Rights Contact Login For More Details
- Wiley
More About This Title Lessons in Corporate Finance: A Case Studies Approach to Financial Tools, Financial Policies, and Valuation
English
Lessons in Corporate Finance explains the fundamentals of the field in an intuitive way, using a unique Socratic question and answer approach. Written by award-winning professors at M.I.T. and Tufts, this book draws on years of research and teaching to deliver a truly interactive learning experience. Each case study is designed to facilitate class discussion, based on a series of increasingly detailed questions and answers that reinforce conceptual insights with numerical examples. Complete coverage of all areas of corporate finance includes capital structure and financing needs along with project and company valuation, with specific guidance on vital topics such as ratios and pro formas, dividends, debt maturity, asymmetric information, and more.
Corporate finance is a complex field composed of a broad variety of sub-disciplines, each involving a specific skill set and nuanced body of knowledge. This text is designed to give you an intuitive understanding of the fundamentals to provide a solid foundation for more advanced study.
- Identify sources of funding and corporate capital structure
- Learn how managers increase the firm's value to shareholders
- Understand the tools and analysis methods used for allocation
- Explore the five methods of valuation with free cash flow to firm and equity
Navigating the intricate operations of corporate finance requires a deep and instinctual understanding of the broad concepts and practical methods used every day. Interactive, discussion-based learning forces you to go beyond memorization and actually apply what you know, simultaneously developing your knowledge, skills, and instincts. Lessons in Corporate Finance provides a unique opportunity to go beyond traditional textbook study and gain skills that are useful in the field.
English
PAUL ASQUITH is the Gordon Y. Billard professor of finance at M.I.T.'s Sloan School. He is a specialist in corporate finance and has written on all areas of corporate finance including mergers, LBOs, equity issues, dividend policy, and more.
LAWRENCE A. WEISS is professor of International Accounting at The Fletcher School of Law and Diplomacy at Tufts University. He is a specialist in accounting and finance and has written on corporate bankruptcy, firm performance, international accounting, mergers, and more.
English
Acknowledgments xv
About the Authors xvii
CHAPTER 1 Introduction
Two Markets: Product and Capital 2
The Basics: Tools and Techniques 2
A Diagram of Corporate Finance 3
A Brief History of Modern Finance 4
Reading This Book 6
CHAPTER 2 Determining a Firm’s Financial Health (PIPES-A)
The Conversation with the Banker Is Like a Job Interview 7
Starting with the Product Market Strategy 9
Is PIPES Profi table? 10
Doing the Math 10
Sources and Uses of Funds 12
Ratio Analysis 16
The Cash Cycle 21
Summary 24
CHAPTER 3 Pro Forma Forecasts (PIPES-B)
First, Let’s Take a Closer Look at Ratio Analysis 27
Pro Forma Forecasts 29
Circular Relationships 36
Back to (Forecasting) the Future 38
Projecting Out to 2014 and 2015 39
Evaluating the Loan 41
Summary 45
Appendix 3A: Accounting Is Not Economic Reality 47
CHAPTER 4 The Impact of Seasonality on a Firm’s Funding (PIPES-C) 53
Monthly Pro Forma Income Statements 54
Monthly Pro Forma Balance Sheets 56
A Different Picture of the Firm 65
Summary 70
Appendix 4A: PIPES Monthly Pro Forma Income Statements and Balance Sheets 2014 71
Appendix 4B: PIPES Monthly Pro Forma Income Statements and Balance Sheets 2015 74
CHAPTER 5 Why Financing Matters (Massey Ferguson)
Product Market Position and Strategy 77
Political Risk and Economies of Scale in Production 78
Massey Ferguson 1971–1976 79
Sustainable Growth 81
The Period after 1976 83
Conrad Runs Away 86
The Competitors 87
Back to Massey 90
Massey’s Restructuring 92
Postscript: What Happened to Massey 96
Summary 97
Appendix 5A: Massey Ferguson Financial Statements 99
CHAPTER 6 An Introduction to Capital Structure Theory
Optimal Capital Structure 104
M&M and Corporate Finance 107
Taxes 112
Costs of Financial Distress 120
The Textbook View of Capital Structure 125
The Cost of Capital 127
Summary 128
CHAPTER 7 Capital Structure Decisions (Marriott Corporation and Gary Wilson)
Capital Structure 131
The Cost of Capital 138
How Firms Set Capital Structure in Practice 141
Corporate Financial Policies 142
Sustainable Growth and Excess Cash Flow 145
What to Do with Excess Cash? 146
Summary 148
Appendix 7A: Marriott Corporation Income Statements and Balance Sheets 150
Appendix 7B: Marriott Corporation Selected Ratios 152
CHAPTER 8 Investment Decisions (Marriott Corporation and Gary Wilson)
What Is the Correct Price? 154
How Should Marriott Buy Its Shares? 154
The Loan Covenants 158
The Impact of the Product Market on Financial Policies 159
The Capital Market Impact and the Future 161
Summary 166
CHAPTER 9 Financial Policy Decisions (AT&T: Before and after the 1984 Divestiture)
Background on AT&T 172
M&M and the Practice of Corporate Finance 172
Old (Pre-1984) AT&T 174
New (Post-1984) AT&T 189
Summary 202
Appendix 9A: Development of AT&T Pro Formas 1984–1988
(Expected-Case) 203
CHAPTER 10 The Impact of Operating Strategy on Corporate Finance Policy (MCI)
A Brief Summary 207
A Brief History of MCI 209
Convertible Preferred Stock and Convertible Bonds 215
Interest Rates and Debt Ratios 218
Leases 219
Financing Needs of the New MCI 220
MCI’s Financing Choice 231
MCI Postscript 232
Summary 233
Appendix 10A: Development of MCI’s Pro Formas 1984–1988 235
CHAPTER 11 Dividend Policy (Apple Inc.)
The Theory of Dividend Policy 239
Empirical Evidence 243
Apple Inc. and the Decision on Whether to Pay Dividends 246
What Did Apple Do? 258
Summary 258
CHAPTER 12 A Continuation of Capital Structure Theory
The Tax Shield of Debt 262
The Costs of Financial Distress 263
Transaction Costs, Asymmetric Information, and Agency Costs 265
Asymmetric Information and Firm Financing 268
Agency Costs: Manager Behavior and Capital Structure 274
Leverage and Agency Confl icts between Equity
and Debt Holders 277
The Amount of Financing Required 281
Summary: An Integrated Approach 284
CHAPTER 13 The Time Value of Money: Discounting and Net Present Values
The Time Value of Money 287
Net Present Value (NPV) 292
Payback 298
Projects with Unequal Lives 299
Perpetuities 301
Summary 302
CHAPTER 14 Valuation and Cash Flows (Sungreen A)
Investment Decisions 303
How to Value a Project 304
The Weighted Average Cost of Capital (WACC) 315
Terminal Values 316
Summary 318
CHAPTER 15 Valuation (Sungreen B)
Sungreen’s Projected Cash Flows 319
The Weighted Average Cost of Capital (WACC) 320
Twin Firms 325
The Cost of Equity 328
The Cost of Debt 330
The Final Valuation 332
Strategic Analysis 333
Summary 334
CHAPTER 16 Valuation Nuances
Cash Flow Nuances 337
Cost of Capital Nuances 339
Nuances on Calculating the Cost of Equity: Levering and Unlevering Beta 344
Separating Cash Flows and Terminal Values 348
Nuances of Terminal Value Methods 349
Other Valuation Techniques: DCF Variations 355
Real Options (aka Strategic Choices) 358
Summary 360
CHAPTER 17 Leveraged Buyouts and Private Equity Financing (Congoleum)
Congoleum: A Short History 363
Leading Up to the LBO: What Makes a Firm a Good LBO Target? 364
Details of the Deal 367
Postscript: What Happened to LBOs? 381
Summary 382
Appendix 17A: Congoleum’s Pro Formas with and without the LBO 385
Appendix 17B: Highlights of the Lazard Fairness Opinion 391
CHAPTER 18 Mergers and Acquisitions: Strategic Issues (The Dollar Stores)
The Three Main Competitors 393
Recent History 394
Shopping a Firm/Finding a Buyer 397
Summary 400
CHAPTER 19 Valuing an Acquisition: Free Cash Flows to the Firm (The Dollar Stores)
The Bid for Family Dollar 401
Free Cash Flows to the Firm 403
Estimating the Cost of Capital 411
Discounted Cash Flows 415
Terminal Values 416
The Three Pieces 418
Summary 419
Appendix 19A: Family Dollar Pro Forma Financial Statements with Authors’ Constant Debt Ratio 420
CHAPTER 20 Understanding Free Cash Flows (The Dollar Stores)
Comparing the Free-Cash-Flows Formulas 423
Back to Discount Rates 425
On to Free Cash Flows to Equity 427
Discounting the Free Cash Flows to Equity 430
Summary 431
Appendix 20A: Family Dollar Pro Forma Free Cash Flows to Equity with Constant Debt Ratio 432
CHAPTER 21 Mergers and Acquisitions: Execution (The Dollar Stores)
The Time Line 433
Managerial Discretion 436
Activist Shareholders 438
The Federal Trade Commission (FTC) 440
Shareholder Lawsuits 441
The Vote 442
Summary 443
Appendix 21.A: Key Events in the Bidding for Family Dollar during 2014 and 2015 444
CHAPTER 22 Review
Chapters 2–4: Cash Flow Management—Financial Tools 446
Chapters 5–12: Financing Decisions and Financial Policies 446
Chapters 13–21: Valuation 450
Tools and Concepts Discussed in This Book 453
Finance as Art, Not Science 454
Bottom Lines 454
An Intelligent Approach to Finance 455
Keeping Current 456
Larry’s Last (Really a True) Story 457
Paul’s Theory of Pies 457
Rules to Live By 458
Glossary 461
Index 469
