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Fundamentals of Corporate Finance, Second Edition

Book Description

Parrino, Kidwell & Bates, Fundamentals of Corporate Finance 2nd Edition is a balanced approach to the main theme of value creation balanced by risk management. The goal of this text is to provide both intuitive and calculation based- to master content. Material is organized from the most concrete to the most abstract provided with regular opportunities to review, practice, and self-test.

This issue emphasizes building intuitive abilities to solve problems that occur in the business world. Once principles and concepts are understood, the goal is to have a knowledge-based intuitive understanding of financial projects and situations. In addition, the book addresses demands for intellectual and mathematical rigor and includes features showing the relevance of finance to other business disciplines. Real-world examples offer repeated opportunities to develop problem-solving skills through stepped-out Learn By Doing Applications that present realistic business situations. Decision Making Examples are based on actual business scenarios and emphasize the decision making process of the financial manager.

Table of Contents

  1. Cover Page
  2. Title Page
  3. Copyright
  4. Dedication
  5. ABOUT THE AUTHORS
  6. Preface
  7. Organization and Coverage
  8. Proven Pedagogical Framework
  9. New to This Edition
  10. Instructor and Student Resources
  11. Brief Contents
  12. Contents
  13. 1: The Financial Manager and the Firm
    1. 1.1 THE ROLE OF THE FINANCIAL MANAGER
    2. 1.2 FORMS OF BUSINESS ORGANIZATION
    3. 1.3 MANAGING THE FINANCIAL FUNCTION
    4. 1.4 THE GOAL OF THE FIRM
    5. 1.5 AGENCY CONFLICTS: SEPARATION OF OWNERSHIP AND CONTROL
    6. 1.6 THE IMPORTANCE OF ETHICS IN BUSINESS
    7. SUMMARY OF Learning Objectives
    8. Self-Study Problems
    9. Solutions to Self-Study Problems
    10. Critical Thinking Questions
    11. Questions and Problems
    12. Sample Test Problems
  14. 2: The Financial System and the Level of Interest Rates
    1. 2.1 THE FINANCIAL SYSTEM
    2. 2.2 DIRECT FINANCING
    3. 2.3 TYPES OF FINANCIAL MARKETS
    4. 2.4 MARKET EFFICIENCY
    5. 2.5 FINANCIAL INSTITUTIONS AND INDIRECT FINANCING
    6. 2.6 THE DETERMINANTS OF INTEREST RATE LEVELS
    7. SUMMARY OF Learning Objectives
    8. SUMMARY OF Key Equations
    9. Self-Study Problems
    10. Solutions to Self-Study Problems
    11. Critical Thinking Questions
    12. Questions and Problems
    13. Sample Test Problems
  15. 3: Financial Statements, Cash Flows, and Taxes
    1. 3.1 FINANCIAL STATEMENTS AND ACCOUNTING PRINCIPLES
    2. 3.2 THE BALANCE SHEET
    3. 3.3 MARKET VALUE VERSUS BOOK VALUE
    4. 3.4 THE INCOME STATEMENT AND THE STATEMENT OF RETAINED EARNINGS
    5. 3.5 THE STATEMENT OF CASH FLOWS
    6. 3.6 TYING THE FINANCIAL STATEMENTS TOGETHER
    7. 3.7 CASH FLOWS TO INVESTORS
    8. 3.8 FEDERAL INCOME TAX
    9. SUMMARY OF Learning Objectives
    10. SUMMARY OF Key Equations
    11. Self-Study Problems
    12. Solutions to Self-Study Problems
    13. Critical Thinking Questions
    14. Questions and Problems
    15. Sample Test Problems
  16. 4: Analyzing Financial Statements
    1. 4.1 BACKGROUND FOR FINANCIAL STATEMENT ANALYSIS
    2. 4.2 COMMON-SIZE FINANCIAL STATEMENTS
    3. 4.3 FINANCIAL RATIOS AND FIRM PERFORMANCE
    4. 4.4 THE DUPONT SYSTEM: A DIAGNOSTIC TOOL
    5. 4.5 SELECTING A BENCHMARK
    6. 4.6 USING FINANCIAL RATIOS
    7. SUMMARY OF Learning Objectives
    8. SUMMARY OF Key Equations
    9. Self-Study Problems
    10. Solutions to Self-Study Problems
    11. Critical Thinking Questions
    12. Questions and Problems
    13. Sample Test Problems
  17. 5: The Time Value of Money
    1. 5.1 THE TIME VALUE OF MONEY
    2. 5.2 FUTURE VALUE AND COMPOUNDING
    3. 5.3 PRESENT VALUE AND DISCOUNTING
    4. 5.4 ADDITIONAL CONCEPTS AND APPLICATIONS
    5. SUMMARY OF Learning Objectives
    6. SUMMARY OF Key Equations
    7. Self-Study Problems
    8. Solutions to Self-Study Problems
    9. Critical Thinking Questions
    10. Questions and Problems
    11. Sample Test Problems
  18. 6: Discounted Cash Flows and Valuation
    1. 6.1 MULTIPLE CASH FLOWS
    2. 6.2 LEVEL CASH FLOWS: ANNUITIES AND PERPETUITIES
    3. 6.3 CASH FLOWS THAT GROW AT A CONSTANT RATE
    4. 6.4 THE EFFECTIVE ANNUAL INTEREST RATE
    5. SUMMARY OF Learning Objectives
    6. SUMMARY OF Key Equations
    7. Self-Study Problems
    8. Solutions to Self-Study Problems
    9. Critical Thinking Questions
    10. Questions and Problems
    11. Sample Test Problems
    12. Appendix: Deriving the Formula for the Present Value of an Ordinary Annuity
    13. Problem
  19. 7: Risk and Return
    1. 7.1 RISK AND RETURN
    2. 7.2 QUANTITATIVE MEASURES OF RETURN
    3. 7.3 THE VARIANCE AND STANDARD DEVIATION AS MEASURES OF RISK
    4. 7.4 RISK AND DIVERSIFICATION
    5. 7.5 SYSTEMATIC RISK
    6. 7.6 COMPENSATION FOR BEARING SYSTEMATIC RISK
    7. 7.7 THE CAPITAL ASSET PRICING MODEL
    8. SUMMARY OF Learning Objectives
    9. SUMMARY OF Key Equations
    10. Self-Study Problems
    11. Solutions to Self-Study Problems
    12. Critical Thinking Questions
    13. Questions and Problems
    14. Sample Test Problems
  20. 8: Bond Valuation and the Structure of Interest Rates
    1. 8.1 CORPORATE BONDS
    2. 8.2 BOND VALUATION
    3. 8.3 BOND YIELDS
    4. 8.4 INTEREST RATE RISK
    5. 8.5 THE STRUCTURE OF INTEREST RATES
    6. SUMMARY OF Learning Objectives
    7. SUMMARY OF Key Equations
    8. Self-Study Problems
    9. Solutions to Self-Study Problems
    10. Critical Thinking Questions
    11. Questions and Problems
    12. Sample Test Problems
  21. 9: Stock Valuation
    1. 9.1 THE MARKET FOR STOCKS
    2. 9.2 COMMON STOCK VALUATION
    3. 9.3 STOCK VALUATION: SOME SIMPLIFYING ASSUMPTIONS
    4. 9.4 VALUING PREFERRED STOCK
    5. SUMMARY OF Learning Objectives
    6. SUMMARY OF Key Equations
    7. Self-Study Problems
    8. Solutions to Self-Study Problems
    9. Critical Thinking Questions
    10. Questions and Problems
    11. Sample Test Problems
  22. 10: The Fundamentals of Capital Budgeting
    1. 10.1 AN INTRODUCTION TO CAPITAL BUDGETING
    2. 10.2 NET PRESENT VALUE
    3. 10.3 THE PAYBACK PERIOD
    4. 10.4 THE ACCOUNTING RATE OF RETURN
    5. 10.5 INTERNAL RATE OF RETURN
    6. 10.6 CAPITAL BUDGETING IN PRACTICE
    7. SUMMARY OF Learning Objectives
    8. SUMMARY OF Key Equations
    9. Self-Study Problems
    10. Solutions to Self-Study Problems
    11. Critical Thinking Questions
    12. Questions and Problems
    13. Sample Test Problems
  23. 11: Cash Flows and Capital Budgeting
    1. 11.1 CALCULATING PROJECT CASH FLOWS
    2. 11.2 ESTIMATING CASH FLOWS IN PRACTICE
    3. 11.3 FORECASTING FREE CASH FLOWS
    4. 11.4 SPECIAL CASES (OPTIONAL)
    5. SUMMARY OF Learning Objectives
    6. SUMMARY OF Key Equations
    7. Self-Study Problems
    8. Solutions to Self-Study Problems
    9. Critical Thinking Questions
    10. Questions and Problems
    11. Sample Test Problems
  24. 12: Evaluating Project Economics and Capital Rationing
    1. 12.1 VARIABLE COSTS, FIXED COSTS, AND PROJECT RISK
    2. 12.2 CALCULATING OPERATING LEVERAGE
    3. 12.3 BREAK-EVEN ANALYSIS
    4. 12.4 RISK ANALYSIS
    5. 12.5 INVESTMENT DECISIONS WITH CAPITAL RATIONING
    6. SUMMARY OF Learning Objectives
    7. SUMMARY OF Key Equations
    8. Self-Study Problems
    9. Solutions to Self-Study Problems
    10. Critical Thinking Questions
    11. Questions and Problems
    12. Sample Test Problems
  25. 13: The Cost of Capital
    1. 13.1 THE FIRM's OVERALL COST OF CAPITAL
    2. 13.2 THE COST OF DEBT
    3. 13.3 THE COST OF EQUITY
    4. 13.4 USING THE WACC IN PRACTICE
    5. SUMMARY OF Learning Objectives
    6. SUMMARY OF Key Equations
    7. Self-Study Problems
    8. Solutions to Self-Study Problems
    9. Critical Thinking Questions
    10. Questions and Problems
    11. Sample Test Problems
  26. 14: Working Capital Management
    1. 14.1 WORKING CAPITAL BASICS
    2. 14.2 THE OPERATING AND CASH CONVERSION CYCLES
    3. 14.3 WORKING CAPITAL MANAGEMENT STRATEGIES
    4. 14.4 ACCOUNTS RECEIVABLE
    5. 14.5 INVENTORY MANAGEMENT
    6. 14.6 CASH MANAGEMENT AND BUDGETING
    7. 14.7 FINANCING WORKING CAPITAL
    8. SUMMARY OF Learning Objectives
    9. SUMMARY OF Key Equations
    10. Self-Study Problems
    11. Solutions to Self-Study Problems
    12. Critical Thinking Questions
    13. Questions and Problems
    14. Sample Test Problems
  27. 15: How Firms Raise Capital
    1. 15.1 BOOTSTRAPPING
    2. 15.2 VENTURE CAPITAL
    3. 15.3 INITIAL PUBLIC OFFERING
    4. 15.4 IPO PRICING AND COST
    5. 15.5 GENERAL CASH OFFER BY A PUBLIC COMPANY
    6. 15.6 PRIVATE MARKETS AND BANK LOANS
    7. SUMMARY OF Learning Objectives
    8. SUMMARY OF Key Equations
    9. Self-Study Problems
    10. Solutions to Self-Study Problems
    11. Critical Thinking Questions
    12. Questions and Problems
    13. Sample Test Problems
  28. 16: Capital Structure Policy
    1. 16.1 CAPITAL STRUCTURE AND FIRM VALUE
    2. 16.2 THE BENEFITS AND COSTS OF USING DEBT
    3. 16.3 TWO THEORIES OF CAPITAL STRUCTURE
    4. 16.4 PRACTICAL CONSIDERATIONS IN CHOOSING A CAPITAL STRUCTURE
    5. SUMMARY OF Learning Objectives
    6. SUMMARY OF Key Equations
    7. Self-Study Problems
    8. Solutions to Self-Study Problems
    9. Critical Thinking Questions
    10. Questions and Problems
    11. Sample Test Problems
    12. Appendix: Leasing
    13. SUMMARY OF Learning Objectives
    14. Self-Study Problem
    15. Solution to Self-Study Problem
    16. Critical Thinking Questions
    17. Questions and Problems
  29. 17: Dividends, Stock Repurchases, and Payout Policy
    1. 17.1 DIVIDENDS
    2. 17.2 STOCK REPURCHASES
    3. 17.3 DIVIDENDS AND FIRM VALUE
    4. 17.4 STOCK DIVIDENDS AND STOCK SPLITS
    5. 17.5 SETTING A DIVIDEND PAYOUT
    6. SUMMARY OF Learning Objectives
    7. Self-Study Problems
    8. Solutions to Self-Study Problems
    9. Critical Thinking Questions
    10. Questions and Problems
    11. Sample Test Problems
  30. 18: Business Formation, Growth, and Valuation
    1. 18.1 STARTING A BUSINESS
    2. 18.2 THE ROLE OF THE BUSINESS PLAN
    3. 18.3 VALUING A BUSINESS
    4. 18.4 IMPORTANT ISSUES IN VALUATION
    5. SUMMARY OF Learning Objectives
    6. SUMMARY OF Key Equations
    7. Self-Study Problems
    8. Solutions to Self-Study Problems
    9. Critical Thinking Questions
    10. Questions and Problems
    11. Sample Test Problems
  31. 19: Financial Planning and Forecasting
    1. 19.1 FINANCIAL PLANNING
    2. 19.2 FINANCIAL PLANNING MODELS
    3. 19.3 A BETTER FINANCIAL PLANNING MODEL
    4. 19.4 BEYOND THE BASIC PLANNING MODELS
    5. 19.5 MANAGING AND FINANCING GROWTH
    6. SUMMARY OF Learning Objectives
    7. SUMMARY OF Key Equations
    8. Self-Study Problems
    9. Solutions to Self-Study Problems
    10. Critical Thinking Questions
    11. Questions and Problems
    12. Sample Test Problems
  32. 20: Options and Corporate Finance
    1. 20.1 FINANCIAL OPTIONS
    2. 20.2 OPTION VALUATION
    3. 20.3 REAL OPTIONS
    4. 20.4 AGENCY COSTS
    5. 20.5 OPTIONS AND RISK MANAGEMENT
    6. SUMMARY OF Learning Objectives
    7. SUMMARY OF Key Equations
    8. Self-Study Problems
    9. Solutions to Self-Study Problems
    10. Critical Thinking Questions
    11. Questions and Problems
    12. Sample Test Problems
  33. 21: International Financial Management
    1. 21.1 INTRODUCTION TO INTERNATIONAL FINANCIAL MANAGEMENT
    2. 21.2 FOREIGN EXCHANGE MARKETS
    3. 21.3 INTERNATIONAL CAPITAL BUDGETING
    4. 21.4 GLOBAL MONEY AND CAPITAL MARKETS
    5. 21.5 INTERNATIONAL BANKING
    6. SUMMARY OF Learning Objectives
    7. SUMMARY OF Key Equations
    8. Self-Study Problems
    9. Solutions to Self-Study Problems
    10. Critical Thinking Questions
    11. Questions and Problems
    12. Sample Test Problems
  34. A: Future Value and Present Value Tables
  35. B: Solutions to Selected Questions and Problems
  36. GLOSSARY
  37. Subject Index
  38. Company Index