Corporate Finance (7th Edition)PDF电子书下载

Part Ⅰ Overview 1

Chapter 1 Introduction to Corporate Finance 2

Executive Summary 2

1.1 What Is Corporate Finance? 3

The Balance-Sheet Model of the Firm 3

Capital Structure 4

The Financial Manager 5

1.2 Corporate Securities as Contingent Claims on Total Firm Value 9

1.3 The Corporate Firm 10

The Sole Proprietorship 10

The Partnership 10

The Corporation 11

Case Study: Making the Decision to Become a Corporation: The Case of PLM International, Inc. 12

1.4 Goals of the Corporate Firm 14

Agency Costs and the Set-of-Contracts Perspective 14

Managerial Goals 15

Separation of Ownership and Control 15

Do Shareholders Control Managerial Behavior? 16

1.5 Financial Markets 17

The Primary Market: New Issues 17

Secondary Markets 18

Exchange Trading of Listed Stocks 18

Listing 18

1.6 Outline of the Text 19

Chapter 2 Accounting Statements and Cash Flow 21

Executive Summary 21

2.1 The Balance Sheet 21

Accounting Liquidity 22

Debt versus Equity 23

Value versus Cost 23

2.2 The Income Statement 24

Generally Accepted Accounting Principles 25

Noncash Items 25

Time and Costs 25

2.3 Net Working Capital 26

2.4 Financial Cash Flow 26

2.5 The Accounting Statement of Cash Flows 29

Cash Flow from Operating Activities 29

Cash Flow from Investing Activities 30

Cash Flow from Financing Activities 30

2.6 Summary and Conclusions 31

Appendix 2A Financial Statement Analysis 34

Appendix 2B U.S. Federal Tax Rates 42

Chapter 3 Financial Planning and Growth 44

Executive Summary 44

3.1 What Is Financial Planning? 44

3.2 A Financial-Planning Model: The Ingredients 45

3.3 The Percentage Sales Method 47

The Income Statement 48

The Balance Sheet 49

3.4 What Determines Growth? 51

3.5 Some Caveats of Financial-Planning Models 54

3.6 Summary and Conclusions 55

Part Ⅱ Value and Capital Budgeting 59

Chapter 4 Net Present Value 60

Executive Summary 60

4.1 The One-Period Case 60

4.2 The Multiperiod Case 63

Future Value and Compounding 63

The Power of Compounding: A Digression 67

Present Value and Discounting 68

The Algebraic Formula 71

4.3 Compounding Periods 72

Distinction between Stated Annual Interest Rate and Effective Annual Interest Rate 73

Compounding over Many Years 73

Continuous Compounding (Advanced) 74

4.4 Simplifications 75

Perpetuity 75

Growing Perpetuity 77

Annuity 79

Growing Annuity 83

Case Study: Making the Decision to Convert Lottery Prize Winnings: The Case of the Singer Asset Finance Company 85

4.5 What Is a Firm Worth? 86

4.6 Summary and Conclusions 87

Appendix 4A Net Present Value: First Principles of Finance 94

Chapter 5 How to Value Bonds and Stocks 106

Executive Summary 106

5.1 Definition and Example of a Bond 106

5.2 How to Value Bonds 106

Pure Discount Bonds 106

Level-Coupon Bonds 107

Consols 109

5.3 Bond Concepts 110

Interest Rates and Bond Prices 110

Yield to Maturity 110

Bond Market Reporting 111

5.4 The Present Value of Common Stocks 112

Dividends versus Capital Gains 112

Valuation of Different Types of Stocks 113

5.5 Estimates of Parameters in the Dividend-Discount Model 116

Where Does g Come From? 116

Where Does r Come From? 118

A Healthy Sense of Skepticism 118

5.6 Growth Opportunities 119

Growth in Earnings and Dividends versus Growth Opportunities 121

Dividends or Earnings: Which to Discount? 122

The No-Dividend Firm 122

5.7 The Dividend-Growth Model and the NPVGO Model (Advanced) 123

The Dividend-Growth Model 123

The NPVGO Model 123

Summation 125

5.8 Price-Earnings Ratio 125

5.9 Stock Market Reporting 127

5.10 Summary and Conclusions 128

Appendix 5A The Term Structure of Interest Rates,Spot Rates, and Yield to Maturity 134

Chapter 6 Some Alternative Investment Rules 144

Executive Summary 144

6.1 Why Use Net Present Value? 144

6.2 The Payback Period Method 146

Defining the Rule 146

Problems with the Payback Method 147

Managerial Perspective 148

Summary of Payback 148

6.3 The Discounted Payback Period Method 149

6.4 The Average Accounting Return Method 149

Defining the Rule 149

Analyzing the Average Accounting Return Method 151

6.5 The Internal Rate of Return 152

6.6 Problems with the IRR Approach 154

Definition of Independent and Mutually Exclusive Projects 154

Two General Problems Affecting Both Independent and Mutually Exclusive Projects 154 Problems Specific to Mutually Exclusive Projects 159

Redeeming Qualities of IRR 163

A Test 163

6.7 The Profitability Index 164

Calculation of Profitability Index 164

6.8 The Practice of Capital Budgeting 166

6.9 Summary and Conclusions 168

Chapter 7 Net Present Value and Capital Executive Summary 178

7.1 Incremental Cash Flows 178

Cash Flows--Not Accounting Income 178

Sunk Costs 179

Opportunity Costs 179

Side Effects 179

Allocated Costs 180

7.2 The Baldwin Company: An Example 180

An Analysis of the Project 182

Which Set of Books? 184

A Note on Net Working Capital 185

Interest Expense 186

7.3 The Boeing 777: A Real-World Example 186

7.4 Inflation and Capital Budgeting 189

Interest Rates and Inflation 189

Cash Flow and Inflation 191

Discounting: Nominal or Real? 191

7.5 Investments of Unequal Lives: The Equivalent Annual Cost Method 193

The General Decision to Replace (Advanced) 195

7.6 Summary and Conclusions 197

Minicases: Goodweek Tires,Inc. 206

I. Q., Inc. 207

Jimmy's Hot Dog Stands 208

Appendix 7A Depreciation 209

Chapter 8 Risk Analysis, Real Options, and Capital Budgeting 211

Executive Summary 211

8.1 Decision Trees 211

8.2 Sensitivity Analysis, Scenario Analysis,and Break-Even Analysis 213

Sensitivity Analysis and Scenario Analysis 214

Break-Even Analysis 216

8.3 Monte Carlo Simulation 219

8.4 Real Options 223

The Option to Expand 223

The Option to Abandon 224

Timing Options 226

8.5 Summary and Conclusions 227

Part Ⅲ Risk 233

Chapter 9 Capital Market Theory: An Overview 234

Executive Summary 234

9.1 Returns 235

Dollar Returns 235

Percentage Returns 237

9.2 Holding-Period Returns 239

9.3 Return Statistics 244

9.4 Average Stock Returns and Risk-Free Returns 246

9.5 Risk Statistics 247

Variance 247

Normal Distribution and Its Implications for Standard Deviation 248

9.6 Summary and Conclusions 249

Appendix 9A The Historical Market Risk Premium: The Very Long Run 253

Chapter 10 Return and Risk: The Capital-Asset-Pricing Model (CAPM) 255

Executive Summary 255

10.1 Individual Securities 255

10.2 Expected Return, Variance, and Covariance 256

Expected Return and Variance 256

Covariance and Correlation 258

10.3 The Return and Risk for Portfolios 261

The Example of Supertech and Slowpoke 261

The Expected Return on a Portfolio 261

Variance and Standard Deviation of a Portfolio 262

10.4 The Efficient Set for Two Assets 265

10.5 The Efficient Set for Many Securities 270

Variance and Standard Deviation in a Portfolio of Many Assets 271

10.6 Diversification: An Example 272

Risk and the Sensible Investor 275

10.7 Riskless Borrowing and Lending 276

The Optimal Portfolio 278

10.8 Market Equilibrium 280

Definition of the Market-Equilibrium Portfolio 280

Definition of Risk When Investors Hold the Market Portfolio 281

The Formula for Beta 283

A Test 283

10.9 Relationship between Risk and Expected Return (CAPM) 284

Expected Return on Market 284

Expected Return on Individual Security 284

10.10 Summary and Conclusions 287

Appendix 10A Is Beta Dead? 295

Chapter 11 An Alternative View of Risk and Return:The Arbitrage Pricing Theory 297

Executive Summary 297

11.1 Factor Models: Announcements, Surprises, and Expected Returns 298

11.2 Risk: Systematic and Unsystematic 299

11.3 Systematic Risk and Betas 300

11.4 Portfolios and Factor Models 303

Portfolios and Diversification 305

11.5 Betas and Expected Returns 307

The Linear Relationship 307

The Market Portfolio and the Single Factor 309

11.6 The Capital-Asset-Pricing Model and the Arbitrage Pricing Theory 310

Differences in Pedagogy 310

Differences in Application 310

11.7 Empirical Approaches to Asset Pricing 311

Empirical Models 311

Style Portfolios 313

11.8 Summary and Conclusions 313

Chapter 12 Risk, Cost of Capital, and Capital Budgeting 318

Executive Summary 318

12.1 The Cost of Equity Capital 318

12.2 Estimation of Beta 321

Real-World Betas 323

Stability of Beta 323

Using an Industry Beta 324

12.3 Determinants of Beta 326

Cyclically of Revenues 326

Operating Leverage 327

Financial Leverage and Beta 328

12.4 Extensions of the Basic Model 330

The Firm versus the Project: Vive la Difference 330

The Cost of Capital with Debt 331

12.5 Estimating International Paper's Cost of Capital 333

Cost of Equity and Debt 333

Determining rWACC 334

12.6 Reducing the Cost of Capital 334

What Is Liquidity? 335

Liquidity, Expected Returns, and the Cost of Capital 335

Liquidity and Adverse Selection 336

What the Corporation Can Do 336

12.7 Summary and Conclusions 338

Minicase: AlliedProducts 341

Appendix 12A Economic Value Added and the Measurement of Financial Performance 343

Part Ⅳ Capital Structure and Dividend Policy 347

Chapter 13 Corporate-Financing Decisions and Efficient Capital Markets 349

Executive Summary 349

13.1 Can Financing Decisions Create Value? 349

13.2 A Description of Efficient Capital Markets 351

Foundations of Market Efficiency 352

13.3 The Different Types of Efficiency 354

The Weak Form 355

The Semistrong and Strong Forms 356

Some Common Misconceptions about the Efficient-Market Hypothesis 357

13.4 The Evidence 358

The Weak Form 358

The Semistrong Form 360

The Strong Form 363

13.5 The Behavioral Challenge to Market Efficiency 364

13.6 Empirical Challenges to Market Efficiency 366

13.7 Reviewing the Differences 370

Representativeness 371

Conservatism 371

13.8 Implications for Corporate Finance 371

1. Accounting Choices, Financial Choices,and Market Efficiency 372

2. The Timing Decision 373

3. Speculation and Efficient Markets 375

4. Information in Market Prices 377

13.9 Summary and Conclusions 378

Chapter 14 Long-Term Financing:An Introduction 384

Executive Summary 384

14.1 Common Stock 384

Par and No-Par Stock 384

Authorized versus Issued Common Stock 385

Capital Surplus 385

Retained Earnings 385

Market Value, Book Value, and Replacement Value 386

Shareholders' Rights 387

Dividends 388

Classes of Stock 388

14.2 Corporate Long-Term Debt: The Basics 389

Interest versus Dividends 389

Is It Debt or Equity? 390

Basic Features of Long-Term Debt 390

Different Types of Debt 390

Repayment 391

Seniority 391

Security 391

Indenture 391

14.3 Preferred Stock 392

Stated Value 392

Cumulative and Noncumulative Dividends 392

Is Preferred Stock Really Debt? 393

The Preferred-Stock Puzzle 393

14.4 Patterns of Financing 394

14.5 Recent Trends in Capital Structure 398

Which Are Best: Book or Market Values? 398

14.6 Summary and Conclusions 399

Chapter 15 Capital Structure: Basic Concepts 402

Executive Summary 402

15.1 The Capital-Structure Question and the Pie Theory 402

15.2 Maximizing Firm Value versus Maximizing Stockholder Interests 403

15.3 Financial Leverage and Firm Value: An Example 405

Leverage and Returns to Shareholders 405

The Choice between Debt and Equity 407

A Key Assumption 409

15.4 Modigliani and Miller: Proposition II (No Taxes) 409

Risk to Equityholders Rises with Leverage 409

Proposition II: Required Return to Equityholders Rises with Leverage 410

Example Illustrating Proposition I and Proposition II 412

MM: An Interpretation 416

15.5 Taxes 419

The Basic Insight 419

The Quirk in the Tax Code 419

Present Value of the Tax Shield 420

Value of the Levered Firm 421

Expected Return and Leverage under Corporate Taxes 422

The Weighted Average Cost of Capital rWACC and Corporate Taxes 424

Stock Price and Leverage under Corporate Taxes 424

15.6 Summary and Conclusions 426

Chapter 16 Capital Structure: Limits to the Use of Debt 433

Executive Summary 433

16.1 Costs of Financial Distress 433

Bankruptcy Risk or Bankruptcy Cost? 433

16.2 Description of Financial Distress Costs 436

Direct Costs of Financial Distress: Legal and Administrative Costs of Liquidation or Reorganization 436

Indirect Costs of Financial Distress 437

Agency Costs 438

16.3 Can Costs of Debt Be Reduced? 441

Protective Covenants 441

Consolidation of Debt 442

16.4 Integration of Tax Effects and Financial Distress Costs 442

Pie Again 444

16.5 Signaling 445

16.6 Shirking, Perquisites, and Bad Investments: A Note on Agency Cost of Equity 447

Effect of Agency Costs of Equity on Debt-Equity Financing 449

Free Cash Flow 449

16.7 The Pecking-Order Theory 450

Rules of the Pecking Order 452

Implications 452

16.8 Growth and the Debt-Equity Ratio 453

No-Growth 454

Growth 454

16.9 Personal Taxes 456

The Miller Model 458

16.10 How Firms Establish Capital Structure 461

16.11 Summary and Conclusions 464

Appendix 16A Some Useful Formulas of Financial Structure 472

Appendix 16B The Miller Model and the Graduated Income Tax 473

Chapter 17 Valuation and Capital Budgeting for the Levered Firm 477

Executive Summary 477

17.1 Adjusted-Present-Value Approach 477

17.2 Flow-to-Equity Approach 479

Step 1: Calculating Levered Cash Flow (LCF) 479

Step 2: Calculating rs 480

Step 3: Valuation 480

17.3 Weighted-Average-Cost-of-Capital Method 480

17.4 A Comparison of the APV, FTE, and WACC Approaches 481

A Suggested Guideline 482

17.5 Capital Budgeting When the Discount Rate Must Be Estimated 485

17.6 APV Example 486

17.7 Beta and Leverage 490

The Project Is Not Scale-Enhancing 491

17.8 Summary and Conclusions 492

Appendix 17A The Adjusted-Present-Value Approach to Valuing Leveraged Buyouts 497

Chapter 18 Dividends and Other Payouts 502

Executive Summary 502

18.1 Different Types of Dividends 502

18.2 Standard Method of Cash Dividend Payment 503

18.3 The Benchmark Case: An Illustration of the Irrelevance of Dividend Policy 504

Current Policy: Dividends Set Equal to Cash Flow 505

Alternative Policy: Initial Dividend Is Greater than Cash Flow 505

The Indifference Proposition 506

Homemade Dividends 507

A Test 508

Dividends and Investment Policy 509

18.4 Repurchase of Stock 509

Dividend versus Repurchase: Conceptual Example 511

Dividends versus Repurchases: Real-World Considerations 512

18.5 Personal Taxes, Issuance Costs,and Dividends 513

Firms without Sufficient Cash to Pay a Dividend 513

Firms with Sufficient Cash to Pay a Dividend 514

Summary on Personal Taxes 516

18.6 Real-World Factors Favoring a High-Dividend Policy 517

Desire for Current Income 517

Behavioral Finance 517

Agency Costs 519

Information Content of Dividends and Dividend Signaling 519

18.7 The Clientele Effect: A Resolution of Real-World Factors? 522

18.8 What We Know and Do Not Know about Dividend Policy 523

Corporate Dividends Are Substantial 523

Fewer Companies Pay Dividends 525

Corporations Smooth Dividends 526

Payouts Provide Information to the Market 527

A Sensible Payout Policy 527

Case Study: How Firms Make the Decision to Pay Dividends: The Case of Apple Computer 528

18.9 Summary and Conclusions 531

Appendix 18A Stock Dividends and Stock Splits 535

Part Ⅴ Long-Term Financing 539

Chapter 19 Issuing Securities to the Public 540

Executive Summary 540

19.1 The Public Issue 540

The Basic Procedure for a New Issue 540

19.2 Alternative Issue Methods 541

19.3 The Cash Offer 543

Investment Banks 545

The Offering Price 547

Underpricing: A Possible Explanation 548

19.4 The Announcement of New Equity and the Value of the Firm 550

19.5 The Cost of New Issues 551

19.6 Rights 553

The Mechanics of a Rights Offering 554

Subscription Price 554

Number of Rights Needed to Purchase a Share 555

Effect of Rights Offering on Price of Stock 555

Effects on Shareholders 557

The Underwriting Arrangements 557

19.7 The Rights Puzzle 557

19.8 Shelf Registration 559

19.9 The Private Equity Market 560

Private Placement 560

The Private Equity Firm 561

Suppliers of Venture Capital 561

Stages of Financing 563

Case Study: The Decision to Do an Initial Public Offering (IPO): The Case of Medstone International, Inc. 564

19.10 Summary and Conclusions 566

Chapter 20 Long-Term Debt 569

Executive Summary 569

20.1 Long-Term Debt: A Review 569

20.2 The Public Issue of Bonds 570

The Basic Terms 571

Security 572

Protective Covenants 573

The Sinking Fund 573

The Call Provision 574