Corporate Finance

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• Foreword xvAcknowledgments xixAbout the CFA Institute Investment Series xxiCHAPTER 1 Corporate Structures and Ownership 11. Introduction 12. Business Structures 23. Public and Private Corporations 124. Lenders and Owners 235. Summary 316. Practice Problems 32CHAPTER 2 Introduction to Corporate Governance and Other ESG Considerations 351. Introduction 362. Stakeholder Groups 363. Principal--Agent and Other Relationships 414. Corporate Governance and Mechanisms to Manage Stakeholder Risks 515. Corporate Governance and Stakeholder Management Risks and Benefits 636. ESG Considerations in Investment Analysis 697. Environmental, Social, and Governance Investment Approaches 738. Summary 779. Practice Problems 79CHAPTER 3 Working Capital & Liquidity 811. Introduction 812. Financing Options 823. Working Capital, Liquidity, and Short-Term Funding Needs 894. Liquidity and Short-Term Funding 955. Measuring Liquidity 996. Evaluating Short-Term Financing Choices 1037. Summary 1058. Practice Problems 105CHAPTER 4 Capital Investments 1091. Introduction 1092. Types of Capital Investments 1103. The Capital Allocation Process 1144. Investment Decision Criteria 1195. Common Capital Allocation Pitfalls 1256. Corporate Use of Capital Allocation 1267. Real Options 1298. Summary 1329. Practice Problems 133CHAPTER 5 Capital Structure 1391. Introduction 1392. Factors Affecting Capital Structure 1403. Capital Structure and Company Life Cycle 1514. Modigliani--Miller Propositions 1575. Optimal and Target Capital Structures 1676. Stakeholder Interests 1747. Summary 1838. Practice Problems 183CHAPTER 6 Measures of Leverage 1891. Introduction 1892. Leverage 1903. Business and Sales Risks 1924. Operating Risk and the Degree of Operating Leverage 1945. Financial Risk, the Degree of Financial Leverage and the Leveraging Role of Debt 2016. Total Leverage and the Degree of Total Leverage 2057. Breakeven Points and Operating Breakeven Points 2088. The Risks of Creditors and Owners 2119. Summary 21310. Practice Problems 214CHAPTER 7 Cost of Capital: Foundational Topics 2191. Introduction 2192. Cost of Capital 2203. Costs of the Various Sources of Capital 2234. Estimating Beta 2325. Flotation Costs 2376. Methods in Use 2397. Summary 2408. Practice Problems 241CHAPTER 8 Cost of Capital: Advanced Topics 2491. Introduction 2492. Cost of Capital Factors 2503. Estimating the Cost of Debt 2614. The ERP 2685. The Cost of Equity (Required Return on Equity) 2796. Mini-Case 1 2937. Mini-Case 2 2998. Practice Problems 300CHAPTER 9 Analysis of Dividends and Share Repurchases 3031. Dividends: Forms and Effects on Shareholder Wealth and Financial Ratios 3042. Dividend Policy and Company Value: Theories 3113. Other Theoretical Issues: Signaling 3134. Other Theoretical Issues: Summary 3205. Factors Affecting Dividend Policy in Practice 3206. Payout Policies 3277. Share Repurchases 3328. Valuation Equivalence of Cash Dividends and Share Repurchase 3389. The Dividend versus Share Repurchase Decision 33910. Analysis of Dividend Safety 34711. Summary 35112. Practice Problems 353CHAPTER 10 Business Models & Risks 3591. Introductory Context/Motivation 3592. What Is a Business Model? 3593. Business Model Types 3734. Business Models: Financial Implications 3785. Business Risks 3836. Macro Risk, Business Risk, and Financial Risk 3847. Business Risk: A Closer Look 3868. Financial Risk 3899. Summary 39210. Practice Problems 392CHAPTER 11 The Firm and Market Structures 3951. Analysis of Market Structures 3952. Perfect Competition 4013. Elasticity of Demand 4034. Other Factors Affecting Demand 4065. Consumer Surplus: Value Minus Expenditure 4086. Supply Analysis, Optimal Price, and Output in Perfectly Competitive Markets 4107. Long-Run Equilibrium In Perfectly Competitive Markets 4168. Monopolistic Competition 4189. Long-Run Equilibrium in Monopolistic Competition 42110. Oligopoly and Pricing Strategies 42211. The Cournot Assumption 42512. The Nash Equilibrium 42813. Oligopy Markets: Optimal Price, Output, and Long-Run Equilibrium 43114. Monopoly Markets: Demand/Supply and Optimal Price/Output 43415. Price Discrimination and Consumer Surplus 44016. Monopoly Markets: Long-Run Equilibrium 44217. Identification of Market Structure 44318. Summary 44619. Practice Problems 447CHAPTER 12 Introduction to Industry and Company Analysis 4511. Introduction 4522. Uses of Industry Analysis 4523. Approaches to Identifying Similar Companies 4534. Industry Classification Systems 4575. Describing and Analyzing an Industry and Principles of Strategic Analysis 4656. External Influences on Industry 4807. Company Analysis 4898. Summary 4939. Practice Problems 496CHAPTER 13 Financial Statement Modeling 5011. Introduction 5022. Income Statement Modeling: Operating Costs 5083. Modeling Operating Costs: Cost of Goods Sold and SG&A 5124. Modeling Non-operating Costs and Other Items 5205. Balance Sheet and Cash Flow Statement Modeling 5256. Building a Financial Statement Model 5317. Behavioral Finance and Analyst Forecasts 5458. The Impact of Competitive Factors in Prices and Costs 5519. Inflation and Deflation 56110. Technological Developments 57011. Long-Term Forecasting 58012. Summary 58413. Practice Problems 585CHAPTER 14 Corporate Restructurings 5931. Introduction 5932. Corporate Evolution, Actions, and Motivations 5943. Evaluating Corporate Restructurings 6114. Modeling and Valuation 6205. Evaluating Investment Actions 6286. Evaluating Divestment Actions 6407. Evaluating Restructuring Actions 6478. Summary 6539. Practice Problems 654CHAPTER 15 Environmental, Social, and Governance (ESG) Considerations in Investment Analysis 6591. Introduction 6592. Ownership Structures and Their Effects on Corporate Governance 6603. Evaluating Corporate Governance Policies and Procedures 6664. Identifying ESG-Related Risks and Opportunities 6705. Evaluating ESG-Related Risks and Opportunities 6766. Summary 6857. Practice Problems 686CHAPTER 16 Intercorporate Investments 6891. Introduction 6892. Basic Corporate Investment Categories 6903. Investments In Financial Assets: IFRS 9 6924. Investments in Associates and Joint Ventures 6955. Amortization of Excess Purchase Price, Fair Value Option, and Impairment 7006. Transactions with Associates and Disclosure 7057. Acquisition Method 7098. The Consolidation Process 7169. Financial Statement Presentation 72210. Variable Interest and Special Purpose Entities 72511. Additional Issues in Business Combinations That impair Comparability 72912. Summary 73013. Practice Problems 731Glossary 743References 757About the Authors 763About the CFA Program 769Index 771