BOOK
Corporate Finance and Investment
Richard Pike | Bill Neale | Philip Linsley | Saeed Akbar
(2018)
Additional Information
Book Details
Abstract
Corporate Finance and Investment
Table of Contents
Section Title | Page | Action | Price |
---|---|---|---|
Cover | Cover | ||
Title Page | iii | ||
Copyright Page | iv | ||
Brief Contents | v | ||
Contents | vii | ||
List of figures and tables | xii | ||
Preface | xv | ||
Authors’ acknowledgements | xix | ||
Publisher’s acknowledgements | xx | ||
Part I A FRAMEWORK FOR FINANCIAL DECISIONS | 1 | ||
Chapter 1 An overview of financial management | 3 | ||
1.1 Introduction | 4 | ||
1.2 The finance function | 5 | ||
1.3 Investment and financial decisions | 6 | ||
1.4 Cash – the lifeblood of the business | 7 | ||
1.5 The emergence of financial management | 8 | ||
1.6 The finance department in the firm | 9 | ||
1.7 The financial objective | 10 | ||
1.8 The agency problem | 12 | ||
1.9 Managing the agency problem | 12 | ||
1.10 Social responsibility and shareholder wealth | 13 | ||
1.11 The corporate governance debate | 14 | ||
1.12 The risk dimension | 16 | ||
1.13 The strategic dimension | 17 | ||
Summary | 19 | ||
Key points | 19 | ||
Further reading | 20 | ||
Useful websites | 20 | ||
Questions | 21 | ||
Chapter 2 The financial environment | 23 | ||
2.1 Introduction | 24 | ||
2.2 Financial markets | 24 | ||
2.3 The financial services sector | 26 | ||
2.4 The London Stock Exchange (LSE) | 31 | ||
2.5 Are financial markets efficient? | 33 | ||
2.6 Reading the financial pages | 38 | ||
2.7 Taxation and financial decisions | 40 | ||
Summary | 40 | ||
Key points | 40 | ||
Further reading | 41 | ||
Useful websites | 41 | ||
Appendix: Financial statement analysis | 41 | ||
Questions | 50 | ||
Chapter 3 Present values, and bond and share valuation | 53 | ||
3.1 Introduction | 54 | ||
3.2 Measuring Wealth | 54 | ||
3.3 Time-value of money | 54 | ||
3.4 Financial arithmetic for capital growth | 55 | ||
3.5 Present value | 57 | ||
3.6 Present value arithmetic | 61 | ||
3.7 Valuing bonds | 64 | ||
3.8 Valuing shares: the dividend valuation model | 67 | ||
3.9 Problems with the dividend growth model | 69 | ||
Summary | 71 | ||
Key points | 71 | ||
Further reading | 72 | ||
Useful websites | 72 | ||
Appendix I: The term structure of interest rates and the yield curve | 72 | ||
Appendix II: Present value formulae | 75 | ||
Appendix III: The P:E ratio and the constant dividend valuation model | 76 | ||
Questions | 78 | ||
Part II INVESTMENT DECISIONS AND STRATEGIES | 81 | ||
Chapter 4 Investment appraisal methods | 83 | ||
4.1 Introduction | 84 | ||
4.2 Cash-flow analysis | 84 | ||
4.3 Net present value | 85 | ||
4.4 Investment techniques – net present value | 89 | ||
4.5 Internal rate of return | 91 | ||
4.6 Profitability index | 93 | ||
4.7 Payback period | 94 | ||
4.8 Accounting rate of return | 95 | ||
4.9 Ranking mutually exclusive projects | 96 | ||
4.10 Investment evaluation and capital rationing | 99 | ||
Summary | 103 | ||
Key points | 103 | ||
Further reading | 104 | ||
Appendix I: Modified IRR | 104 | ||
Appendix II: Multi-period capital rationing and mathematical programming | 105 | ||
Questions | 109 | ||
Chapter 5 Project appraisal – applications | 112 | ||
5.1 Introduction | 113 | ||
5.2 Incremental cash-flow analysis | 113 | ||
5.3 Replacement decisions | 116 | ||
5.4 Inflation cannot be ignored | 118 | ||
5.5 Taxation is a cash flow | 120 | ||
5.6 Use of DCF techniques | 123 | ||
5.7 Traditional appraisal methods | 125 | ||
Summary | 129 | ||
Key points | 129 | ||
Further reading | 129 | ||
Appendix: The problem of unequal lives: Poulter plc | 130 | ||
Questions | 132 | ||
Chapter 6 Investment strategy and process | 139 | ||
6.1 Introduction | 140 | ||
6.2 Strategic considerations | 140 | ||
6.3 Advanced manufacturing technology (AMT) investment | 143 | ||
6.4 Environmental aspects of investment | 146 | ||
6.5 The capital investment process | 147 | ||
6.6 Post-auditing | 152 | ||
Summary | 154 | ||
Key points | 154 | ||
Further reading | 155 | ||
Questions | 156 | ||
Part III VALUE, RISK AND THE REQUIRED RETURN | 157 | ||
Chapter 7 Analysing investment risk | 159 | ||
7.1 Introduction | 160 | ||
7.2 Expected net present value (ENPV): Betterway plc | 161 | ||
7.3 Attitudes to risk | 161 | ||
7.4 Types of risk | 163 | ||
7.5 Measurement of risk | 164 | ||
7.6 Risk description techniques | 168 | ||
7.7 Adjusting the NPV formula for risk | 172 | ||
7.8 Risk analysis in practice | 174 | ||
7.9 Capital investment options | 175 | ||
Summary | 179 | ||
Key points | 179 | ||
Further reading | 180 | ||
Appendix: Multi-period cash flows and risk | 180 | ||
Questions | 183 | ||
Chapter 8 Relationships between investments: portfolio theory | 187 | ||
8.1 Introduction | 188 | ||
8.2 Portfolio analysis: the basic principles | 189 | ||
8.3 How to measure portfolio risk | 190 | ||
8.4 Portfolio analysis where risk and return differ | 193 | ||
8.5 Different degrees of correlation | 195 | ||
8.6 Worked example: gerrybild plc | 197 | ||
8.7 Portfolios with more than two components | 199 | ||
8.8 Can we use this for project appraisal? some reservations | 201 | ||
Summary | 202 | ||
Key points | 203 | ||
Further reading | 203 | ||
Questions | 204 | ||
Chapter 9 Setting the risk premium: the Capital Asset Pricing Model (CAPM) | 206 | ||
9.1 Introduction | 207 | ||
9.2 Security valuation and discount rates | 207 | ||
9.3 Concepts of risk and return | 208 | ||
9.4 International portfolio diversification | 212 | ||
9.5 Systematic risk | 215 | ||
9.6 Completing the model | 219 | ||
9.7 Using the CAPM: assessing the required return | 221 | ||
9.8 Worked example | 226 | ||
9.9 The underpinnings of the CAPM | 227 | ||
9.10 Portfolios with many components: the capital market line | 228 | ||
9.11 How it all fits together: the key relationships | 230 | ||
9.12 Reservations about the CAPM | 232 | ||
9.13 Testing the CAPM | 233 | ||
9.14 Factor models | 234 | ||
9.15 The Arbitrage Pricing Theory | 236 | ||
9.16 Fama and French’s three-factor model | 237 | ||
9.17 The four- and five-factor models | 238 | ||
9.18 Issues raised by the CAPM: some food for managerial thought | 239 | ||
Summary | 241 | ||
Key points | 242 | ||
Further reading | 242 | ||
Appendix: Analysis of variance | 243 | ||
Questions | 245 | ||
Chapter 10 The required rate of return on investment | 247 | ||
10.1 Introduction | 248 | ||
10.2 The required return in all-equity firms: the DGM | 248 | ||
10.3 The required return in all-equity firms: the CAPM | 252 | ||
10.4 Using ‘tailored’ discount rates | 254 | ||
10.5 Worked example: Tieko plc | 261 | ||
10.6 Another problem: taxation and the CAPM | 262 | ||
10.7 Problems with ‘tailored’ discount rates | 263 | ||
10.8 A critique of divisional hurdle rates | 264 | ||
Summary | 266 | ||
Key points | 266 | ||
Further reading | 266 | ||
Questions | 267 | ||
Chapter 11 Enterprise value and equity value | 270 | ||
11.1 Introduction | 271 | ||
11.2 The valuation problem | 271 | ||
11.3 Valuation using published accounts | 272 | ||
11.4 Valuing the earnings stream: P:E ratios | 278 | ||
11.5 EBITDA – a halfway house | 280 | ||
11.6 Valuing cash flows | 282 | ||
11.7 The DCF approach | 284 | ||
11.8 Valuation of unquoted companies | 287 | ||
11.9 Shareholder value analysis | 288 | ||
11.10 Using value drivers | 290 | ||
11.11 Worked example: Safa plc | 291 | ||
11.12 Economic Value Added (EVA) | 294 | ||
Summary | 295 | ||
Key points | 296 | ||
Further reading | 296 | ||
Questions | 297 | ||
Chapter 12 Identifying and valuing options | 302 | ||
12.1 Introduction | 303 | ||
12.2 Share options | 303 | ||
12.3 Option pricing | 311 | ||
12.4 Application of option theory to corporate finance | 318 | ||
12.5 Capital investment options (real options) | 319 | ||
12.6 Why conventional NPV may not tell the whole story | 321 | ||
Summary | 322 | ||
Key points | 323 | ||
Further reading | 323 | ||
Useful websites | 323 | ||
Appendix: Black–scholes option pricing formula | 324 | ||
Questions | 325 | ||
Part IV SHORT-TERM FINANCING AND POLICIES | 327 | ||
Chapter 13 Risk and treasury management | 329 | ||
13.1 Introduction | 330 | ||
13.2 The treasury function | 330 | ||
13.3 Funding | 332 | ||
13.4 How firms can use the yield curve | 335 | ||
13.5 Banking relationships | 336 | ||
13.6 Treasury risk management | 337 | ||
13.7 Risk management | 347 | ||
Summary | 353 | ||
Key points | 353 | ||
Further reading | 353 | ||
Useful websites | 353 | ||
Questions | 354 | ||
Chapter 14 Working capital and short-term asset management | 355 | ||
14.1 Introduction | 356 | ||
14.2 Working capital management | 356 | ||
14.3 Predicting corporate failure | 357 | ||
14.4 Cash operating cycle | 359 | ||
14.5 Working capital policy | 360 | ||
14.6 Overtrading problems | 364 | ||
14.7 Managing trade credit | 366 | ||
14.8 Inventory management | 374 | ||
14.9 Cash management | 379 | ||
14.10 Worked example: mangle ltd | 382 | ||
14.11 Cash management models | 384 | ||
Summary | 385 | ||
Key points | 386 | ||
Further reading | 386 | ||
Useful websites | 386 | ||
Appendix: Miller–Orr cash management model | 387 | ||
Questions | 389 | ||
Chapter 15 Short- and medium-term finance | 396 | ||
15.1 Introduction | 397 | ||
15.2 Trade credit | 397 | ||
15.3 Bank credit facilities | 399 | ||
15.4 Invoice finance (or ‘asset-based finance’) | 403 | ||
15.5 Using the money market: bill finance | 406 | ||
15.6 Hire Purchase (HP) | 408 | ||
15.7 Leasing | 410 | ||
15.8 Lease evaluation: a simple case | 413 | ||
15.9 Motives for leasing | 416 | ||
15.10 Allowing for corporation tax in lease evaluation | 418 | ||
15.11 Worked example of leasing to include taxation: Porlock plc | 420 | ||
15.12 Policy implications: when should firms lease? | 422 | ||
Summary | 423 | ||
Key points | 423 | ||
Further reading | 424 | ||
Appendix: Financing international trade | 424 | ||
Questions | 428 | ||
Part V STRATEGIC FINANCIAL DECISIONS | 431 | ||
Chapter 16 Long-term finance | 433 | ||
16.1 Introduction | 434 | ||
16.2 Guiding lights: corporate aims and corporate finance | 434 | ||
16.3 How companies raise long-term finance in practice | 436 | ||
16.4 Shareholders’ funds | 436 | ||
16.5 How unquoted firms can raise equity finance | 439 | ||
16.6 Worked example: YZ and VCI | 443 | ||
16.7 Going public | 446 | ||
16.8 Equity issues by quoted companies | 449 | ||
16.9 Debt instruments: debentures, bonds and notes | 457 | ||
16.10 Leasing and sale-and-leaseback (SAL) | 470 | ||
16.11 Islamic finance | 472 | ||
Summary | 474 | ||
Key points | 474 | ||
Further reading | 475 | ||
Questions | 476 | ||
Chapter 17 Returning value to shareholders: the dividend decision | 480 | ||
17.1 Introduction | 481 | ||
17.2 The strategic dimension | 483 | ||
17.3 The legal dimension | 484 | ||
17.4 The theory: dividend policy and firm value | 484 | ||
17.5 Objections to dividend irrelevance | 492 | ||
17.6 The information content of dividends: Dividend smoothing | 497 | ||
17.7 Worked example | 498 | ||
17.8 Alternatives to cash dividends | 500 | ||
17.9 The dividend puzzle | 505 | ||
17.10 Conclusions | 507 | ||
Summary | 509 | ||
Key points | 509 | ||
Further reading | 509 | ||
Appendix: Home-made dividends | 510 | ||
Questions | 512 | ||
Chapter 18 Capital structure and the required return | 515 | ||
18.1 Introduction | 516 | ||
18.2 Measures of gearing | 517 | ||
18.3 Operating and financial gearing | 522 | ||
18.4 Financial gearing and risk: Lindley plc | 524 | ||
18.5 The ‘traditional’ view of gearing and the required return | 528 | ||
18.6 The cost of debt | 531 | ||
18.7 The overall cost of capital | 533 | ||
18.8 Worked example: damstar plc | 536 | ||
18.9 More on Economic Value Added (EVA) | 539 | ||
18.10 Financial distress | 539 | ||
18.11 Two more issues: signalling and agency costs | 543 | ||
18.12 Conclusions | 543 | ||
Summary | 545 | ||
Key points | 545 | ||
Further reading | 545 | ||
Appendix: Credit ratings | 546 | ||
Questions | 547 | ||
Chapter 19 Does capital structure really matter? | 551 | ||
19.1 Introduction | 552 | ||
19.2 The Modigliani–Miller message | 552 | ||
19.3 MM’s propositions | 554 | ||
19.4 Does it work? Impediments to arbitrage | 557 | ||
19.5 MM with corporate income tax | 558 | ||
19.6 Capital structure theory and the CAPM | 561 | ||
19.7 Linking the Betas: ungearing and re-gearing | 564 | ||
19.8 MM with financial distress | 565 | ||
19.9 Calculating the WACC | 567 | ||
19.10 The Adjusted Present Value Method (APV) | 570 | ||
19.11 Worked example: Rigton plc | 571 | ||
19.12 Further issues with the APV | 572 | ||
19.13 Which discount rate should we use? | 573 | ||
19.14 Valuation of a geared firm | 573 | ||
19.15 Performance evaluation in a geared firm: The EVA revisited | 575 | ||
Summary | 575 | ||
Key points | 576 | ||
Further reading | 577 | ||
Appendix I: Derivation of MM’s Proposition II | 577 | ||
Appendix II: MM’s Proposition III: The cut-off rate for new investment | 578 | ||
Appendix III: Allowing for personal taxation: Miller’s revision | 578 | ||
Questions | 580 | ||
Chapter 20 Acquisitions and re-structuring | 585 | ||
20.1 Introduction | 586 | ||
20.2 Takeover activity | 587 | ||
20.3 Motives for takeover | 592 | ||
20.4 Alternative bid terms | 598 | ||
20.5 Evaluating a bid: the expected gains from takeovers | 600 | ||
20.6 Worked example: ML plc and CO plc | 601 | ||
20.7 The importance of strategy | 603 | ||
20.8 The strategic approach | 604 | ||
20.9 Post-merger activities | 609 | ||
20.10 Assessing the impact of mergers | 612 | ||
20.11 Value gaps | 620 | ||
20.12 Corporate restructuring | 623 | ||
20.13 Private equity | 628 | ||
Summary | 632 | ||
Key points | 632 | ||
Further reading | 633 | ||
Questions | 634 | ||
Part VI INTERNATIONAL FINANCIAL MANAGEMENT | 641 | ||
Chapter 21 Managing currency risk | 643 | ||
21.1 Introduction | 644 | ||
21.2 The structure of exchange rates: spot and forward rates | 645 | ||
21.3 Foreign exchange exposure | 647 | ||
21.4 Should firms worry about exchange rate changes? | 650 | ||
21.5 Economic theory and exposure management | 653 | ||
21.6 Exchange rate forecasting | 658 | ||
21.7 Devising a foreign exchange management (FEM) strategy | 661 | ||
21.8 Internal hedging techniques | 664 | ||
21.9 Simple external hedging techniques | 668 | ||
21.10 More complex techniques | 670 | ||
21.11 More complex techniques: Futures and swaps | 673 | ||
21.12 Conclusions | 676 | ||
Summary | 677 | ||
Key points | 677 | ||
Further reading | 678 | ||
Questions | 679 | ||
Chapter 22 Foreign investment decisions | 683 | ||
22.1 Introduction | 684 | ||
22.2 Advantages of MNCS over national firms | 686 | ||
22.3 Foreign market entry strategies | 688 | ||
22.4 Additional complexities of foreign Investment | 691 | ||
22.5 The discount rate for Foreign Direct Investment (FDI) | 692 | ||
22.6 Evaluating FDI | 694 | ||
22.7 Worked example: Sparkes plc and Zoltan kft | 694 | ||
22.8 Exposure to foreign exchange risk | 697 | ||
22.9 How MNCS manage operating exposure | 701 | ||
22.10 Hedging the risk of foreign projects | 703 | ||
22.11 Political and country risk | 704 | ||
22.12 Managing political and country risk (PCR) | 706 | ||
22.13 Financing FDI | 708 | ||
22.14 The WACC for FDI | 711 | ||
22.15 Applying the APV to FDI | 711 | ||
22.16 Worked example: applying the APV | 712 | ||
Summary | 714 | ||
Key points | 714 | ||
Further reading and website | 715 | ||
Questions | 716 | ||
Chapter 23 Key issues in modern finance: a review | 719 | ||
23.1 Introduction | 720 | ||
23.2 Understanding individual behaviour | 721 | ||
23.3 Understanding corporate behaviour | 722 | ||
23.4 Understanding how markets behave | 726 | ||
23.5 Behavioural finance | 733 | ||
Summary | 741 | ||
Key points | 742 | ||
Further reading | 742 | ||
Appendices | 743 | ||
A Solutions to self-assessment activities | 743 | ||
B Solutions to selected questions | 761 | ||
C Present value interest factor (PVIF) | 793 | ||
D Present value interest factor for an annuity (PVIFA) | 795 | ||
Glossary | 797 | ||
A | 797 | ||
B | 797 | ||
C | 798 | ||
D | 800 | ||
E | 800 | ||
F | 801 | ||
G | 802 | ||
H | 802 | ||
I | 803 | ||
J | 803 | ||
L | 804 | ||
M | 804 | ||
N | 805 | ||
O | 805 | ||
P | 806 | ||
Q | 807 | ||
R | 807 | ||
S | 808 | ||
T | 809 | ||
U | 809 | ||
V | 810 | ||
W | 810 | ||
Y | 810 | ||
Z | 810 | ||
References | 811 | ||
Index | 827 | ||
A | 827 | ||
B | 828 | ||
C | 829 | ||
D | 832 | ||
E | 833 | ||
F | 834 | ||
G | 836 | ||
H | 836 | ||
I | 837 | ||
J | 838 | ||
K | 839 | ||
L | 839 | ||
M | 839 | ||
N | 841 | ||
O | 841 | ||
P | 842 | ||
Q | 843 | ||
R | 844 | ||
S | 845 | ||
T | 847 | ||
U | 848 | ||
V | 848 | ||
W | 848 | ||
X | 849 | ||
Y | 849 | ||
Z | 849 | ||
Back Cover | Back Cover |