CORPORATE FINANCE

1. The Financial Environment

1. The Flow of Savings to Corporations

• The Stock Market
• Other Financial Markets
• Financial Intermediaries
• Financial Institutions
• Total Financing of U.S. Corporations

1.2. Functions of Financial Markets and Intermediaries

• Transporting Cash Across Time
• Liquidity
• The Payment Mechanism
• Reducing Risk
• Information Provided to Financial Markets
• The Opportunity Cost of Capital

2. The Time Value of Money

2.1 Future Values and Compound Interest
2.2 Present Values

Finding the Interest Rate

2.3 Multiple Cash Flows

Future Value of Multiple Cash Flows

Present Value of Multiple cash Flows

2.4 Level Cash Flows Perpetuities and Annuities

How to Value Perpetuities

How to Value Annuities

Annuities Due

Future Value of an Annuity

2.5 Inflation and the Time Value of Money

Real versus Nominal Cash Flows

Inflation and Interest Rates

Valuing Real Cash Payments

Real or Nominal

2.6 Effective Annual Interest Rates

 

3. Valuing Bonds

3.1 Bond Characteristics

Reading the Financial Pages

3.2 Bond Prices and Yields

How Bond Prices Vary with Interest Rates

Yield to Maturity versus Current Yield

Rate of Return

Interest Rate Risk

The Yield Curve

Normal and Real Rate of Interest

Default Risk

Variation in Corporate Bonds

4. Valuing Stocks

4.1 Stocks and Stock Market

Reading the Stock Market Listings

4.2 Book Values, Liquidation Values, and Market Values
4.3 Valuing Common Stocks

Today’s Price and Tomorrow’s Price

The Dividend Discount Model

4.4 Simplifying the Dividend Discount Model

The Dividend Discount Model with no Growth

The Constant – Growth Dividend Discount Model

Estimating Expected Rates of Returns

Non-constant Growth

4.5 Growth Stocks and Income Stocks

The Price Earning Ratio

Valuing Entire Businesses

4.6 There are No Free Lunches on Wall Street

Method 1 : Technical Analysis

Method 2 : Fundamental Analysis

A Theory to Fit The Facts

4.7 Behavioral Finance and the Rise and Fall of the Dot.Coms

5. Net Present Value and Other Investment Criteria

5.1 Net Present Value

• A Comment on Risk and Present Value

• Valuing Long Live Projects

5.2 Other Investment Criteria

• Payback

• Internal Rate of Returns

• A Closer Look and the Rate of Return Rule

• Calculating the Rate of Return for Long Lived Projects

• A Word of Caution

• Some Pitfalls with the Internal Rate of Return Rule

5.3 Mutually Exclusive Projects

• Investment Timing

• Long versus Short Lived Equipment

• Replacing an Old Machine

• Mutually Exclusive Projects and the IRR Rule

5.4 Capital Rationing

• Soft Rationing

• Hard Rationing

• Pitfalls of the Profitability Index

5.5 A Last Look

6. Using Discounted Cash Flow Analysis to Make Investment Decisions

6.1
Discount Cash Flows, Not Profits
6.2 Discount Incremental Cash Flows

• Include all Indirect Effect

• Forget Sunk Costs

• Include Opportunity Cost

• Recognize the Investment in Working Capital

• Beware of Allocated Overhead Costs

6.3 Discount Nominal Cash Flows by the Nominal Cost of Capital
6.4 Separate Investment and Financing Decisions
6.5 Calculating Cash Flow

• Capital Investment

• Investment in Working Capital

• Cash Flow from Operations

7. Project Analysis

7.1 How Firms Organize the Investment Process

• Stage One : The Capital Budget
• Stage Two : Project Authorizations

Problems and Some Solutions

7.2 Some "What – If" Questions

• Sensitivity Analysis
• Scenario Analysis

7.3 Break Even Analysis

• Accounting Break Even Analysis
• Economic Value Added and Break Even Analysis

Operating Leverage

7.4 Real Options and the Value of Flexibility

• The Option to Expand
• A Second Real Option : The Option to Abounded
• A Third Real Option : The Timing Option
• A Fourth Real Option : Flexible Production Facilitie

8. Introduction to Risk, Return, and the Opportunity Cost of Capital

8.1 Rate of Return: A Review
8.2 A Century of Capital Market History

• Market Indexes
• The Historical Record
• Using Historical Evidence to estimate Today’s Cost of Capital

8.3 Measuring Risk

• Variance and Standard Deviation
• A Note on Calculating Variance
• Measuring the variance in Stock Return

8.4 Risk and Diversification

• Diversification
• Asset versus Portfolio Risk
• Market Risk versus Unique Risk

8.5 Thinking about Risk

• Message 1 : Some Risk look Big and Dangerous but Really are Diversifiable
• Message 2 : Market Risk are Macro Risks
• Message 3 : Risk can be Measure

9. Risk, Return and Capital Budgeting

9.1 Measuring Market Risk

• Measuring Beta
• Betas for Amazon.com and Exxon Mobile
• Portfolio Betas

9.2 Risk and Return

• Why the CAPM works
• The Security Market Line
• How Well does the CAPM work?
• Using the CAPM to estimated expected Return

9.3 Capital Budgeting and Project Risk

• Company versus Project Risk
• Determinant of Project Risk
• Don’t add Fudge Factors to Discount Rates

10. The Cost of Capital

10.1 Geothermal Cost of Capital
10.2 The Weighted-Average Cost of Capital

• Calculating Company Cost of Capital as a Weighted Average
• Market versus Book Weights
• Taxes and the Weighted-Average Costs of Capital
• What If There Are Three (or More) Sources of Financing?
• Wrapping up Geothermal
• Checking our Logic

10.3 Measuring Capital Structure
10.4 Calculating the Required Rate of Returns

• The Expected Return on Bonds
• The Expected Return on Common Stock
• The Expected Return on Preferred Stock

10.5 Calculating the Weighted Average Cost of Capital

• Real Company WACCs

10.6 Interpreting the Weighted Average Cost of Capital

• When You Can and Can’t Use WACC
• Some Common Mistakes
• How Changing Capital Structure Affects Expected Returns
• What happens When the Corporate Tax Rate Is Not Zero

11. An Overview of Corporate Financing

11.1 Creating Value with Financing Decisions
11.2 Common Stock

• Ownership of the Corporation
• Voting Procedures
• Classes of Stock

11.3 Preferred Stocks
11.4 Corporate Debt

• Debt Comes in Many Forms
• Innovation in the Debt Market

12 Debt Policy

12.1 How Borrowing Affects Values in a Tax Free Economy

• MM’s Argument
• How Borrowing Affects Earnings Per Share
• How Borrowing Affects Risk and Return
• Debt and the Cost of Equity

12.2 Capital Structure and Corporate Taxes

• Debt and Taxes of River Cruises
• How Interest Tax Shields Contribute to the Value of Stockholders’ Equity
• Corporate Taxes and the Weighted Average Cost of Capital
• The implications of Corporate Taxes for Capital Structure

12.3 Costs of Financial Distress

• Bankruptcy Costs
• Financial Distress without Bankruptcy
• Cost of Distress Vary with Type of Asset

12.4 Explaining Financing Choices

• The Trade-off Theory
• A Pecking Order Theory
• The Two Forces of Financial Stock

13 Dividend Policy

13.1 How Dividends are Paid

• Cash Dividends
• Some Legal Limitations on Dividends
• Stock Dividends and Stock Splits

13.2 Share Repurchase

• The Role of Share Repurchases
• Repurchases and Share Valuation

13.3 How Do Companies Decide on Dividend Payments?
13.4 Why Dividend Policy Should Not Matter

• Dividends Policy is Irrelevant in Competitive Markets
• The Assumptions behind Dividend Irrelevance

13.5 Why Dividends May Increase Firm Value

• Market Imperfections
• Dividends as Signals

13.6 Why Dividends May reduce Firm Value

• Why Pay any Dividends at All?
• Taxation of Dividends and Capital Gains under Current Tax Law

14 Financial Planning

14.1 What is Financial Planning

• Financial Planning Focuses on the Big Picture
• Why Build Financial Plans?

14.2 Financial Planning Models

• Components of a Financial Planning Model
• An example of a Planning Model
• An Improved Model

14.3 Planners Beware

• Pitfalls in Model Design
• The Assumption in Percentage of Sales Models
• The Role of Financial Planning Models

15 Working Capital Management and Short-Term Planning
16 Cash and Inventory Management
17 Credit Management and Bankruptcy

Recommended Books:

• Brealey Myers Marcus: Fundamentals of Corporate Finance 4th Edition Irwin Mc-Graw Hill