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Textbook
Applied Corporate Finance, 3rd EditionMarch 2010, ©2011
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Like no other text of its kind, Applied Corporate Finance, 3rd Edition applies corporate finance to real companies. It now contains five real-world core companies to study and follow. Business decisions are classified for students into three groups: investment, financing, and dividend decisions. Perfected suited for corporate finance and equity valuation courses in MBA programs!
ACKNOWLEDGMENTS.
CHAPTER 1 THE FOUNDATIONS.
The Firm: Structural Set-up.
First Principles.
Corporate Financial Decisions, Firm Value, and Equity Value.
A Real-World Focus.
A Resource Guide.
Some Fundamental Propositions about Corporate Finance.
Conclusion.
CHAPTER 2 THE OBJECTIVE IN DECISION MAKING.
Choosing the Right Objective.
The Classical Objective.
Maximize Stock Prices: The Best-Case Scenario.
Maximize Stock Prices: Real-World Conflicts of Interest.
Alternatives to Stock Price Maximization.
Maximize Stock Prices: Salvaging a Flawed Objective.
A Postscript: The Limits of Corporate Finance.
Conclusion.
LIVE CASE STUDY: Corporate Governance Analysis.
Problems and Questions.
CHAPTER 3 THE BASICS OF RISK.
Motivation and Perspective in Analyzing Risk.
Equity Risk and Expected Returns.
The Risk in Borrowing: Default Risk and the Cost of Debt.
Conclusion.
LIVE CASE STUDY: Stockholder Analysis.
Problems and Questions.
CHAPTER 4 RISK MEASUREMENT AND HURDLE RATES IN PRACTICE.
Cost of Equity.
From Cost of Equity to Cost of Capital.
Conclusion.
LIVE CASE STUDY: Risk and Return: Analysis for the Firm.
Problems and Questions.
CHAPTER 5 MEASURING RETURN ON INVESTMENTS.
What Is a Project?
Hurdle Rates for Firms versus Hurdle Rates for Projects.
Measuring Returns: The Choices.
Investment Decision Rules.
Probabilistic Approaches to Investment Analysis.
Conclusion.
LIVE CASE STUDY: Estimating Earnings and Cash Flows.
Problems and Questions.
CHAPTER 6 PROJECT INTERACTIONS, SIDE COSTS, AND SIDE BENEFITS.
Mutually Exclusive Projects.
Side Costs from Projects.
Side Benefits from Projects.
Options Embedded in Projects.
Measuring the Quality of Existing Investments.
Conclusion.
LIVE CASE STUDY: Estimating Earnings and Cash Flows.
Problems and Questions.
CHAPTER 7 CAPITAL STRUCTURE: OVERVIEW OF THE FINANCING DECISION.
The Choices: Types of Financing.
Financing Behavior.
The Process of Raising Capital.
The Tradeoff of Debt.
No Optimal Capital Structure.
There Is an Optimal Capital Structure.
How Firms Choose Their Capital Structures.
Conclusion.
LIVE CASE STUDY: Analyzing a Firm’s Current Financing Choices.
Problems and Questions.
CHAPTER 8 CAPITAL STRUCTURE: THE OPTIMAL FINANCIAL MIX.
Operating Income Approach.
Cost of Capital Approach.
Adjusted Present Value Approach.
Comparative Analysis.
Selecting the Optimal Debt Ratio.
Conclusion.
LIVE CASE STUDY: The Optimal Financing Mix.
Problems and Questions.
CHAPTER 9 CAPITAL STRUCTURE: THE FINANCING DETAILS.
A Framework for Capital Structure Changes.
Immediate, Gradual or no Change.
Choosing the Right Financing Instruments.
Conclusion.
LIVE CASE STUDY: Mechanics of Moving to the Optimal.
Problems and Questions.
CHAPTER 10 DIVIDEND POLICY.
Background on Dividend Policy.
When Are Dividends Irrelevant?
The ‘‘Dividends Are Bad’’ School.
The ‘‘Dividends Are Good’’ School.
Managerial Interests and Dividend Policy.
Conclusion.
LIVE CASE STUDY: The Tradeoff on Dividend Policy.
Problems and Questions.
CHAPTER 11 ANALYZING CASH RETURNED TO STOCKHOLDERS.
Cash Returned to Stockholders.
A Cash Flow Approach to Analyzing Dividend Policy.
A Comparable Firm Approach to Analyzing Dividend Policy.
Managing Changes in Dividend Policy.
Conclusion.
LIVE CASE STUDY: A Framework for Analyzing Dividends.
Problems and Questions.
CHAPTER 12 VALUATION: PRINCIPLES AND PRACTICE.
Discounted Cash Flow Valuation.
Relative Valuation.
Reconciling Different Valuations.
Conclusion.
LIVE CASE STUDY: Valuation.
Problems and Questions.
Appendix 1 Basic Statistics.
Appendix 2 Financial Statements.
Appendix 3 Time Value of Money.
Appendix 4 Option Pricing.
GLOSSARY.
INDEX.
- New developments in the text’s core companies—Disney, US entertainment company; Aracruz, Brazilian paper and pulp companies; Deutsche Bank, European bank; and Bookscape, independent NYC bookstore.
- New addition of a fifth international company—Tata Chemicals, an Indian manufacturing firm—with a detailed, current study of this Asian company and how it reflects the larger pattern of a family group company now common in Asia and Latin America.
- New examination of the banking crisis and how it will alter the way banks operate in the future.
- Updated discussions of risk-free rates and risk premiums to reflect the crisis of 2008 and what we have learned from that crisis.
- More online access to the live project study portion, reflecting the greater access to public information since the last edition.
- New and improved resources, including a new online glossary now available with the text.
Real Data, Real Time. This text uses links to the internet to help students gather company information; data sets are available on the web to use for supporting exercises; spreadsheets are available for further analysis of firms referenced in the book.
Emphasizes the principles of corporate finance and their universality across markets, different types of firms and different types of decisions. This is accomplished by using examples from big firms, U.S. firms, foreign firms, private firms and public firms.
Classification of all decisions made by any business into three groups—decisions on where to invest the resources or funds that the business has raised, either internally or externally (the investment decision), decisions on where and how to raise funds to finance these investments (the financing decision) and decisions on how much and in what form to return funds back to the owners (dividend decision).
Case studies at the end of each chapter to reinforce the framework for applying the book’s theories to a real company.
