1
Complete Summary: Fundamentals of Corporate Finance (Use for Exam Prep)
Complete Summary:
Fundamentals of Corporate Finance
(European edition)
By
David Hillier; Iain Clacher; Stephen A. Ross;
Randolph Westerfield; Bradford D. Jordan
NEW AND UPDATED!
Contents
Chapter 1 Introduction to corporate finance ........................................................................................... 5
1.1 Corporate finance and the financial manager ................................................................................ 5
1.2 The goal of financial management.................................................................................................. 6
1.3 Financial markets and the corporation ........................................................................................... 6
Chapter 2 Corporate Governance ............................................................................................................. 7
2.1 Forms of Business organization ...................................................................................................... 7
2.2 The agency problem and control of the corporation...................................................................... 8
2.3 International corporate governance ............................................................................................... 9
Chapter 3 Financial analysis and planning .............................................................................................. 10
3.1 The annual report ......................................................................................................................... 10
3.2 Ratio Analysis ................................................................................................................................ 12
3.3 The Du Pont identity ..................................................................................................................... 13
3.4 Using financial statement information ........................................................................................ 13
3.5 Financial planning ......................................................................................................................... 13
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Complete Summary: Fundamentals of Corporate Finance (Use for Exam Prep)
3.6 Financial Planning models ............................................................................................................. 13
3.7 External financing and growth ...................................................................................................... 14
3.8 Some caveats regarding financial planning models ...................................................................... 14
Chapter 4 Introduction to valuation: the time value of money.............................................................. 15
4.1 Future value and compounding .................................................................................................... 15
4.2 Present value and discounting ...................................................................................................... 15
4.3 More about present and future values ......................................................................................... 15
Chapter 5 Discounted cash flow valuation ............................................................................................. 17
5.1 Future and present values of multiple cash flows ........................................................................ 17
5.2 Valuing level cash flows: annuities and perpetuities .................................................................... 17
5.3 Comparing rates: The effect of compounding .............................................................................. 18
5.4 Loan types and loan amortization................................................................................................. 19
Chapter 6 Bond valuation ....................................................................................................................... 20
6.1 Bonds and bond valuation ............................................................................................................ 20
6.2 More about bond features............................................................................................................ 21
6.3 Bond rating.................................................................................................................................... 22
6.4 Some different types of bond ....................................................................................................... 23
6.5 Bond markets ................................................................................................................................ 24
6.6 Inflation and interest rates ........................................................................................................... 24
6.7 Determinants of bond yields......................................................................................................... 24
Chapter 7 Equity valuation...................................................................................................................... 26
7.1 Share valuation ............................................................................................................................. 26
7.2 Some features of ordinary and preference shares ....................................................................... 27
7.3 The stock market........................................................................................................................... 27
Chapter 8 Net present value and other investment criteria .................................................................. 29
8.1 Net present value. ......................................................................................................................... 29
8.2 The payback rule ........................................................................................................................... 29
8.3 The discounted payback ............................................................................................................... 30
8.4 The average accounting return. .................................................................................................... 30
8.5 The internal rate of return ............................................................................................................ 31
8.6 The profitability index ................................................................................................................... 32
8.7 The Practice of Capital Budgeting ................................................................................................. 32
Chapter 9 Making Capital investment decisions..................................................................................... 33
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Complete Summary: Fundamentals of Corporate Finance (Use for Exam Prep)
9.1 Project cash flows; a first look ...................................................................................................... 33
9.2 Incremental Cash flows ................................................................................................................. 33
9.3 Pro forma financial statements and project cash flows. .............................................................. 34
9.4 More about project cash flow....................................................................................................... 34
9.5 Alternative definitions of operating cash flow ............................................................................. 35
Chapter 10 Project analysis and evaluation............................................................................................ 36
10.1 Evaluating NPV estimates ........................................................................................................... 36
10.2 Scenario and other what-if analyses ........................................................................................... 36
10.3 Break-even analysis..................................................................................................................... 37
10.4 Operating cash flow, sales volume and break-even. .................................................................. 38
10.5 Operating leverage...................................................................................................................... 38
10.6 Capital rationing .......................................................................................................................... 39
Chapter 11 Some lessons from recent capital market history ............................................................... 39
11.1 Returns ........................................................................................................................................ 39
11.2 The Historical Record .................................................................................................................. 40
11.3 Average returns: The first lesson ............................................................................................... 40
11.4 The variability of returns: the second lesson .............................................................................. 41
11.5 More about average returns. ...................................................................................................... 41
11.6 Capital market efficiency ............................................................................................................ 42
Chapter 12 Return, risk and the security market line. ............................................................................ 43
12.1 Expected returns and variances. ................................................................................................. 43
12.2 Portfolios ..................................................................................................................................... 43
12.3 Announcement, surprises and expected returns. ...................................................................... 43
12.4 Risk: Systematic and unsystematic. ............................................................................................ 44
12.5 Diversification and portfolio risk................................................................................................. 44
12.6 Systematic risk and Beta. ............................................................................................................ 44
12.7 The security market line. ............................................................................................................ 45
Chapter 13 Cost of capital....................................................................................................................... 46
13.1 The cost of capital: some preliminaries. ..................................................................................... 46
13.2 The cost of equity........................................................................................................................ 46
13.3 The cost of debt and preference shares. .................................................................................... 47
13.4 The weighted average costs of capital........................................................................................ 47
Chapter 14 Raising capital....................................................................................................................... 48
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Complete Summary: Fundamentals of Corporate Finance (Use for Exam Prep)
14.1 The financing life cycle of a firm. ................................................................................................ 48
14.2 Selling securities to the Public: The basic procedure.................................................................. 48
14.3 Alternative issue methods. ......................................................................................................... 49
14.4 Underwriters ............................................................................................................................... 49
14.5 IPOs and underpricing ................................................................................................................. 49
14.6 New equity sales and the value of the firm. ............................................................................... 50
14.7 The costs of issuing securities. .................................................................................................... 50
Complete Summary: Fundamentals of Corporate Finance (Use for Exam Prep)
Complete Summary:
Fundamentals of Corporate Finance
(European edition)
By
David Hillier; Iain Clacher; Stephen A. Ross;
Randolph Westerfield; Bradford D. Jordan
NEW AND UPDATED!
Contents
Chapter 1 Introduction to corporate finance ........................................................................................... 5
1.1 Corporate finance and the financial manager ................................................................................ 5
1.2 The goal of financial management.................................................................................................. 6
1.3 Financial markets and the corporation ........................................................................................... 6
Chapter 2 Corporate Governance ............................................................................................................. 7
2.1 Forms of Business organization ...................................................................................................... 7
2.2 The agency problem and control of the corporation...................................................................... 8
2.3 International corporate governance ............................................................................................... 9
Chapter 3 Financial analysis and planning .............................................................................................. 10
3.1 The annual report ......................................................................................................................... 10
3.2 Ratio Analysis ................................................................................................................................ 12
3.3 The Du Pont identity ..................................................................................................................... 13
3.4 Using financial statement information ........................................................................................ 13
3.5 Financial planning ......................................................................................................................... 13
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Complete Summary: Fundamentals of Corporate Finance (Use for Exam Prep)
3.6 Financial Planning models ............................................................................................................. 13
3.7 External financing and growth ...................................................................................................... 14
3.8 Some caveats regarding financial planning models ...................................................................... 14
Chapter 4 Introduction to valuation: the time value of money.............................................................. 15
4.1 Future value and compounding .................................................................................................... 15
4.2 Present value and discounting ...................................................................................................... 15
4.3 More about present and future values ......................................................................................... 15
Chapter 5 Discounted cash flow valuation ............................................................................................. 17
5.1 Future and present values of multiple cash flows ........................................................................ 17
5.2 Valuing level cash flows: annuities and perpetuities .................................................................... 17
5.3 Comparing rates: The effect of compounding .............................................................................. 18
5.4 Loan types and loan amortization................................................................................................. 19
Chapter 6 Bond valuation ....................................................................................................................... 20
6.1 Bonds and bond valuation ............................................................................................................ 20
6.2 More about bond features............................................................................................................ 21
6.3 Bond rating.................................................................................................................................... 22
6.4 Some different types of bond ....................................................................................................... 23
6.5 Bond markets ................................................................................................................................ 24
6.6 Inflation and interest rates ........................................................................................................... 24
6.7 Determinants of bond yields......................................................................................................... 24
Chapter 7 Equity valuation...................................................................................................................... 26
7.1 Share valuation ............................................................................................................................. 26
7.2 Some features of ordinary and preference shares ....................................................................... 27
7.3 The stock market........................................................................................................................... 27
Chapter 8 Net present value and other investment criteria .................................................................. 29
8.1 Net present value. ......................................................................................................................... 29
8.2 The payback rule ........................................................................................................................... 29
8.3 The discounted payback ............................................................................................................... 30
8.4 The average accounting return. .................................................................................................... 30
8.5 The internal rate of return ............................................................................................................ 31
8.6 The profitability index ................................................................................................................... 32
8.7 The Practice of Capital Budgeting ................................................................................................. 32
Chapter 9 Making Capital investment decisions..................................................................................... 33
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Complete Summary: Fundamentals of Corporate Finance (Use for Exam Prep)
9.1 Project cash flows; a first look ...................................................................................................... 33
9.2 Incremental Cash flows ................................................................................................................. 33
9.3 Pro forma financial statements and project cash flows. .............................................................. 34
9.4 More about project cash flow....................................................................................................... 34
9.5 Alternative definitions of operating cash flow ............................................................................. 35
Chapter 10 Project analysis and evaluation............................................................................................ 36
10.1 Evaluating NPV estimates ........................................................................................................... 36
10.2 Scenario and other what-if analyses ........................................................................................... 36
10.3 Break-even analysis..................................................................................................................... 37
10.4 Operating cash flow, sales volume and break-even. .................................................................. 38
10.5 Operating leverage...................................................................................................................... 38
10.6 Capital rationing .......................................................................................................................... 39
Chapter 11 Some lessons from recent capital market history ............................................................... 39
11.1 Returns ........................................................................................................................................ 39
11.2 The Historical Record .................................................................................................................. 40
11.3 Average returns: The first lesson ............................................................................................... 40
11.4 The variability of returns: the second lesson .............................................................................. 41
11.5 More about average returns. ...................................................................................................... 41
11.6 Capital market efficiency ............................................................................................................ 42
Chapter 12 Return, risk and the security market line. ............................................................................ 43
12.1 Expected returns and variances. ................................................................................................. 43
12.2 Portfolios ..................................................................................................................................... 43
12.3 Announcement, surprises and expected returns. ...................................................................... 43
12.4 Risk: Systematic and unsystematic. ............................................................................................ 44
12.5 Diversification and portfolio risk................................................................................................. 44
12.6 Systematic risk and Beta. ............................................................................................................ 44
12.7 The security market line. ............................................................................................................ 45
Chapter 13 Cost of capital....................................................................................................................... 46
13.1 The cost of capital: some preliminaries. ..................................................................................... 46
13.2 The cost of equity........................................................................................................................ 46
13.3 The cost of debt and preference shares. .................................................................................... 47
13.4 The weighted average costs of capital........................................................................................ 47
Chapter 14 Raising capital....................................................................................................................... 48
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Complete Summary: Fundamentals of Corporate Finance (Use for Exam Prep)
14.1 The financing life cycle of a firm. ................................................................................................ 48
14.2 Selling securities to the Public: The basic procedure.................................................................. 48
14.3 Alternative issue methods. ......................................................................................................... 49
14.4 Underwriters ............................................................................................................................... 49
14.5 IPOs and underpricing ................................................................................................................. 49
14.6 New equity sales and the value of the firm. ............................................................................... 50
14.7 The costs of issuing securities. .................................................................................................... 50
