Corporate Finance Essay

4966 words - 20 pages

Corporate Finance, 9/e
Stephen A. Ross, Massachussetts Institute of Technology
Randolph W. Westerfield, University of Southern California
Jeffrey F. Jaffe, University of Pennsylvania

ISBN: 0073382337
Copyright year: 2010
Table of Contents

PART I: Overview
1 Introduction to Corporate Finance 1
1.1 | What Is Corporate Finance? | 1 |
| The Balance Sheet Model of the Firm | 1 |
| The Financial Manager | 3 |
1.2 | The Corporate Firm | 4 |
| The Sole Proprietorship | 4 |
| The Partnership | 4 |
| The Corporation | 5 |
| A Corporation by Another Name . . . | 7 |
1.3 | The Importance of Cash Flows | 7 |
1.4 | The Goal of Financial Management | 10 |
| Possible ...view middle of the document...

7 | Cash Flow Management | 34 |
| Summary and Conclusions | 35 |
| Concept Questions | 35 |
| Questions and Problems | 35 |
| S&P Problems | 41 |
| Mini Case: Cash Flows at Warf Computers, Inc. | 41 |

3 Financial Statements Analysis and Financial Models 44
3.1 | Financial Statements Analysis | 44 |
| Standardizing Statements | 44 |
| Common-Size Balance Sheets | 45 |
| Common-Size Income Statements | 46 |
3.2 | Ratio Analysis | 48 |
| Short-Term Solvency or Liquidity Measures | 49 |
| Long-Term Solvency Measures | 51 |
| Asset Management or Turnover Measures | 52 |
| Profitability Measures | 54 |
| Market Value Measures | 55 |
3.3 | The Du Pont Identity | 59 |
| A Closer Look at ROE | 59 |
| Problems with Financial Statement Analysis | 61 |
3.4 | Financial Models | 62 |
| A Simple Financial Planning Model | 62 |
| The Percentage of Sales Approach | 63 |
3.5 | External Financing and Growth | 68 |
| EFN and Growth | 68 |
| Financial Policy and Growth | 71 |
| A Note about Sustainable Growth Rate Calculations | 74 |
3.6 | Some Caveats Regarding Financial Planning Models | 75 |
| Summary and Conclusions | 77 |
| Concept Questions | 77 |
| Questions and Problems | 78 |
| S&P Problems | 84 |
| Mini Case: Ratios and Financial Planning at East Coast Yachts | 84 |

PART II: Valuation and Capital Budgeting
4 Discounted Cash Flow Valuation 87
4.1 | Valuation: The One-Period Case | 87 |
4.2 | The Multiperiod Case | 91 |
| Future Value and Compounding | 91 |
| The Power of Compounding: A Digression | 94 |
| Present Value and Discounting | 95 |
| Finding the Number of Periods | 98 |
| The Algebraic Formula | 101 |
4.3 | Compounding Periods | 101 |
| Distinction between Stated Annual Interest Rate and Effective Annual Rate | 103 |
| Compounding over Many Years | 104 |
| Continuous Compounding | 104 |
4.4 | Simplifications | 106 |
| Perpetuity | 106 |
| Growing Perpetuity | 107 |
| Annuity | 109 |
| Growing Annuity | 115 |
4.5 | Loan Amortization | 116 |
4.6 | What Is a Firm Worth? | 120 |
| Summary and Conclusions | 122 |
| Concept Questions | 123 |
| Questions and Problems | 123 |
| S&P Problems | 133 |
Appendix 4A: Net Present Value: First Principles of Finance | 133 |
Appendix 4B: Using Financial Calculators | 133 |
| Mini Case: The MBA Decision | 134 |

5 Net Present Value and Other Investment Rules 135
5.1 | Why Use Net Present Value? | 135 |
5.2 | The Payback Period Method | 138 |
| Defining the Rule | 138 |
| Problems with the Payback Method | 139 |
| Managerial Perspective | 140 |
| Summary of Payback | 141 |
5.3 | The Discounted Payback Period Method | 141 |
5.4 | The Internal Rate of Return | 141 |
5.5 | Problems with the IRR Approach | 144 |
| Definition of Independent and Mutually Exclusive Projects | 144 |
| Two General Problems Affecting Both...

Other assignments on Corporate Finance

Bus3062 Essay

690 words - 3 pages BUS3062 Assignment 1, Week 1 1. Define the terms finance and financial management, and identify the major sub-areas of finance. Finance is the way in which money is used and handled; especially, the way in which large amounts of money are used and handled by governments and companies (Merriam-Webster, 2014). Financial Management is the planning, directing, monitoring, organizing, and controlling of the monetary resources of an

Homework Essay

280 words - 2 pages Question 1-1: Why must a financial manger have an integrated understanding of the five basic finance functions? Why has the risk-management function become more important in the recent years? Why is the corporate governance function considered a finance function? It is important for a financial manager to have an integrated understanding of the five basic finance functions because one is just as important as the other. They are all necessary

Improved Corporate Governance Improve Japan's Earning Pwer

2049 words - 9 pages Application Paper #2 Improved Corporate Governance will improve Japan’s Earning Power Luis C. Mendoza Corporate Governance GB-6215(Online) Spring 2015 18 April 2015 Can improved Corporate Governance improve Japan’s earning power? Tradition and honor in Japan’s culture are very strongest traits which develop the foundations of daily lives and how corporations conduct business. A tradition in Japan is taking an all male work team

Financial Regulation

954 words - 4 pages syndication, corporate finance and management advisory services, arranging for the issue and listing of shares, as well as investment portfolio management. There are currently 10 merchant banks in Malaysia. Islamic Banking In Malaysia, separate Islamic legislation and banking regulations exist side-by-side with those for the conventional banking system. The legal basis for the establishment of Islamic banks was the Islamic Banking Act (IBA), which came

Marketing Mix

409 words - 2 pages Katherine L. Tan Director and Treasurer Kingson U. Sian Director Kendrick Andrew L. Tan Director Alejo L. Villanueva, Jr. Independent Director Miguel B. Varela Independent Director Dina D.R. Inting Chief Finance Officer, Corporate Information Officer and Compliance Officer Dominic V. Isberto Corporate Secretary Rolando D. Siatela Assistant Corporate Secretary Annual Stockholders Meeting: Business Development: Reference: http://www.emperadorbrandy.com/about_board-of-directors.html http://edge.pse.com.ph/companyInformation/form.do?cmpy_id=632

Public Finana

2612 words - 11 pages Public finance is sometimes synonymous with government finance. It deals with budgeting the revenues and expenditures of a public sector entity, usually government. Public finance also can be defined as the raising of money by governments through taxes or borrowing and the spending of it. In Japan, the national budget and other basic matters on public finance are governed by the Public Finance Law, 1947 (Law No. 34, Apr. 31, 1947), which has

Riordan Manufacturing

590 words - 3 pages Riordan’s Finance & Accounting Riordan Manufacturing has three operating locations Georgia, Michigan, and California plus a joint venture in Hangzhou, China. Basically, the operating entities each have their own Finance & Accounting Systems and they provide input that is consolidated at Corporate San Jose. Riordan’s F & A system supports several parts of their operation that includes general ledger, accounts payable, accounts

Imba

797 words - 4 pages foreign currency, 2) utilization of SAS, Eventus, Bloomberg, and Microsoft Excel to perform analytics such as correlations, regressions, and event studies, and 3) presentation of research results. IMB 539. Financial Management (1-2) This is a corporate finance course designed for international MBA students. The primary objective of this course is to provide an understanding of finance and financial management. This primary objective will be

Corporate Governance

950 words - 4 pages Examination Paper IIBM Institute of Business Management Examination Paper Corporate Governance Section A: OBJECTIVE TYPE (20 marks) MM.50 • • • This section consists of Multiple choice questions. Answer all the questions. Questions carry 1 mark each. 1. In the second version of McKinsey’s model called “the Central model” governance chain is represented by a. Well-developed equity market & dispersed ownership b. Underdeveloped equity

Yndicated Lending: Practice And Documentation

284 words - 2 pages banking discipline (origination, syndicate, sales, transaction management, agency), IT providers, information platform professionals. This new edition includes the following: - Extensive statistical information on the history of the market and current market trends - Case studies on two example transactions (a corporate backstop facility and an acquisition finance facility) involving extensive analysis of tactics for bidding for mandates and of

Global Finance

3346 words - 14 pages Global Finance, Inc. is an international organization with expansions in many states. In every state, the company has a number of sites and each site has several workers and customers. Offices are interconnected to each other and to the host organization. As an international organization, Global Finance, Inc. requires a robust network that can support its daily operations, a secure network system and efficient network management strategies

Similar Documents

Corporate Finance Essay

2590 words - 11 pages developing world; banks severely limited lending to developing nations. The IMF and the World Bank supported stock market development not solely on the grounds of ideology but rather that the stock market is a natural outgrowth of a developing financial sector as long-term economic growth proceeds and also as a criticism of early development efforts through Development Finance Institutes (DFI) . These DFI’s had difficulties during the 1970s economic

Fundamentals Of Corporate Finance By Berk, Ch 7

2746 words - 11 pages Berk/DeMarzo/Harford • Fundamentals of Corporate Finance, Second Edition Dividend Yield: 5% (1/20) Capital Gain: 10% (2/20) Evaluate: The cost of capital for Anle Corporation is 15% given the current stock price of $20 and the expected stock price of $22 after paying the dividend of $1 in one year. The cost of capital is then split between the dividend yield at 5% and the capital gains yield at 10%, which together creates the 15% cost of

Gcu Finance Essay

255 words - 2 pages Stephen A. Ross, Franco Modigliani Professor of Finance and Economics, Sloan School of Management, Massachusetts Institute of Technology, Consulting Editor Financial Management Adair Excel Applications for Corporate Finance First Edition Block and Hirt Foundations of Financial Management Thirteenth Edition Brealey, Myers, and Allen Principles of Corporate Finance Ninth Edition Brealey, Myers, and Allen Principles of Corporate Finance, Concise

Bjhkh Essay

2668 words - 11 pages . Then it was subsequently incorporated in all the listed companies of three stock exchanges in Pakistan. In 2004, SECP took the first step to establish the Pakistan Institute of Corporate Governance in public private partnership. LITERATURE REVIEW According to” A Survey of Corporate Governance Practices in Pakistan, 2007”, conducted by: International Finance Corporation and SECP, 92% respondents prepare annual “statement of Ethics and