Lessons in Corporate Finance

Book description

A discussion-based learning approach to corporate finance fundamentals

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.

Table of contents

  1. Preface
    1. Note
  2. Acknowledgments
  3. About the Authors
  4. Chapter 1: Introduction
    1. Two Markets: Product and Capital
    2. The Basics: Tools and Techniques
    3. A Diagram of Corporate Finance
    4. A Brief History of Modern Finance
    5. Reading This Book
    6. Notes
  5. Chapter 2: Determining a Firm’s Financial Health (PIPES-A)
    1. The Conversation with the Banker Is Like a Job Interview
    2. Starting with the Product Market Strategy
    3. Is PIPES Profitable?
    4. Doing the Math
    5. Sources and Uses of Funds
    6. Ratio Analysis
    7. The Cash Cycle
    8. Summary
    9. Notes
  6. Chapter 3: Pro Forma Forecasts (PIPES-B)
    1. First, Let’s Take a Closer Look at Ratio Analysis
    2. Pro Forma Forecasts
    3. Circular Relationships
    4. Back to (Forecasting) the Future
    5. Projecting Out to 2014 and 2015
    6. Evaluating the Loan
    7. Summary
    8. Appendix 3A: Accounting Is Not Economic Reality
    9. Notes
  7. Chapter 4: The Impact of Seasonality on a Firm’s Funding (PIPES-C)
    1. Monthly Pro Forma Income Statements
    2. Monthly Pro Forma Balance Sheets
    3. A Different Picture of the Firm
    4. Summary
    5. Appendix 4A: PIPES Monthly Pro Forma Income Statements and Balance Sheets 2014
    6. Appendix 4B: PIPES Monthly Pro Forma Income Statements and Balance Sheets 2015
    7. Notes
  8. Chapter 5: Why Financing Matters (Massey Ferguson)
    1. Product Market Position and Strategy
    2. Political Risk and Economies of Scale in Production
    3. Massey Ferguson 1971–1976
    4. Sustainable Growth
    5. The Period after 1976
    6. Conrad Runs Away
    7. The Competitors
    8. Back to Massey
    9. Massey’s Restructuring
    10. Postscript: What Happened to Massey
    11. Summary
    12. Appendix 5A: Massey Ferguson Financial Statements
    13. Notes
  9. Chapter 6: An Introduction to Capital Structure Theory
    1. Optimal Capital Structure
    2. M&M and Corporate Finance
    3. Taxes
    4. Costs of Financial Distress
    5. The Textbook View of Capital Structure
    6. The Cost of Capital
    7. Summary
    8. Notes
  10. Chapter 7: Capital Structure Decisions (Marriott Corporation and Gary Wilson)
    1. Capital Structure
    2. The Cost of Capital
    3. How Firms Set Capital Structure in Practice
    4. Corporate Financial Policies
    5. Sustainable Growth and Excess Cash Flow
    6. What to Do with Excess Cash?
    7. Summary
    8. Appendix 7A: Marriott Corporation Income Statements and Balance Sheets
    9. Appendix 7B: Marriott Corporation Selected Ratios
    10. Notes
  11. Chapter 8: Investment Decisions (Marriott Corporation and Gary Wilson)
    1. What Is the Correct Price?
    2. How Should Marriott Buy Its Shares?
    3. The Loan Covenants
    4. The Impact of the Product Market on Financial Policies
    5. The Capital Market Impact and the Future
    6. Summary
    7. Notes
  12. Chapter 9: Financial Policy Decisions (AT&T: Before and After the 1984 Divestiture)
    1. Background on AT&T
    2. M&M and the Practice of Corporate Finance
    3. Old (pre-1984) AT&T
    4. New (Post-1984) AT&T
    5. Summary
    6. Appendix 9A: Development of AT&T Pro Formas 1984–1988 (Expected-Case)
    7. Notes
  13. Chapter 10: The Impact of Operating Strategy on Corporate Finance Policy (MCI)
    1. A Brief Summary
    2. A Brief History of MCI
    3. Convertible Preferred Stock and Convertible Bonds
    4. Interest Rates and Debt Ratios
    5. Leases
    6. Financing Needs of the New MCI
    7. MCI’s Financing Choice
    8. MCI Postscript
    9. Summary
    10. Appendix 10A: Development of MCI’s Pro Formas 1984–1988
    11. Notes
  14. Chapter 11: Dividend Policy (Apple Inc.)
    1. The Theory of Dividend Policy
    2. Empirical Evidence
    3. Apple Inc. and the Decision on Whether to Pay Dividends
    4. What Did Apple Do?
    5. Summary
    6. Notes
  15. Chapter 12: A Continuation of Capital Structure Theory
    1. The Tax Shield of Debt
    2. The Costs of Financial Distress
    3. Transaction Costs, Asymmetric Information, and Agency Costs
    4. Asymmetric Information and Firm Financing
    5. Agency Costs: Manager Behavior and Capital Structure
    6. Leverage and Agency Conflicts Between Equity and Debt Holders
    7. The Amount of Financing Required
    8. Summary: An Integrated Approach
    9. Coming Attractions
    10. Notes
  16. Chapter 13: The Time Value of Money: Discounting and Net Present Values
    1. The Time Value of Money
    2. Net Present Value (NPV)
    3. Payback
    4. Projects with Unequal Lives
    5. Perpetuities
    6. Summary
    7. Notes
  17. Chapter 14: Valuation and Cash Flows (Sungreen A)
    1. Investment Decisions
    2. How to Value a Project
    3. The Weighted Average Cost of Capital (WACC)
    4. Terminal Values
    5. Summary
    6. Notes
  18. Chapter 15: Valuation (Sungreen B)
    1. Sungreen’s Projected Cash Flows
    2. The Weighted Average Cost of Capital (WACC)
    3. Twin Firms
    4. The Cost of Equity
    5. The Cost of Debt
    6. The Final Valuation
    7. Strategic Analysis
    8. Summary
    9. Notes
  19. Chapter 16: Valuation Nuances
    1. Cash Flow Nuances
    2. Cost of Capital Nuances
    3. Nuances on Calculating the Cost of Equity: Levering and Unlevering Beta
    4. Separating Cash Flows and Terminal Values
    5. Nuances of Terminal Value Methods
    6. Other Valuation Techniques: DCF Variations
    7. Real Options (aka Strategic Choices)
    8. Summary
    9. Notes
  20. Chapter 17: Leveraged Buyouts and Private Equity Financing (Congoleum)
    1. Congoleum: A Short History
    2. Leading Up to the LBO: What Makes a Firm a Good LBO Target?
    3. Details of the Deal
    4. Postscript: What Happened to LBOs?
    5. Summary
    6. Appendix 17A: Congoleum’s Pro Formas with and without the LBO
    7. Appendix 17B: Highlights of the Lazard Fairness Opinion
    8. Notes
  21. Chapter 18: Mergers and Acquisitions: Strategic Issues (The Dollar Stores)
    1. The Three Main Competitors
    2. Recent History
    3. Shopping a Firm/Finding a Buyer
    4. Summary
    5. Notes
  22. Chapter 19: Valuing an Acquisition: Free Cash Flows to the Firm (The Dollar Stores)
    1. The Bid for Family Dollar
    2. Free Cash Flows to the Firm
    3. Estimating the Cost of Capital
    4. Discounted Cash Flows
    5. Terminal Values
    6. The Three Pieces
    7. Summary
    8. Appendix 19A: Family Dollar Pro Forma Financial Statements with Authors’ Constant Debt Ratio
    9. Notes
  23. Chapter 20: Understanding Free Cash Flows (The Dollar Stores)
    1. Comparing the Free-Cash-Flows Formulas
    2. Back to Discount Rates
    3. On to Free Cash Flows to Equity
    4. Discounting the Free Cash Flows to Equity
    5. Summary
    6. Appendix 20A: Family Dollar Pro Forma Free Cash Flows to Equity with Constant Debt Ratio
    7. Notes
  24. Chapter 21: Mergers and Acquisitions: Execution (The Dollar Stores)
    1. The Time Line
    2. Managerial Discretion
    3. Activist ShareholderS
    4. The Federal Trade Commission (FTC)
    5. Shareholder Lawsuits
    6. The Vote
    7. Summary
    8. Appendix 21.A: Key Events in the Bidding for Family Dollar during 2014 and 2015
    9. Notes
  25. Chapter 22: Review
    1. Chapters 2–4: Cash Flow Management—Financial Tools
    2. Chapters 5–12: Financing Decisions and Financial Policies
    3. Chapters 13–21: Valuation
    4. Tools and Concepts Discussed in This Book
    5. Finance as Art, Not Science
    6. Bottom Lines
    7. An Intelligent Approach to Finance
    8. Keeping Current
    9. Larry’s Last (Really a True) Story
    10. Paul’s Theory of Pies
    11. Rules to Live By
    12. Notes
  26. Glossary
  27. Index
  28. EULA

Product information

  • Title: Lessons in Corporate Finance
  • Author(s): Paul Asquith, Lawrence A. Weiss
  • Release date: April 2016
  • Publisher(s): Wiley
  • ISBN: 9781119207412