Corporate Finance

Denzil Watson is a Principal Lecturer, and Antony Head is an Associate Lecturer in the Sheffield Business School at Sheffield Hallam University. They both have extensive experience teaching Corporate Finance, managerial finance, and strategic financial management in a wide range of courses, at undergraduate, postgraduate, and professional levels.

• Preface Acknowledgements The finance function Learning objectives Introduction 1.1 Two key concepts in corporate finance1.2 The role of the financial manager1.3 Corporate objectives1.4 How is shareholder wealth maximised?1.5 Agency theory1.6 Corporate governance1.7 ConclusionKey points Self-test questions Questions for review Questions for discussion References Recommended reading Capital markets, market efficiency and ratio analysis Learning objectives Introduction 2.1 Sources of business finance2.2 Capital markets2.3 Capital market efficiency2.4 Assessing financial performance2.5 ConclusionKey points Self-test questions Questions for review Questions for discussion References Recommended reading Short-term finance and working capital management Learning objectives Introduction 3.1 The objectives of working capital management3.2 Working capital policies3.3 Working capital and the cash conversion cycle3.4 Overtrading3.5 Managing inventory3.6 Managing cash3.7 Managing trade receivables3.8 ConclusionKey points Self-test questions Questions for review Questions for discussion References Recommended reading Long-term finance: equity finance Learning objectives Introduction 4.1 Equity finance4.2 The Stock Exchange4.3 Rights issues4.4 Scrip issues, share splits, scrip dividends and share repurchases4.5 Preference shares4.6 ConclusionKey points Self-test questions Questions for review Questions for discussion References Recommended reading Long-term finance: debt finance, hybrid finance and leasing Learning objectives Introduction 5.1 Bonds, loan notes, loan stock and debentures5.2 Bank and institutional debt5.3 International debt finance5.4 Convertible bonds5.5 Warrants5.6 Valuing fixed interest bonds5.7 Valuing convertible bonds5.8 Leasing5.9 Evaluating the financial effects of financing choices5.10 ConclusionKey points Self-test questions Questions for review Questions for discussion References Recommended reading An overview of investment appraisal methods Learning objectives Introduction 6.1 The payback method6.2 The return on capital employed method6.3 The net present value method6.4 The internal rate of return method6.5 Comparing the NPV and IRR methods6.6 The profitability index and capital rationing6.7 The discounted payback method6.8 ConclusionKey points Self-test questions Questions for review Questions for discussion References Recommended reading Investment appraisal: applications and risk Learning objectives Introduction 7.1 Relevant project cash flows7.2 Taxation and capital investment decisions7.3 Inflation and capital investment decisions7.4 Investment appraisal and risk7.5 Appraisal of foreign direct investment7.6 Empirical investigations of investment appraisal7.7 ConclusionKey points Self-test questions Questions for review Questions for discussion References Recommended reading Portfolio theory and the capital asset pricing model Learning objectives Introduction 8.1 The measurement of risk8.2 The concept of diversification8.3 Investor attitudes to risk8.4 Markowitz's portfolio theory8.5 Introduction to the capital asset pricing model8.6 Using the CAPM to value shares8.7 Empirical tests of the CAPM8.8 ConclusionKey points Self-test questions Questions for review Questions for discussion References Recommended reading The cost of capital and capital structure Learning objectives Introduction 9.1 Calculating the cost of individual sources of finance9.2 Calculating the weighted average cost of capital9.3 Average and marginal cost of capital9.4 The CAPM and investment appraisal9.5 Practical problems with calculating WACC9.6 WACC in the real world9.7 The cost of capital for foreign direct investment9.8 Gearing: its measurement and significance9.9 The concept of an optimal capital structure9.10 The traditional approach to capital structure9.11 Miller and Modigliani (I): net income approach9.12 Miller and Modigliani (II): corporate tax9.13 Market imperfections9.14 Miller and personal taxation9.15 Pecking order theory9.16 Conclusion: does an optimal capital structure exist?Key points Self-test questions Questions for review Questions for discussion References Recommended reading Dividend policy Learning objectives Introduction 10.1 Dividends: operational and practical issues10.2 The effect of dividends on shareholder wealth10.3 Dividend irrelevance10.4 Dividend relevance10.5 Dividend relevance or irrelevance?10.6 Dividend policies10.7 Alternatives to cash dividends10.8 Empirical evidence on dividend policy10.9 ConclusionKey points Self-test questions Questions for review Questions for discussion References Recommended reading Mergers and takeovers Learning objectives Introduction 11.1 The terminology of mergers and takeovers11.2 Justifications for acquisitions11.3 Trends in takeover activity11.4 Target company valuation11.5 The financing of acquisitions11.6 Strategic and tactical issues11.7 Divestment11.8 Private equity11.9 Empirical research on acquisitions11.10 ConclusionKey points Self-test questions Questions for review Questions for discussion References Recommended reading Risk management Learning objectives Introduction 12.1 Interest and exchange rate risk12.2 Internal risk management12.3 External risk management12.4 Futures contracts12.5 Options12.6 Swaps12.7 Issues in interest and exchange risk management12.8 Political risk12.9 ConclusionKey points Self-test questions Questions for review Questions for discussion References Recommended reading Answers to self-test questions Glossary Present value tables Index