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Fundamentals of Corporate Finance, 2nd Edition




Fundamentals of Corporate Finance, 2nd Edition

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Fundamentals of Corporate Finance 2e reflects the reality that Finance as an intellectual discipline continues to be challenged by the experiences and events of market activity. Following the global financial crisis (GFC), mangers have embarked on even more uncertain times. Thus, although the teaching of finance may have remained robust as a framework of conceptual thought, it is imperative that students come to realise that "finance is not physics", by which we mean that even a concept as foundational to financial management as the capital asset pricing model (CAPM) should not be interpreted as a literal truth. This leads to a consideration of managing risk and risk management approaches as having behavioural aspects that are the outcomes of a manager’s or the firm’s accumulated experience. They cannot always be reduced to the simple directives of a quantitative algorithm. 


The text helps students develop the intuition and analytical skills necessary to effectively apply financial tools in real-world decision-making situations.  The text provides a fully integrated framework for understanding how value creation relates to all aspects of corporate finance:  whether it be evaluating an investment opportunity, determining the appropriate financing for a business, or managing working capital.  This unique and integrated framework also enables students to develop problem solving and decision-making skills.


The 2nd edition has undergone a thorough revision to the end of chapter materials, and the internal design of the book has been revamped to make it more visually appealing.  As a result the text is far easier to navigate for students and is significantly more engaging in its presentation. 


The ground breaking Wiley E-Text version of Fundamentals of Corporate Finance 2e  features narrated concept summaries, animated demo problems, stepped tutorials and interactive end of chapter materials to allow students to attempt the problems in the text and receive immediate  feedback.   Students can also do key word searches within the E-Text, highlight content of interest and make notes.   Wiley The E-Text can be used on all popular platforms and devices including OC, Mac, iPad, Android and Kindle Fire.

About the authors xi

Preface xiii

Organisation and coverage xv

Applications at a glance xviii

How to use this book xx

Acknowledgements xxiii

Student and lecturer resources xxiv

Selected abbreviations and notation xxv

PART 1. Introduction

CHAPTER 1. The financial manager and the company 2

PART 2. Foundations

CHAPTER 2. The financial system and the level of interest rates 30

CHAPTER 3. Financial statements, cash flows and tax 56

CHAPTER 4. Analysing financial statements 88

PART 3. Valuation of future cash flows and risk

CHAPTER 5. The time value of money 138

CHAPTER 6. Discounted cash flows and valuation 178

CHAPTER 7. Risk and return 222

CHAPTER 8. Bond valuation and the structure of interest rates 266

CHAPTER 9. Share valuation 302

PART 4. Capital budgeting decisions

CHAPTER 10. The fundamentals of capital budgeting 334

CHAPTER 11. Cash flows and capital budgeting 380

CHAPTER 12. Evaluating project economics and capital rationing 416

CHAPTER 13. The cost of capital 448

PART 5. Working capital management and financing decisions

CHAPTER 14. Working capital management 486

CHAPTER 15. How companies raise capital 520

CHAPTER 16. Capital structure policy 548

CHAPTER 17. Dividends and dividend policy 584

PART 6. Business formation, valuation and financial planning

CHAPTER 18. Business formation, growth and valuation 608

CHAPTER 19. Strategic financial planning and forecasting 646

PART 7. Options and corporate finance and international decisions

CHAPTER 20. Options and corporate finance 684

CHAPTER 21. International financial management 714

Appendix A: Present value and future value tables 746

Appendix B: Solutions to self-study problems 754

Glossary 777

Index 785

  • Expanded discussion of Types of Financial Markets (primary and secondary markets; electronic trading) and The Capital Asset Pricing Model .


  • Updated information on international stock markets, global activity in markets, market risk.


  • New section on Mutually Exclusive Projects and NPV.


  • Expanded section on factoring as an increasing source of finance for business


  • New material on  Value Options Associated with the Financial Securities that companies Issue
  • Australian and New Zealand companies introduce the chapters and provide a real world context for financial concepts in the chapter. Some of the companies profiled are Wesfarmers, Restaurant Brands New Zealand, Patties Foods, Qantas, Harvey Norman, Myer, and BHP Billiton.
  • Key point boxes provide a statement of an important finance concept along with an intuitive example or explanation to help the student “get” the concept
  • Demonstration problems contain standard quantitative problems with step-by-step solutions to help students better understand how to apply their intuition and analytical skills to solve important problems.  This unique feature takes the stepped-out problem beyond other texts by offering “approaches” students can take to solve each problem
  • Decision-Making Examples emphasize the decision-making process along with computation and provide students at all levels with experience in financial decision-making
  • Before You Go Onself-study questions throughout each chapter serve as a checkpoint at which students can test their understanding of the material in that section.
  • Currency of data and statistical information from RBA, ASX etc.
  • More than 1,000 end-of-chapter problems written by the authors with Bloom’s Taxonomy in mind.  Solutions for these problems and charts showing how they relate to the levels in Bloom’s Taxonomy are provided in the Instructor’s Manual

Self –Study Problems reinforce the methods used to solve problems discussed in the chapter

Critical Thinking Questions require students to think through their understanding of the basic concepts and apply those concepts to a problem

Questions and Problems cover a range of difficulty levels to help students solidify their understanding of the concepts.