1. Part 1 Introduction
2. Chapter 1 Corporate Finance and the Financial Manager
3. Learning Objectives
4. 1.1 Why study finance?
5. 1.2 The three types of firms
6. Sole traders
7. Partnerships
8. Corporations
9. Tax implications for corporate entities
10. 1.3 The financial manager
11. Making investment decisions
12. Making financing decisions
13. Managing short-term cash needs
14. The goal of the financial manager
15. 1.4 The financial manager’s place in the corporation
16. The corporate management team
17. Ethics and incentives in corporations
18. 1.5 The stock market
19. The largest stock markets
20. Traditional trading venues
21. Dark pools
22. 1.6 Financial institutions
23. The financial cycle
24. Types of financial institutions
25. Roles of financial institutions
26. Mylab Finance
27. Problems
28. The three types of firms
29. The financial manager
30. The financial manager’s place in the corporation
31. The stock market
32. Financial institutions
33. Notes
34. Chapter 2 Introduction to financial statement analysis
35. Learning Objectives
36. 2.1 Firms’ disclosure of financial information
37. International financial reporting standards
38. Preparation of financial statements
39. Types of financial statements
40. 2.2 The balance sheet
41. Assets
42. Liabilities
43. Shareholders’ equity
44. 2.3 Balance sheet analysis
45. Market-to-book ratio
46. Debt–equity ratio
47. Enterprise value
48. Other balance sheet information
49. 2.4 The income statement
50. Earnings calculations
51. 2.5 Income statement analysis
52. Profitability ratios
53. Asset efficiency
54. Working capital ratios
55. EBITDA
56. Leverage ratios
57. Investment returns
58. The DuPont Identity
59. Valuation ratios
60. 2.6 The statement of cash flows
61. Operating activity
62. Investment activity
63. Financing activity
64. 2.7 Other financial statement information
65. Management discussion and analysis
66. Statement of changes in equity
67. Notes to the financial statements
68. 2.8 Financial reporting in practice
69. Enron
70. HIH insurance
71. Centro
72. CLERP 9 and the ASX Good Corporate Governance Principles
73. The financial statements: A useful starting point
74. Mylab finance
75. Review Questions
76. Problems
77. Firms’ disclosure of financial information
78. The balance sheet
79. Balance sheet analysis
80. The income statement and income statement analysis
81. The statement of cash flows
82. Accounting manipulation
83. Data Case
84. Notes
85. Part 2 Interest rates and valuing cash flows
86. Chapter 3 Time value of money: an introduction
87. Learning Objectives
88. 3.1 Cost–benefit analysis
89. Role of the financial manager
90. Quantifying costs and benefits
91. 3.2 Market prices and the valuation principle
92. The Valuation Principle
93. Why there can be only one competitive price for a good
94. 3.3 The time value of money and interest rates
95. The time value of money
96. The interest rate: Converting cash across time
97. Timelines
98. 3.4 Valuing cash flows at different points in time
99. Rule 1: Comparing and combining values
100. Rule 2: Compounding
101. Rule 3: Discounting
102. Mylab Finance
103. Review Questions
104. Problems
105. Cost–benefit analysis
106. Market prices and the Valuation Principle
107. The time value of money and interest rates
108. Valuing cash flows at different points in time
109. Notes
110. Chapter 4 Time value of money: valuing cash flow streams
111. Learning Objectives
112. 4.1 Valuing a stream of cash flows
113. Applying the rules of valuing cash flows to a cash flow stream
114. 4.2 Perpetuities
115. 4.3 Annuities
116. Present value of an annuity
117. Future value of an annuity
118. 4.4 Growing cash flows
119. Growing perpetuity
120. Growing annuity
121. 4.5 Solving for variables other than present value or future value
122. Solving for the cash flows
123. Rate of return
124. Solving for the number of periods
125. 4.6 Non-annual cash flows
126. Summing it up
127. Mylab Finance
128. Review Questions
129. Problems
130. Valuing a stream of cash flows
131. Perpetuities
132. Annuities
133. Growing cash flows
134. Solving for variables other than present value or future value
135. Valuing cash flow streams with non-annual cash flows
136. Data case
137. Notes
138. Chapter 5 Interest Rates
139. Learning Objectives
140. 5.1 Interest rate quotes and adjustments
141. The effective annual rate
142. Adjusting the discount rate to different time periods
143. Annual percentage rates
144. 5.2 Application: discount rates and loans
145. Calculating loan payments
146. Calculating the outstanding loan balance
147. 5.3 The determinants of interest rates
148. Inflation and real versus nominal rates
149. Investment and interest rate policy
150. The yield curve and discount rates
151. The yield curve and the economy
152. 5.4 The opportunity cost of capital
153. Mylab Finance
154. Review Questions
155. Problems
156. Interest rate quotes and adjustments
157. Application: Discount rates and loans
158. The determinants of interest rates
159. The opportunity cost of capital
160. Notes
161. Chapter 6 Bond valuation
162. Learning Objectives
163. 6.1 Bond terminology
164. 6.2 Zero-coupon bonds
165. Zero-coupon bond cash flows
166. Yield to maturity of a zero-coupon bond
167. Risk-free interest rates
168. 6.3 Coupon bonds
169. Coupon bond cash flows
170. Yield to maturity of a coupon bond
171. Coupon bond price quotes
172. 6.4 Why bond prices change
173. Interest rate changes and bond prices
174. Time and bond prices
175. Interest rate risk and bond prices
176. Bond prices in practice
177. 6.5 Corporate bonds
178. Credit risk
179. Corporate bond yields
180. Bond ratings
181. Credit spreads
182. Mylab Finance
183. Review Questions
184. Problems
185. Bond terminology
186. Zero-coupon bonds
187. Coupon bonds
188. Why bond prices change
189. Corporate bonds
190. Data Case
191. Notes
192. Chapter 7 Share valuation: the dividend-discount model
193. Learning Objectives
194. 7.1 Share basics
195. Stock market reporting: Share quotes
196. Ordinary shares
197. Preference shares
198. 7.2 The dividend-discount model
199. A one-year investor
200. Dividend yields, capital gains and total returns
201. A multiyear investor
202. Dividend-discount model equation
203. 7.3 Estimating dividends in the dividend-discount model
204. Constant dividend growth
205. Dividends versus investment and growth
206. Changing growth rates
207. Value drivers and the dividend-discount model
208. 7.4 Limitations of the dividend-discount model
209. Uncertain dividend forecasts
210. Non-dividend-paying shares
211. 7.5 Share repurchases and the total payout model
212. 7.6 Putting it all together
213. Mylab Finance
214. Review Questions
215. Problems
216. Share basics
217. The dividend-discount model
218. Estimating dividends in the dividend-discount model
219. Share repurchases and the total payout model
220. Notes
221. Part 3 Valuation and the firm
222. Chapter 8 Investment decision rules
223. Learning Objectives
224. 8.1 The NPV decision rule
225. Net present value
226. The NPV decision rule
227. 8.2 Using the NPV rule
228. Organising the cash flows and computing the net present value
229. The NPV profile
230. Measuring sensitivity with the internal rate of return
231. Alternative rules versus the NPV rule
232. 8.3 Alternative decision rules
233. The payback rule
234. The IRR rule
235. Modified internal rate of return
236. 8.4 Choosing between projects
237. Differences in scale
238. Timing of the cash flows
239. 8.5 Evaluating projects with different lives
240. Important considerations when using the equivalent annual annuity
241. 8.6 Choosing among projects when resources are limited
242. Evaluating projects with different resource requirements
243. 8.7 Putting it all together
244. Mylab Finance
245. Review Questions
246. Problems
247. The NPV decision rule
248. Using the NPV rule
249. Alternative decision rules
250. Evaluating projects with different lives
251. Choosing among projects when resources are limited
252. Data case
253. Notes
254. Chapter 9 Fundamentals of capital budgeting
255. Learning Objectives
256. 9.1 The capital budgeting process
257. 9.2 Forecasting incremental earnings
258. Operating expenses versus capital expenditures
259. Incremental revenue and cost estimates
260. Taxes
261. Incremental earnings forecast
262. 9.3 Determining incremental free cash flow
263. Converting from earnings to free cash flow
264. Calculating free cash flow directly
265. Calculating the net present value
266. 9.4 Other effects on incremental free cash flow
267. Opportunity costs
268. Project externalities
269. Sunk costs
270. Adjusting free cash flow
271. Replacement decisions
272. 9.5 Analysing the project
273. Sensitivity analysis
274. Break-even analysis
275. Scenario analysis
276. 9.6 Real options in capital budgeting
277. Option to delay
278. Option to expand
279. Option to abandon
280. Mylab Finance
281. Review Questions
282. Problems
283. Forecasting incremental earnings
284. Determining incremental free cash flow
285. Other effects on incremental free cash flows
286. Analysing the project
287. Real options in capital budgeting
288. Data Case
289. Notes
290. Chapter 10 Share valuation: a second look
291. Learning Objectives
292. 10.1 The discounted free cash flow model
293. Valuing the enterprise
294. Implementing the model
295. Connection to capital budgeting
296. 10.2 Valuation based on comparable firms
297. Valuation multiples
298. Limitations of multiples
299. Comparison with discounted cash flow methods
300. Share valuation techniques: The final word
301. 10.3 Information, competition and share prices
302. Information in share prices
303. Competition and efficient markets
304. Lessons for investors and corporate managers
305. The efficient markets hypothesis versus no arbitrage
306. 10.4 Individual biases and trading
307. Excessive trading and overconfidence
308. Hanging on to losers and the disposition effect
309. Investor attention, mood and experience
310. Mylab Finance
311. Review Questions
312. Problems
313. The discounted free cash flow model
314. Valuation based on comparable firms
315. Information, competition and share prices
316. Individual biases and trading
317. Data Case
318. Notes
319. Part 4 Risk and return
320. Chapter 11 Risk and return in capital markets
321. Learning Objectives
322. 11.1 A first look at risk and return
323. 11.2 Historical risks and returns of shares
324. Computing historical returns
325. Average annual returns
326. The variance and volatility of returns
327. The normal distribution
328. 11.3 The historical trade-off between risk and return
329. The returns of large portfolios
330. The returns of individual shares
331. 11.4 Common versus independent risk
332. Theft versus earthquake insurance: An example
333. Types of risk
334. 11.5 Diversification in share portfolios
335. Unsystematic versus systematic risk
336. Diversifiable risk and the risk premium
337. The importance of systematic risk
338. Mylab Finance
339. Review Questions
340. Problems
341. Historical risks and returns of shares
342. Common versus independent risk
343. Diversification in share portfolios
344. Notes
345. Chapter 12 Systematic risk and the equity risk premium
346. Learning Objectives
347. 12.1 The expected return of a portfolio
348. Portfolio weights
349. Expected portfolio return
350. 12.2 The volatility of a portfolio
351. Diversifying risks
352. Measuring shares’ co-movement: Correlation
353. Computing a portfolio’s variance and standard deviation
354. The volatility of a large portfolio
355. 12.3 Measuring systematic risk
356. Role of the market portfolio
357. Stock market indices as the market portfolio
358. Market risk and beta
359. Estimating beta from historical returns
360. 12.4 Putting it all together: the capital asset pricing model
361. The CAPM equation relating risk to expected return
362. The security market line
363. The Capital Asset Pricing Model and portfolios
364. Summary of the Capital Asset Pricing Model
365. The big picture
366. Mylab Finance
367. Review Questions
368. Problems
369. The expected return of a portfolio
370. The volatility of a portfolio
371. Measuring systematic risk
372. Putting it all together: The Capital Asset Pricing Model
373. Notes
374. Chapter 13 The cost of capital
375. Learning Objectives
376. 13.1 A first look at the weighted average cost of capital
377. The firm’s capital structure
378. Opportunity cost and the overall cost of capital
379. Weighted averages and the overall cost of capital
380. Weighted average cost of capital calculations
381. 13.2 The firm’s costs of debt and equity capital
382. Cost of debt capital
383. Cost of preference share capital
384. Cost of ordinary share capital
385. 13.3 A second look at the weighted average cost of capital
386. Weighted average cost of capital equation
387. Weighted average cost of capital in practice
388. Methods in practice
389. 13.4 Using the weighted average cost of capital to value a project
390. Key assumptions
391. WACC method application: Extending the life of a mine
392. Summary of the WACC method
393. 13.5 Project-based costs of capital
394. Cost of capital for a new acquisition
395. Divisional costs of capital
396. 13.6 When raising external capital is costly
397. Mylab Finance
398. Review Questions
399. Problems
400. A first look at the weighted average cost of capital
401. The firm’s costs of debt and equity capital
402. A second look at the weighted average cost of capital
403. Using the weighted average cost of capital to value a project
404. Project-based costs of capital
405. When raising external capital is costly
406. Data Case
407. Notes
408. Part 5 Long-term financing
409. Chapter 14 Raising capital
410. Learning Objectives
411. 14.1 Equity financing for private companies
412. Sources of funding
413. Securities and valuation
414. Exiting an investment in a private company
415. 14.2 Taking your firm public: The initial public offering
416. Advantages and disadvantages of going public
417. Primary and secondary IPO offerings
418. Other IPO types
419. 14.3 IPO puzzles
420. Underpriced IPOs
421. ‘Hot’ and ‘cold’ IPO markets
422. High cost of issuing an IPO
423. Poor post-IPO long-run share performance
424. 14.4 Raising additional capital: The seasoned equity offering
425. SEO process
426. SEO price reaction
427. SEO costs
428. MyLab Finance
429. Review questions
430. Problems
431. Equity financing for private companies
432. Taking your firm public: The initial public offering
433. Raising additional capital: The seasoned equity offering
434. Notes
435. Chapter 15 Debt Financing
436. Learning Objectives
437. 15.1 Corporate debt
438. Private debt
439. Public debt
440. 15.2 Bond covenants
441. Types of covenants
442. Advantages of covenants
443. 15.3 Repayment provisions
444. Call provisions
445. Sinking funds
446. Convertible provisions
447. MyLab Finance
448. Review questions
449. Problems
450. Corporate debt
451. Repayment provisions
452. Notes
453. Part 6 Capital structure and valuation
454. Chapter 16 Capital structure
455. Learning Objectives
456. 16.1 Capital structure choices
457. Capital structure choices across industries
458. Capital structure choices within industries
459. 16.2 Capital structure in perfect capital markets
460. Application: Financing a new business
461. Leverage and firm value
462. The effect of leverage on risk and return
463. Home-made leverage
464. Leverage and the cost of capital
465. Modigliani and Miller and the real world
466. 16.3 Debt and taxes
467. The interest tax deduction and firm value
468. Value of the interest tax shield
469. The interest tax shield with permanent debt
470. Leverage and the weighted average cost of capital with taxes
471. Debt and taxes: The bottom line
472. 16.4 The costs of bankruptcy and financial distress
473. Direct costs of bankruptcy
474. Indirect costs of financial distress
475. 16.5 Optimal capital structure: The trade-off theory
476. Differences across firms
477. Optimal leverage
478. 16.6 Additional consequences of leverage: Agency costs and information
479. Agency costs
480. Debt and information
481. 16.7 Capital structure: Putting it all together
482. MyLab Finance
483. Review Questions
484. Problems
485. Capital structure in perfect capital markets
486. Debt and taxes
487. Optimal capital structure: The trade-off theory
488. Additional consequences of leverage: Agency costs and information
489. Notes
490. Chapter 17 Payout policy
491. Learning Objectives
492. 17.1 Cash distributions to shareholders
493. Dividends
494. Share repurchases
495. 17.2 Dividends versus share repurchases in a perfect capital market
496. Alternative policy 1: Pay a dividend with excess cash
497. Alternative policy 2: Share repurchase (no dividend)
498. Alternative policy 3: High dividend (equity issue)
499. Modigliani–Miller and dividend policy irrelevance
500. Dividend policy with perfect capital markets
501. 17.3 Dividends and share repurchases under personal taxes
502. Taxes on dividends and capital gains
503. Dividend imputation
504. Taxation of capital gains
505. Dividends versus capital gains
506. Share repurchases structured as dividends
507. Optimal dividend policy with taxes
508. 17.4 Payout versus retention of cash
509. Retaining cash with perfect capital markets
510. Retaining cash with imperfect capital markets
511. 17.5 Signalling with payout policy
512. Dividend smoothing
513. Dividend signalling
514. Signalling and share repurchases
515. 17.6 Dividend reinvestment plans and bonus issues
516. Dividend reinvestment plans
517. Bonus issues
518. 17.7 Dividend imputation and share valuation
519. Valuation and franking credits: The theory
520. Estimating gamma
521. Valuation and franking credits: Market practice
522. 17.8 Advice for the financial manager
523. MyLab Finance
524. Review questions
525. Problems
526. Cash distributions to shareholders
527. Dividends versus share repurchases in a perfect capital market
528. The tax disadvantage of dividends
529. Payout versus retention of cash
530. Signalling with payout policy
531. Dividend reinvestment plans and bonus issues
532. Dividend imputation and share valuation
533. Data case
534. Notes
535. Part 7 Financial planning
536. Chapter 18 Financial modelling and pro-forma analysis
537. Learning Objectives
538. 18.1 Goals of long-term financial planning
539. Identify important linkages
540. Analyse the impact of potential business plans
541. Plan for future funding needs
542. 18.2 Forecasting financial statements: The per cent of sales method
543. Per cent of sales method
544. Pro-forma income statement
545. Pro-forma balance sheet
546. Making the balance sheet balance: Net new financing
547. Choosing a forecast target
548. 18.3 Forecasting a planned expansion
549. KMS Designs’ expansion: Financing needs
550. KMS Designs’ expansion: Pro-forma statement
551. Forecasting the balance sheet
552. 18.4 Growth and firm value
553. Sustainable growth rate and external financing
554. 18.5 Valuing the expansion
555. Forecasting free cash flows
556. KMS Designs’ expansion: Effect on firm value
557. MyLab Finance
558. Review questions
559. Problems
560. Forecasting a planned expansion
561. Growth and firm value
562. Valuing the expansion
563. Notes
564. Chapter 19 Working capital management
565. Learning Objectives
566. 19.1 Overview of working capital
567. The cash cycle
568. Working capital needs by industry
569. Firm value and working capital
570. 19.2 Trade credit
571. Trade credit terms
572. Trade credit and market frictions
573. Managing float
574. 19.3 Receivables management
575. Determining the credit policy
576. Monitoring accounts receivable
577. 19.4 Payables management
578. Determining accounts payable days outstanding
579. Stretching accounts payable
580. 19.5 Inventory management
581. Benefits of holding inventory
582. Costs of holding inventory
583. 19.6 Cash management
584. Motivation for holding cash
585. Alternative investments
586. MyLab Finance
587. Review questions
588. Problems
589. Overview of working capital
590. Trade credit
591. Receivables management
592. Payables management
593. Inventory management
594. Data case4
595. Notes
596. Part 8 Special topics
597. Chapter 20 Option applications and corporate finance
598. Learning Objectives
599. 20.1 Option basics
600. Option contracts
601. Share option quotations
602. Options on other financial securities
603. 20.2 Option payoffs at expiration
604. The long position in an option contract
605. The short position in an option contract
606. Profits for holding an option to expiration
607. Returns for holding an option to expiration
608. 20.3 Factors affecting option prices
609. Exercise price and share price
610. Option prices and the exercise date
611. Option prices and the risk-free rate
612. Option prices and volatility
613. 20.4 The Black Scholes option pricing formula
614. 20.5 Put call parity
615. Portfolio insurance
616. 20.6 Options and corporate finance
617. MyLab Finance
618. Review questions
619. Problems
620. Option payoffs at expiration
621. Factors affecting option prices
622. Put call parity
623. Options and corporate finance
624. Data Case
625. Notes
626. Chapter 21 Mergers and acquisitions
627. Learning Objectives
628. 21.1 Background and historical trends
629. Merger waves
630. Types of mergers
631. 21.2 Market reaction to a takeover
632. 21.3 Reasons to acquire
633. Economies of scale and scope
634. Vertical integration
635. Expertise
636. Monopoly gains
637. Efficiency gains
638. Tax savings from operating losses
639. Diversification
640. Earnings growth
641. Managerial motives to merge
642. 21.4 The takeover process
643. Valuation
644. The offer
645. Merger ‘arbitrage’
646. Tax and accounting issues
647. Board and shareholder approval
648. 21.5 Takeover defences
649. Poison pills
650. Staggered boards
651. White knights
652. Golden parachutes
653. Recapitalisation
654. Other defensive strategies
655. 21.6 Who gets the value added from a takeover?
656. The free rider problem
657. Toeholds
658. Leveraged buyouts
659. Competition
660. MyLab Finance
661. Review questions
662. Problems
663. The takeover process
664. Takeover defences
665. Who gets the value added from a takeover?
666. Notes
667. Chapter 22 International corporate finance
668. Learning Objectives
669. 22.1 Foreign exchange
670. The foreign exchange market
671. Exchange rates
672. 22.2 Exchange rate risk
673. Exchange rate fluctuations
674. Hedging with forward contracts
675. Cash-and-carry and the pricing of currency forwards
676. Hedging exchange rate risk with options
677. 22.3 Internationally integrated capital markets
678. 22.4 Valuation of foreign currency cash flows
679. Application: Ityesi Packaging
680. The Law of One Price as a robustness check
681. 22.5 Valuation and international taxation
682. A single foreign project with immediate repatriation of earnings
683. Multiple foreign projects and deferral of earnings repatriation
684. 22.6 Internationally segmented capital markets
685. Differential access to markets
686. Macro-level distortions
687. Implications of internationally segmented capital markets
688. 22.7 Capital budgeting with exchange rate risk
689. Application: Ityesi Packaging
690. Conclusion
691. MyLab Finance
692. Review questions
693. Problems
694. Foreign exchange
695. Exchange rate risk
696. Internationally integrated capital markets
697. Valuation of foreign currency cash flows
698. Valuation and international taxation
699. Internationally segmented capital markets
700. Capital budgeting with exchange rate risk
701. Data Case
702. Notes
703. Chapter 23 Insurance and risk management
704. Learning Objectives
705. 23.1 Insurance
706. The role of insurance: An example
707. Insurance pricing in a perfect market
708. The value of insurance
709. The costs of insurance
710. The insurance decision
711. 23.2 Commodity price risk
712. Hedging with vertical integration and storage
713. Hedging with long-term contracts
714. Hedging with futures contracts
715. 23.3 Interest rate risk
716. Interest rate risk measurement: Duration
717. Duration-based hedging
718. Swap-based hedging
719. MyLab Finance
720. Review questions
721. Problems
722. Insurance
723. Commodity price risk
724. Interest rate risk
725. Notes

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