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Frequently Asked Questions in Corporate Finance

Book Description

The definitive question and answer guide to understanding corporate finance

From the team behind the popular corporate finance website, comes a concise guide to the subject, presented in an easy-to-use, highly accessible "question and answer" format. An essential reference for students of corporate finance and practising corporate financiers alike, Frequently Asked Questions in Corporate Finance answers key questions in financial engineering, valuation, financial policy, cost of capital, financial analysis, and financial management. Covering both the theory and practice of corporate finance, the book demonstrates how financial theory can be put to use solving practical problems.

  • What advantages are there to a business looking to spin off its divisions into subsidiaries?

  • Is there a formula that can be used to determine the change in normalised free cash flows?

  • What are the possible reasons behind a share buyback? What are the pros and cons of off-market share buy-back?

  • Filled with the answers to all of the most common, and not so common, questions about corporate finance, the book presents authoritative, reliable information from a respected team of experts from the banking, corporate, and academic worlds.

    Table of Contents

    1. Cover
    2. Title Page
    3. Copyright
    4. Frequently Asked Questions
    5. About the Authors
    6. Chapter 1: Frequently Asked Questions
      1. 1. What is Corporate Finance?
      2. 2. What are Cash Flows?
      3. 3. What Alternative Formats of the Balance Sheet May Companies Use?
      4. 4. What is the Working Capital and How do Companies Manage It?
      5. 5. What are the Alternative Formats of an Income Statement?
      6. 6. How can We Perform the Financial Analysis of a Company?
      7. 7. What is the Operating Profit?
      8. 8. What is the Scissors Effect?
      9. 9. How does Operating Leverage Work?
      10. 10. What is CAPEX?
      11. 11. How can the Credit Risk of a Company be Assessed?
      12. 12. How do We Measure the Profitability of a Company?
      13. 13. What is the Financial Leverage Effect and How does It Work?
      14. 14. What are Efficient Markets?
      15. 15. What do We Mean by Discounting a Sum?
      16. 16. How do Companies Measure Value Creation?
      17. 17. What is the NPV of a Project?
      18. 18. What is the IRR of a Project?
      19. 19. How do Companies Deal with Uncertainty in Capital Budgeting?
      20. 20. How can Real Options be Used In Corporate Finance?
      21. 21. What is Risk In Finance?
      22. 22. Is There Any Relation Between Risk and Return?
      23. 23. How are Risk and Return Measured?
      24. 24. What is Diversification?
      25. 25. What are the Efficient Frontier and the Capital Market Line?
      26. 26. What are the CAPM and the Beta Coefficients?
      27. 27. What is the Cost of Capital and How can It be Estimated?
      28. 28. What are the Most Important Debt Products for Companies' Financing?
      29. 29. What do We Mean by Stock Market Analysis of a Company?
      30. 30. What are Financial Options?
      31. 31. What are Hybrid Securities?
      32. 32. How are Securities Sold on Capital Markets?
      33. 33. What are the Most Important Corporate Valuation Methodologies?
      34. 34. What is the DCF Method?
      35. 35. What are Valuation Multiples?
      36. 36. What does the Modigliani and Miller Theorem Say?
      37. 37. What Happens to the Modigliani and Miller Theorem if We Consider Taxes and Financial Distress Costs?
      38. 38. What are the Other Real-World Factors that Affect the Capital Structure Decision?
      39. 39. How do Companies Design their Debt Funding?
      40. 40. Can Options be Used for the Analysis of the Capital Structure?
      41. 41. How can Companies Distribute Their Excess Cash?
      42. 42. What are Share Buybacks and How do They Work?
      43. 43. What is the Dilution of Control in a Capital Increase?
      44. 44. How Many Different Types of Shareholders do We Know?
      45. 45. Why do Companies Go Public?
      46. 46. How can the Control of a Company be Strengthened?
      47. 47. What are Holding Company and Conglomerate Discounts?
      48. 48. What are Control Premiums and Minority Discounts?
      49. 49. What is a Cascade Structure?
      50. 50. Why is Corporate Governance So Important?
      51. 51. How can Companies be Taken Over?
      52. 52. What are Synergies?
      53. 53. What are Demergers and Split-Offs?
      54. 54. What is a Leveraged Buyout?
      55. 55. What is Bankruptcy?
      56. 56. What do We Mean by Cash Flow Management?
      57. 57. How Many Types of Financial Risks do Companies Face?
      58. 58. How can Companies Hedge Financial Risks?
    7. Chapter 2: Topics
      1. 50 Years of Research in Finance
      2. Ten Deadly Mistakes in Corporate Finance
      3. Five Mistakes in Corporate Valuation
      4. 2.4 M&A: Six Mistakes to be Avoided
      5. 2.5 Rating Agencies
      6. 2.6 Credit Scoring
      7. 2.7 Behavioral Finance: Are Investors Really Rational?
      8. 2.8 Micro-finance: Helping the Poor
      9. 2.9 Project Finance
      10. 2.10 Corporate Finance in Europe: Confronting Theory with Practice
      11. 2.11 Capital Markets: Some Useful Definitions
      12. 2.12 Transaction Multiples: Before and During the Crisis
      13. 2.13 The Making of an Investment Banker
      14. 2.14 Corporate Finance Books
      15. 2.15 Brainteasers—PART I
      16. 2.16 Brainteasers—PART II
      17. 2.17 Answers
      18. 2.18 True or False: Test Yourself
      19. 2.19 Answers
      20. 2.20 Crossword
    8. Index