Corporate Finance: Principles and Practice, 8th edition

Published by Pearson (9 December 2019) © 2020

  • Denzil Watson
  • Antony Head

Title overview

Familiarise yourself with the core concepts in Corporate Finance with this reader-friendly text.

Corporate Finance: Principles and Practice, 8th edition is a comprehensive guide that introduces you to the key principles in the field.

Written and structured in a reader-friendly style for those new to the topic, this updated edition explains step by step the essential principles, with a plethora of questions and exercises for deeper understanding.

The numerous examples demonstrate Corporate Finance techniques in action, giving you a glimpse of the tools that managers use in the real world to achieve corporate goals in the business environment.

This edition includes a Companion Website.

Table of contents

Preface

Acknowledgements

  1. The finance function

    Learning objectives

    Introduction

    • 1.1 Two key concepts in corporate finance
    • 1.2 The role of the financial manager
    • 1.3 Corporate objectives
    • 1.4 How is shareholder wealth maximised?
    • 1.5 Agency theory
    • 1.6 Corporate governance
    • 1.7 Conclusion

    Key points

    Self-test questions

    Questions for review

    Questions for discussion

    References

    Recommended reading

  2. Capital markets, market efficiency and ratio analysis

    Learning objectives

    Introduction

    • 2.1 Sources of business finance
    • 2.2 Capital markets
    • 2.3 Capital market efficiency
    • 2.4 Assessing financial performance
    • 2.5 Conclusion

    Key points

    Self-test questions

    Questions for review

    Questions for discussion

    References

    Recommended reading

  3. Short-term finance and working capital management

    Learning objectives

    Introduction

    • 3.1 The objectives of working capital management
    • 3.2 Working capital policies
    • 3.3 Working capital and the cash conversion cycle
    • 3.4 Overtrading
    • 3.5 Managing inventory
    • 3.6 Managing cash
    • 3.7 Managing trade receivables
    • 3.8 Conclusion

    Key points

    Self-test questions

    Questions for review

    Questions for discussion

    References

    Recommended reading

  4. Long-term finance: equity finance

    Learning objectives

    Introduction

    • 4.1 Equity finance
    • 4.2 The Stock Exchange
    • 4.3 Rights issues
    • 4.4 Scrip issues, share splits, scrip dividends and share repurchases
    • 4.5 Preference shares
    • 4.6 Conclusion

    Key points

    Self-test questions

    Questions for review

    Questions for discussion

    References

    Recommended reading

  5. Long-term finance: debt finance, hybrid finance and leasing

    Learning objectives

    Introduction

    • 5.1 Bonds, loan notes, loan stock and debentures
    • 5.2 Bank and institutional debt
    • 5.3 International debt finance
    • 5.4 Convertible bonds
    • 5.5 Warrants
    • 5.6 Valuing fixed interest bonds
    • 5.7 Valuing convertible bonds
    • 5.8 Leasing
    • 5.9 Evaluating the financial effects of financing choices
    • 5.10 Conclusion

    Key points

    Self-test questions

    Questions for review

    Questions for discussion

    References

    Recommended reading

  6. An overview of investment appraisal methods

    Learning objectives

    Introduction

    • 6.1 The payback method
    • 6.2 The return on capital employed method
    • 6.3 The net present value method
    • 6.4 The internal rate of return method
    • 6.5 Comparing the NPV and IRR methods
    • 6.6 The profitability index and capital rationing
    • 6.7 The discounted payback method
    • 6.8 Conclusion

    Key points

    Self-test questions

    Questions for review

    Questions for discussion

    References

    Recommended reading

  7. Investment appraisal: applications and risk

    Learning objectives

    Introduction

    • 7.1 Relevant project cash flows
    • 7.2 Taxation and capital investment decisions
    • 7.3 Inflation and capital investment decisions
    • 7.4 Investment appraisal and risk
    • 7.5 Appraisal of foreign direct investment
    • 7.6 Empirical investigations of investment appraisal
    • 7.7 Conclusion

    Key points

    Self-test questions

    Questions for review

    Questions for discussion

    References

    Recommended reading

  8. Portfolio theory and the capital asset pricing model

    Learning objectives

    Introduction

    • 8.1 The measurement of risk
    • 8.2 The concept of diversification
    • 8.3 Investor attitudes to risk
    • 8.4 Markowitz's portfolio theory
    • 8.5 Introduction to the capital asset pricing model
    • 8.6 Using the CAPM to value shares
    • 8.7 Empirical tests of the CAPM
    • 8.8 Conclusion

    Key points

    Self-test questions

    Questions for review

    Questions for discussion

    References

    Recommended reading

  9. The cost of capital and capital structure

    Learning objectives

    Introduction

    • 9.1 Calculating the cost of individual sources of finance
    • 9.2 Calculating the weighted average cost of capital
    • 9.3 Average and marginal cost of capital
    • 9.4 The CAPM and investment appraisal
    • 9.5 Practical problems with calculating WACC
    • 9.6 WACC in the real world
    • 9.7 The cost of capital for foreign direct investment
    • 9.8 Gearing: its measurement and significance
    • 9.9 The concept of an optimal capital structure
    • 9.10 The traditional approach to capital structure
    • 9.11 Miller and Modigliani (I): net income approach
    • 9.12 Miller and Modigliani (II): corporate tax
    • 9.13 Market imperfections
    • 9.14 Miller and personal taxation
    • 9.15 Pecking order theory
    • 9.16 Conclusion: does an optimal capital structure exist?

    Key points

    Self-test questions

    Questions for review

    Questions for discussion

    References

    Recommended reading

  10. Dividend policy

    Learning objectives

    Introduction

    • 10.1 Dividends: operational and practical issues
    • 10.2 The effect of dividends on shareholder wealth
    • 10.3 Dividend irrelevance
    • 10.4 Dividend relevance
    • 10.5 Dividend relevance or irrelevance?
    • 10.6 Dividend policies
    • 10.7 Alternatives to cash dividends
    • 10.8 Empirical evidence on dividend policy
    • 10.9 Conclusion

    Key points

    Self-test questions

    Questions for review

    Questions for discussion

    References

    Recommended reading

  11. Mergers and takeovers

    Learning objectives

    Introduction

    • 11.1 The terminology of mergers and takeovers
    • 11.2 Justifications for acquisitions
    • 11.3 Trends in takeover activity
    • 11.4 Target company valuation
    • 11.5 The financing of acquisitions
    • 11.6 Strategic and tactical issues
    • 11.7 Divestment
    • 11.8 Private equity
    • 11.9 Empirical research on acquisitions
    • 11.10 Conclusion

    Key points

    Self-test questions

    Questions for review

    Questions for discussion

    References

    Recommended reading

  12. Risk management

    Learning objectives

    Introduction

    • 12.1 Interest and exchange rate risk
    • 12.2 Internal risk management
    • 12.3 External risk management
    • 12.4 Futures contracts
    • 12.5 Options
    • 12.6 Swaps
    • 12.7 Issues in interest and exchange risk management
    • 12.8 Political risk
    • 12.9 Conclusion

    Key points

    Self-test questions

    Questions for review

    Questions for discussion

    References

    Recommended reading

Answers to self-test questions

Glossary

Present value tables

Index

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