Applied Corporate Finance

Questions, Problems and Making Decisions in the Real World

verfasst von: Mark K. Pyles

Verlag: Springer New York

Buchreihe : Springer Texts in Business and Economics

Enthalten in: Springer Professional "Wirtschaft+Technik" , Springer Professional "Wirtschaft"

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Über dieses Buch

Applied Corporate Finance fills a gap in the existing resources available to students and professionals needing an academically rigorous, yet practically orientated, source of knowledge about corporate finance. Written by an expert in investment analysis, this textbook leads readers to truly understand the principles behind corporate finance in a real world context from both a firm and investor perspective. The focus of this text is on traditional theory applied to a holistic business case study, offering readers both a quantitative and qualitative perspective on such topics as capital budgeting, time value of money, corporate risk, and capital structure. Each section in the book corresponds to the order in which a business makes key financial decisions—as opposed to level of difficulty—allowing readers to grasp a comprehensive understanding of the corporate financial life cycle. Directly addressing the area of corporate finance in an applied setting, and featuring numerous case examples and end-of-chapter discussion questions and problems, this textbook will appeal to advanced undergraduates majoring in finance, graduate-level students, as well as professionals in need of a quick refresher on corporate financial policy.

Inhaltsverzeichnis

Frontmatter

Chapter 1. In the Beginning…

Abstract

This chapter sets the stage for all others to come, which is unsurprising given its placement. In this introductory chapter, we will cover two topics, both of which are crucial in preparing the reader for the topics upcoming throughout the text. The first step in understanding how a corporation operates is to understand how one begins. While the specific steps of a company’s start-up can take many forms, there are several things that generally happen. First is the decision of the type of firm the owners choose to create. As you will see in the upcoming pages, this is much more than just a name or a classification. In fact, the company type will determine how the company operates, from day-to-day activities to long-run projects designed to facilitate growth and generate potential stockholder benefits.

Mark K. Pyles

Chapter 2. Financial Statement Analysis: What’s Right, What’s Wrong, and Why?

Abstract

This is what can be referred to as a bridge chapter in the sense that it provides the setup for what comes from this point forward and builds upon the introduction from the previous chapter. It is sometimes easy to shortchange such topics because they are ancillary to the primary focus of the text. However, although bridges are the means to the destination rather than the destination itself, it is impossible to get there without them. The same is true of this chapter. The materials covered are necessary in laying the groundwork for understanding the purpose of finance in a corporate setting.

Mark K. Pyles

Chapter 3. Cash Flow: Easy Come, Easy Go

Abstract

Chapter 1 introduced the two major financial decisions that go into helping the firm grow and increase shareholder wealth. In Chap. 2, we learned how to use financial statement analysis to aid in making financial decisions. A primary goal of that process was to identify areas of opportunity, where a potential project would be most beneficial. Once that identification is complete, the next step involves closely examining the expected cash flows of those potential projects. This is the first step in capital budgeting, or the process of choosing projects in which we will invest company funds. The discussion will begin with an overview of cash flows in general, before moving into calculating them for the firm at large. Finally, we will address the process of calculating cash flows for a single project.

Mark K. Pyles

Chapter 4. The Right Frame of Time

Abstract

The most important concept in all of finance is the time value of money. As a discipline primarily concerned with defining and calculating values, obtaining consistent, time-relevant estimates is critical. All aspect of corporate finance requires understanding and incorporating the time value of money principles. In the preceding chapter, we made note of the fact that cash flows often occur at different times, and those of most concern are expected to occur at some future time. However, financial decisions are typically made in the current time frame. Thus, the values of those future cash flows need to be adjusted to reflect the differential time periods. This is not to say, however, there aren’t many instances where we want to know what a stream of cash flows will be worth at some point in the future as well. Therefore, we need to closely examine each of these options. There are three basic types of cash flows that comprise the study of time value of money: (1) single cash flows, (2) multiple unequal cash flows, and (3) multiple equal cash flows. We will address each of these, in turn, throughout this chapter.

Mark K. Pyles

Chapter 5. Capital Structure: Borrow It!

Abstract

We now take our first step in explaining capital structure. As outlined in Chap. 1, this is essentially a fancy way of categorizing the specific mixture of debt and equity a firm chooses to finance firm operations. One should view capital structure in two ways. First, we need to examine the firm’s existing capital structure. Doing so is the specific objective of the next two chapters of this text. However, the real issue regarding capital structure is identifying the firm’s ideal mixture of debt and equity to use in financing the firm’s projects. This latter notion is critical in understanding corporate finance and will be covered in detail much later in our journey. In this chapter, we will start with the debt side of the firm’s existing capital structure.

Mark K. Pyles

Chapter 6. Capital Structure: Sell It Off!

Abstract

In this chapter, we will examine the other primary component of capital structure. Most individuals understand the basic idea of stocks and stock markets, and for good reason. Equity markets are not just the focus of financial professionals. The idea that individual investors can own a piece of a publicly traded firm is probably the most important concept in investments as it allows firms to have a direct influence on individual wealth. In this chapter, we will cover the characteristics of equity, learn how to theoretically value stock, and most importantly, discuss equity from the company’s perspective.

Mark K. Pyles

Chapter 7. The Rocky Marriage of Risk and Return

Abstract

This chapter introduces a topic that is perhaps most valuable in the investments arena. However, this text has made a conscious effort to point out that financial assets must be viewed from multiple angles. Also, keep in mind that an investment can be any number of things, particularly in corporate finance. So, although we will focus on financial investments to illustrate the points of interest throughout the chapter, keep in mind the materials will readily apply to physical investments as well. Thus, it is of particular interest to understand how this material fits into the overall context of capital structure and capital budgeting. This chapter will be roughly divided into two concepts, both with the same end objective. The first examines a data-driven method of determining the relationship between risk and return. The second concept examines the risk/return relationship on a more theoretical basis.

Mark K. Pyles

Chapter 8. This Is So WACC!

Abstract

Thus far, we have done a great deal of preparatory work. In the remaining two chapters, we will finally get to reap the rewards of all this hard work. The efforts that have gone into calculating the various pieces of the puzzle are now going to pay off as those pieces begin to come together. There are two topics covered in this chapter. The first is the weighted average cost of capital, or WACC for short. Once we learn about the WACC, the second objective is to use this knowledge to examine capital structure theories. Upon accomplishing this, we can finally answer the question posed way back in Chap. 2 of how to maximize shareholder wealth.

Mark K. Pyles

Chapter 9. Capital Budgeting Decisions: The End of the Roads Meets the Beginning of Another

Abstract

As promised, we are at long last to the end of our journey. After the long, tedious task of determining the WACC, we now just have to use it. While the hard part is over, arguably the most important step is yet to come. As stated several times, in order for a company to flourish financially, they must maximize shareholder wealth, which they do, in part, by ensuring company growth. This growth most often comes about as a result of the company undertaking new projects. Thus, we have to decide which projects to accept, and which to reject, in order to maximize shareholder wealth. As you can probably ascertain, a large part of this goes hand in hand with the discussion of cost of capital completed in the previous chapter. To put is as simply as possible, the objective of this chapter is to find the best possible projects, conditional upon the optimal capital structure used to finance said project. Or, we are finally combining the concepts of capital structure and capital budgeting.

Mark K. Pyles

Backmatter

Titel: Applied Corporate Finance
verfasst von: Mark K. Pyles
Verlag: Springer New York
Electronic ISBN: 978-1-4614-9173-6
Print ISBN: 978-1-4614-9172-9
DOI: https://doi.org/10.1007/978-1-4614-9173-6