Contents
BUSF_A01.qxd 11/19/08 9:46 Page xi
- their interpretation 3 Financial (accounting) statements and
- Objectives
- 3.1 Introduction
- 3.2 The financial statements
- 3.3 Definitions and conventions of accounting
- decision making 3.4 Problems with using accounting information for
- 3.5 Creative accounting
- 3.6 Ratio analysis
- 3.7 Using accounting ratios to predict financial failure
- Summary
- Further reading
- Relevant websites
- Review questions
- Problems
- sheet for Appendix: Jackson plc’s income statement and balance
- 4 Investment appraisal methods Part 2 Investment decisions
- Objectives
- 4.1 Introduction
- 4.2 Net present value
- 4.3 Internal rate of return
- 4.4 Payback period
- 4.5 Accounting (unadjusted) rate of return
- 4.6 Investment appraisal methods used in practice
- Summary
- Further reading
- Review questions
- Problems
- 5 Practical aspects of investment appraisal
- Objectives
- 5.1 Introduction
- 5.2 Cash flows or accounting flows?
- 5.3 Do cash flows really occur at year ends?
- 5.4 Which cash flows?
- 5.5 Taxation
- 5.6 Inflation
- 5.7 An example of an investment appraisal
- 5.8 Capital rationing
- 5.9 Replacement decisions vii
- reviewing investment projects 5.10 Routines for identifying, assessing, implementing and
- 5.11 Investment appraisal and strategic planning
- 5.12 Value-based management
- 5.13 Real options
- Summary
- Further reading
- Relevant website
- Review questions
- Problems
- 6 Risk in investment appraisal
- Objectives
- 6.1 Introduction
- 6.2 Sensitivity analysis
- 6.3 Use of probabilities
- 6.4 Expected value
- 6.5 Systematic and specific risk
- 6.6 Utility theory
- 6.7 Attitudes to risk and expected value
- overseas 6.8 Particular risks associated with making investments
- 6.9 Some evidence on risk analysis in practice
- 6.10 Risk – the story so far
- Summary
- Further reading
- Review questions
- Problems
- investment decisions 7 Portfolio theory and its relevance to real
- Objectives
- 7.1 The relevance of security prices
- 7.2 The expected value/variance (or mean/variance) criterion
- 7.3 Security investment and risk
- 7.4 Portfolio theory
- 7.5 Capital asset pricing model
- 7.6 CAPM: an example of beta estimation
- 7.7 Assumptions of CAPM
- 7.8 Tests of CAPM
- 7.9 CAPM – what went wrong?
- investments 7.10 How CAPM is used to derive discount rates for real
- 7.11 Use of CAPM in practice
- 7.12 Arbitrage pricing model viii
- 7.13 Portfolio theory – where are we now?
- Summary
- Further reading
- Review questions
- Problems
- Appendix: Derivation of CAPM
- 8 Sources of long-term finance Part 3 Financing decisions
- Objectives
- 8.1 Introduction
- 8.2 Ordinary (equity) capital
- 8.3 Methods of raising additional equity finance
- 8.4 Preference shares
- 8.5 Loan notes and debentures
- 8.6 Convertible loan notes
- 8.7 Warrants
- 8.8 Term loans
- 8.9 Asset-backed finance (securitisation)
- 8.10 Leasing
- 8.11 Grants from public funds
- 8.12 Conclusions on long-term finance
- Summary
- Further reading
- Relevant websites
- Review questions
- Problems
- exchange) and its efficiency 9 The secondary capital market (the stock
- Objectives
- 9.1 Introduction
- 9.2 The London Stock Exchange
- 9.3 Capital market efficiency
- 9.4 Tests of capital market efficiency
- 9.5 The efficient market paradox
- efficiency 9.6 Conclusions on, and implications of, capital market
- Summary
- Further reading
- Review questions
- Problems
- discount rate 10 Cost of capital estimations and the
- Objectives
- 10.1 Introduction
- 10.2 Cost of individual capital elements
- 10.3 Weighted average cost of capital ( WACC)
- 10.4 Practicality of using WACC as the discount rate
- 10.5 WACC values used in practice
- Summary
- Further reading
- Review questions
- Problems
- wealth 11 Gearing, the cost of capital and shareholders’
- Objectives
- 11.1 Introduction
- 11.2 Is debt finance as cheap as it seems?
- 11.3 Business risk and financial risk
- 11.4 The traditional view
- 11.5 The Modigliani and Miller view of gearing
- 11.6 Other thoughts on the tax advantage of debt financing
- 11.7 Capital/financial gearing and operating gearing
- 11.8 Other practical issues relating to capital gearing
- 11.9 Evidence on gearing
- 11.10 Gearing and the cost of capital – conclusion
- 11.11 The trade-off theory
- 11.12 Pecking order theory
- 11.13 Likely determinants of capital gearing
- 11.14 Weighted average cost of capital revisited
- Summary
- Further reading
- Review questions
- Problems
- Appendix I: Proof of the MM cost of capital proposition (pre-tax)
- Appendix II: Proof of the MM cost of capital proposition (after tax)
- 12 The dividend decision
- Objectives
- 12.1 Introduction
- 12.2 Modigliani and Miller on dividends
- 12.3 The traditional view on dividends
- 12.4 Who is right about dividends?
- 12.5 Other factors
- 12.6 Dividends: the evidence x
- 12.7 Conclusions on dividends
- Summary
- Further reading
- Review questions
- Problems
- Appendix: Proof of the MM dividend irrelevancy proposition
- 13 Management of working capital Part 4 Integrated decisions
- Objectives
- 13.1 Introduction
- 13.2 The dynamics of working capital
- 13.3 The importance of the management of working capital
- 13.4 Working capital and liquidity
- 13.5 Overtrading
- 13.6 Inventories (stock in trade)
- 13.7 Just-in-time inventories management
- 13.8 Trade receivables (trade debtors or accounts receivable)
- 13.9 Cash (including overdrafts and short-term deposits)
- 13.10 Trade payables (trade creditors)
- Summary
- Further reading
- Review questions
- Problems
- and divestments) 14 Corporate restructuring (including takeovers
- Objectives
- 14.1 Introduction
- 14.2 Takeovers and mergers
- 14.3 Mergers: the practicalities
- 14.4 Divestments
- Summary
- Further reading
- Relevant websites
- Review questions
- Problems
- 15 International aspects of business finance
- Objectives
- 15.1 Introduction
- 15.2 Foreign exchange
- 15.3 Problems of internationalisation xi
- 15.4 International investment appraisal
- and portfolio theory 15.5 Risks of internationalisation, management of those risks
- Summary
- Further reading
- Review questions
- Problems
- 16 Small businesses
- Objectives
- 16.1 Introduction
- 16.2 Corporate objectives
- 16.3 Organisation of small businesses
- 16.4 Taxation of small businesses
- 16.5 Investment decisions
- 16.6 Risk and the discount rate
- 16.7 Sources of finance
- 16.8 Valuation of small businesses
- 16.9 Gearing
- 16.10 Dividends
- 16.11 Working capital and small businesses
- Summary
- Further reading
- Relevant websites
- Review questions
- Problems
- Appendix 1 Present value table
- Appendix 2 Annuity table
- Appendix 3 Suggested answers to review questions
- Appendix 4 Suggested answers to selected problem questions
- Glossary
- References
- Index