statements. Finally, Chapter 12 shows how to use its cost of capital and projected
financial statements to determine a corporation’s value. The corporate valuation
model is useful to investors, and it also allows managers to estimate the impact that
proposed changes in operating strategies will have on the value of the corporation.
Chapter 12 concludes with a discussion of corporate governance, which has a direct
impact on how much value companies create for their shareholders.
Part Four discusses corporate financing decisions, which means how money
should be raised. Chapter 13 examines capital structure theory, or the issue of how
much debt versus equity the firm should use. Then, Chapter 14 considers the firm’s
distribution policy; that is, how much of the net income should be retained for rein-
vestment versus being paid out, either as a dividend or as a share repurchase?
Finally, in Part Five, we address several special topics that draw upon the earlier
chapters, including multinational financial management, working capital manage-
ment, option pricing, and real options.
It is worth noting that instructors may cover the chapters in a different sequence
from the order in the book. The chapters are written in a modular, self-contained
manner, so such reordering should present no major difficulties.
e-Resources
Corporate Finance’sweb site at http://ehrhardt.swcollege.comcontains several types
of files:
- It contains Excel files, called Tool Kits, that provide well documented models for al-
most all of the text’s calculations. Not only will these Tool Kits help you with this
finance course, but they will serve as tool kits for you in other courses and in your
career.
- There are problems at the end of the chapters that require spreadsheets, and
the web site contains the models you will need to begin work on these problems.
- The web site also contains PowerPoint andExcel files that correspond to the Mini
Cases at the end of each chapter.
When we think it might be helpful for you to look at one of the web site’s files, we’ll
show an icon in the margin like the one that is shown here.
Other resources are also on the web page, including Web Safaris,which are links to
useful web data and descriptions for navigating the sites to access the data.
Summary
In this chapter, we provided an overview of corporate finance and of the financial en-
vironment. We discussed the nature of financial markets, the types of institutions that
operate in these markets, and how interest rates are determined. In later chapters we
will use this information to help value different investments, and to better understand
corporate financing and investing decisions. The key concepts covered are listed
below:
The three main forms of business organization are the sole proprietorship, the
partnership, and the corporation.
Summary 47
An Overview of Corporate Finance and the Financial Environment 45
