors (households) and the ultimate borrowers (firms).
• Asset transformation is the creation of an intermediate security with characteristics
appealing to the primary investor to attract funds, which are then made available to the
VE
ultimate borrower in a form appropriate to them. Types of asset transformation:
• risk transformation;
• maturity transformation;
• volume transformation.
D?
9
© Pearson Education Limited 2019
Corporate Financial
Management, 6th Edition
ST
LECTURER’S
UV
GUIDE
IA
_A
Glen Arnold, Deborah Lewis
PP
Comprehensive Lecturer’s Guide for Instructors
RO
and Students
||| ||| || ||| || | || ||| | || ||| |
VE
9781292140445
© Glen Arnold & Deborah Lewis. All rights reserved.
D?
Reproduction or distribution without permission is prohibited.
© MEDGEEK
, TABLE OF CONTENTS
Lecturer’s Guide – Corporate Financial Management (6th Edition)
Authors: Glen Arnold and Deborah Lewis
ISBN: 9781292140445
ST
PART I: INTRODUCTION AND PROJECT APPRAISAL
Chapter 1: The financial world
Chapter 2: Project appraisal: net present value and internal rate of return
UV
Chapter 3: Project appraisal: cash flow and applications
Chapter 4: The decision-making process for investment appraisal
Chapter 5: Project appraisal: capital rationing, taxation and inflation
Chapter 6: Risk and project appraisal
PART II: RISK AND RETURN
IA
Chapter 7: Portfolio theory
Chapter 8: The Capital Asset Pricing Model and multi-factor models
_A
PART III: SOURCES OF FINANCE
Chapter 9: Stock markets
Chapter 10: Raising equity capital
Chapter 11: Long-term debt finance
PP
Chapter 12: Short- and medium-term finance, treasury and working capital management
Chapter 13: Stock market efficiency
PART IV: CORPORATE VALUE AND COST OF CAPITAL
RO
Chapter 14: Value-based management
Chapter 15: Value-creation metrics
Chapter 16: The cost of capital
Chapter 17: Valuing shares
PART V: CAPITAL STRUCTURE AND DIVIDENDS
VE
Chapter 2: Project appraisal: net present value and internal rate of return
Chapter 18: Capital structure
Chapter 19: Dividend policy
D?
PART VI: MERGERS AND RISK MANAGEMENT
Chapter 20: Mergers
Chapter 21: Derivatives
Chapter 22: Managing exchange-rate risk
, CHAPTER 1
The financial world
ST
Learning outcomes
At the end of this chapter, the reader will have a balanced perspective on the purpose and
value of the finance function, at both the corporate and the national level. More specifically,
UV
the reader should be able to:
• describe alternative views on the purpose of the business and show the importance to any
organisation of clarity on this point;
• describe the impact of the divorce of corporate ownership from day-to-day managerial
control;
IA
• explain the role of the financial manager;
• detail the value of financial intermediaries;
_A
• show an appreciation of the function of the major financial institutions and markets.
Key points and concepts
• Firms should clearly define the objective of the enterprise to provide a focus for decision
PP
making.
• Sound financial management is necessary for the achievement of all stakeholder goals.
• Some stakeholders will have their returns satisficed – given just enough to make their
contribution. One (or more) group(s) will have their returns maximised – given any
RO
surplus after all others have been satisfied.
• The assumed objective of the firm for finance is to maximise shareholder wealth.
Reasons:
• practical, a single objective leads to clearer decisions;
VE
• the contractual theory;
• survival in a competitive world;
• it is better for society;
• counters the tendency of managers to pursue goals for their own benefit;
D?
• they own the firm.
8
© Pearson Education Limited 2019
, Arnold & Lewis, Corporate Financial Management, 6e, Instructor’s Manual
• Maximising shareholder wealth is maximising purchasing power or maximising the
flow of discounted cash flow to shareholders over a long time horizon.
• Profit maximisation is not the same as shareholder wealth maximisation. Some factors a
profit comparison does not allow for:
ST
• future prospects;
• risk;
• accounting problems;
•
UV
communication;
• additional capital.
• Corporate governance. Large corporations usually have a separation of ownership and
control. This may lead to managerialism where the agent (the managers) takes decisions
primarily with their interests in mind rather than those of the principals (the shareholders).
This is a principal–agent problem. Some solutions:
IA
• corporate governance regulation;
• link managerial rewards to shareholder wealth improvement;
• sackings;
_A
• selling shares and the takeover threat;
• improve information flow.
• Financial institutions and markets encourage growth and progress by mobilising
PP
savings and encouraging investment.
• Financial managers contribute to firms’ success primarily through investment and
finance decisions. Their knowledge of financial markets, investment appraisal methods,
treasury, risk management and value analysis techniques is vital for company growth and
stability.
RO
• Financial institutions encourage the flow of saving into investment by acting as brokers
and asset transformers, thus alleviating the conflict of preferences between the primary
investors (households) and the ultimate borrowers (firms).
• Asset transformation is the creation of an intermediate security with characteristics
appealing to the primary investor to attract funds, which are then made available to the
VE
ultimate borrower in a form appropriate to them. Types of asset transformation:
• risk transformation;
• maturity transformation;
• volume transformation.
D?
9
© Pearson Education Limited 2019
