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Fundamentals of Corporate Finance. 5th Edition, International Adaptation

  • Book

  • 848 Pages
  • June 2022
  • Region: Global
  • John Wiley and Sons Ltd
  • ID: 5828007

Fundamentals of Corporate Finance develops the key concepts of corporate finance with an intuitive approach while emphasizing computational skills. Presenting the topics in a logical and stepped-out manner, this book helps students develop an understanding of key financial concepts while also enabling them to develop the critical judgments necessary to apply financial tools in real-world decision-making situations.  It offers a level of rigor that is appropriate for both business and finance majors and yet presents the content in a manner that students find accessible. 

This International Adaptation includes new examples to help students better understand how to analyze the ethical dilemmas in business. In addition, select chapters include a new feature called Corporate Finance at Work which provides a broader perspective of the content covered in the chapter.  Finally, to address the global context in which firms now operate, this edition adds to the discussion on international financial management by including sections on international accounting issues and Islamic finance.          

Table of Contents

1 The Financial Manager and the Firm  

1.1 The Role of the Financial Manager  

1.2 Forms of Business Organization  

1.3 Managing the Financial Function  

1.4 The Goal of the Firm  

1.5 Agency Conflicts: Separation of Ownership and Control 

1.6 The Importance of Ethics in Culture 

Summary of Learning Objectives/Self-Study Problems/ 

Solutions to Self-Study Problems/Discussion Questions/ 

Questions and Problems/Sample Test Problems 

Ethics Case - Incentives and Ethics: Cross-Selling at Wells Fargo  

 

2 The Financial System and the Level of Interest Rates  

2.1 The Financial System  

2.2 Direct Financing  

2.3 Types of Financial Markets  

2.4 Market Efficiency  

2.5 Financial Institutions and Indirect Financing  

2.6 The Determinants of Interest Rate Levels  

Summary of Learning Objectives/Summary of Key 

Equations/Self-Study Problems/Solutions to Self-Study 

Problems/Discussion Questions/Questions and Problems/ 

Sample Test Problems 

 

 

3 Financial Statements, Cash Flows, and Taxes  

3.1 Financial Statements and Accounting Principles 

3.2 The Balance Sheet  

3.3 Market Value versus Book Value  

3.4 The Income Statement and the Statement of Retained Earnings 

3.5 The Statement of Cash Flows  

3.6 Tying Together the Financial Statements  

3.7 International Accounting Issues 

3.8 Corporate Income Tax  

Summary of Learning Objectives/Summary of Key 

Equations/Self-Study Problems/Solutions to Self-Study 

Problems/Discussion Questions/Questions and Problems/ 

Sample Test Problems 

 

 

 

4 Analyzing Financial Statements  

4.1 Background for Financial Statement Analysis  

4.2 Common-Size Financial Statements  

4.3 Financial Ratios and Firm Performance  

4.4 The Dupont System: A Diagnostic Tool  

4.5 Selecting a Benchmark  

4.6 Using Financial Ratios  

Summary of Learning Objectives/Summary of Key 

Equations/Self-Study Problems/Solutions to Self-Study 

Problems/Discussion Questions/Questions and Problems/ 

Sample Test Problems 

Ethics Case - A Sad Tale: The Demise of Arthur Andersen  

 

5 The Time Value of Money  

5.1 The Time Value of Money  

5.2 Future Value and Compounding  

5.3 Present Value and Discounting  

5.4 Additional Concepts and Applications  

Summary of Learning Objectives/Summary of Key 

Equations/Self-Study Problems/Solutions to Self-Study 

Problems/Discussion Questions/Questions and Problems/ 

Sample Test Problems 

 

 

6 Discounted Cash Flows and Valuation  

6.1 Multiple Cash Flows  

6.2 Level Cash Flows: Annuities  

6.3 Level Cash Flows: Perpetuities  

6.4 Cash Flows That Grow at a Constant Rate  

6.5 The Effective Annual Interest Rate  

Summary of Learning Objectives/Summary of Key 

Equations/Self-Study Problems/Solutions to Self-Study 

Problems/Discussion Questions/Questions and Problems/ 

Sample Test Problems/Appendix: Deriving the Formula for 

the Present Value of an Ordinary Annuity/Problem 

Ethics Case - Buy It on Credit and Be True to Your University 

 

7 Risk and Return  

7.1 Risk and Return  

7.2 Holding Period Returns 

7.3 Expected Returns  

7.4 Variance and Standard Deviation as Measures of Risk  

7.5 Arithmetic Average and Geometric (Compounded) Average Returns  

7.6 Risk and Diversification  

7.7 Systematic Risk  

7.8 The Capital Asset Pricing Model  

Summary of Learning Objectives/Summary of Key 

Equations/Self-Study Problems/Solutions to Self-Study 

Problems/Discussion Questions/Questions and Problems/ 

Sample Test Problems 

Ethics Case - Pay for Performance or Just More Pay? The Conflicting Case for CEO Pay 

 

 

8 Bond Valuation and the Structure of Interest Rates  

8.1 Corporate Bonds  

8.2 Bond Valuation  

8.3 Bond Yields  

8.4 Interest Rate Risk  

8.5 The Determinants of Corporate Borrowing Costs  

8.6 The Term Structure of Interest Rates  

Summary of Learning Objectives/Summary of Key 

Equations/Self-Study Problems/Solutions to Self-Study 

Problems/Discussion Questions/Questions and Problems/ 

Sample Test Problems 

Ethics Case - The Subprime Mortgage Market Meltdown: How Did It Happen?  

 

 

9 Stock Valuation  

9.1 The Market for Stocks  

9.2 Common and Preferred Stock 

9.3 Common Stock Valuation  

9.4 The General Dividend-Valuation Model  

9.5 Stock Valuation: Some Simplifying Assumptions  

9.6 The Relation between R and  

9.7 Valuing Preferred Stock  

Summary of Learning Objectives/Summary of Key 

Equations/Self-Study Problems/Solutions to Self-Study 

Problems/Discussion Questions/Questions and Problems/ 

Sample Test Problems 

Ethics Case - Insider Trading: Exploiting the System 

 

 

10 The Fundamentals of Capital Budgeting  

10.1 An Introduction to Capital Budgeting  

10.2 Net Present Value  

10.3 The Payback Period  

10.4 The Accounting Rate of Return  

10.5 Internal Rate of Return  

10.6 Investment Decisions with Capital Rationing  

10.7 Capital Budgeting in Practice  

Summary of Learning Objectives/Summary of Key 

Equations/Self-Study Problems/Solutions to Self-Study 

Problems/Discussion Questions/Questions and Problems/ 

Sample Test Problems 

Ethics Case - Going Green: Can Automakers Invest in Environmental Solutions?  

 

11 Cash Flows and Capital Budgeting  

11.1 Calculating Project Cash Flows  

11.2 Estimating Cash Flows in Practice  

11.3 Forecasting Free Cash Flows  

11.4 Special Cases  

11.5 Harvesting an Asset  

Summary of Learning Objectives/Summary of Key 

Equations/Self-Study Problems/Solutions to Self-Study 

Problems/Discussion Questions/Questions and Problems/ 

Sample Test Problems 

Ethics Case - Unilever’s Sustainable Living Plan 

 

 

12 Evaluating Project Economics  

12.1 Variable Costs, Fixed Costs, and Project Risk  

12.2 Calculating Operating Leverage  

12.3 Break-Even Analysis  

12.4 The Economic Break-Even Point  

12.5 Risk Analysis  

Summary of Learning Objectives/Summary of Key 

Equations/Self-Study Problems/Solutions to Self-Study 

Problems/Discussion Questions/Questions and Problems/ 

Sample Test Problems 

 

13 The Cost of Capital  

13.1 The Firm’s Overall Cost of Capital  

13.2 The Cost of Debt  

13.3 The Cost of Equity  

13.4 Using the WACC in Practice  

Summary of Learning Objectives/Summary of Key 

Equations/Self-Study Problems/Solutions to Self-Study 

Problems/Discussion Questions/Questions and Problems/ 

Sample Test Problems 

 

 

14 Working Capital Management  

14.1 Working Capital Basics  

14.2 The Operating and Cash Conversion Cycles  

14.3 Working Capital Management Strategies  

14.4 Accounts Receivable  

14.5 Inventory Management  

14.6 Cash Management and Budgeting  

14.7 Financing Working Capital  

Summary of Learning Objectives/Summary of Key 

Equations/Self-Study Problems/Solutions to Self-Study 

Problems/Discussion Questions/Questions and Problems/ 

Sample Test Problems 

 

15 How Firms Raise Capital  

15.1 Bootstrapping  

15.2 Venture Capital  

15.3 Initial Public Offering  

15.4 IPO Pricing and Cost  

15.5 General Cash Offer by a Public Company  

15.6 Private Markets and Bank Loans  

Summary of Learning Objectives/Summary of Key 

Equations/Self-Study Problems/Solutions to Self-Study 

Problems/Discussion Questions/Questions and Problems/ 

Sample Test Problems 

Ethics Case - Profiting from Death: “Janitor’s Insurance” 

 

 

16 Capital Structure Policy  

16.1 Capital Structure and Firm Value  

16.2 The Benefits and Costs of Using Debt  

16.3 Two Theories of Capital Structure  

16.4 Practical Considerations in Choosing a Capital Structure  

Appendix: Leasing  

Summary of Learning Objective/Self-Study Problem/ 

Solution to Self-Study Problem/Discussion Questions/ 

Questions and Problems 

 

 

17 Dividends, Stock Repurchases, and Payout Policy  

17.1 Dividends  

17.2 Stock Repurchases  

17.3 Dividends and Firm Value  

17.4 Stock Dividends and Stock Splits  

17.5 Setting a Dividend Payout  

Summary of Learning Objectives/Self-Study Problems/ 

Solutions to Self-Study Problems/Discussion Questions/ 

Questions and Problems/Sample Test Problems 

 

 

18 Business Formation, Growth, and Valuation  

18.1 Starting a Business  

18.2 The Role of the Business Plan  

18.3 Valuing a Business  

18.4 Important Issues in Valuation  

Summary of Learning Objectives/Summary of Key 

Equations/Self-Study Problems/Solutions to Self-Study 

Problems/Discussion Questions/Questions and Problems/ 

Sample Test Problems 

 

 

19 Financial Planning and Managing Growth  

19.1 Financial Planning  

19.2 Financial Planning Models  

19.3 A Better Financial Planning Model  

19.4 Beyond the Basic Planning Models  

19.5 Managing and Financing Growth  

Summary of Learning Objectives/Summary of Key 

Equations/Self-Study Problems/Solutions to Self-Study 

Problems /Discussion Questions/Questions and Problems/ 

Sample Test Problems 

 

20 Corporate Risk Management 

20.1 Why Companies Manage Corporate Risks 

20.2 Managing Operational, Business, and Financial Risks 

20.3 Forwards and Futures 

20.4 Swaps 

20.5 Financial Options 

20.6 Option Valuation 

20.7 Real Options 

20.8 Agency Costs 

Summary of Learning Objectives/Summary of Key 

Equations/Self-Study Problems/Solutions to Self-Study 

Problems/Discussion Questions/Questions and Problems/Sample Test Problems 

 

 

21 International Financial Management  

21.1 Introduction to International Financial Management  

21.2 Foreign Exchange Markets  

21.3 International Capital Budgeting  

21.4 Global Money and Capital Markets  

21.5 International Banking  

21.6 Islamic Finance 

Summary of Learning Objectives/Summary of Key 

Equations/Self-Study Problems/Solutions to Self-Study 

Problems/Discussion Questions/Questions and Problems/ 

Sample Test Problems 

 

 

APPENDIX A Future Value and Present Value Tables 

APPENDIX B The 2017 Tax Cuts and Jobs Act: Implications for Cash Flow to Investors, the 

Cost of Capital, and Capital Structure 

GLOSSARY  

SUBJECT INDEX  

COMPANY INDEX  

Authors

Robert Parrino University of Texas, Austin. David S. Kidwell University of Minnesota. Thomas Bates Arizona State University. Stuart L. Gillan