Lessons in Corporate Finance, 2nd Edition

Lessons in Corporate Finance, 2nd Edition

by Paul Asquith, Lawrence A. Weiss
Released March 2019
Publisher(s): Wiley
ISBN: 9781119537830

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Book description

An intuitive introduction to fundamental corporate finance concepts and methods

Lessons in Corporate Finance, Second Edition offers a comprehensive introduction to the subject, using a unique interactive question and answer-based approach. Asking a series of increasingly difficult questions, this text provides both conceptual insight and specific numerical examples. Detailed case studies encourage class discussion and provide real-world context for financial concepts. The book provides a thorough coverage of corporate finance including ratio and pro forma analysis, capital structure theory, investment and financial policy decisions, and valuation and cash flows provides a solid foundational knowledge of essential topics. This revised and updated second edition includes new coverage of the U.S. Tax Cuts and Jobs Act of 2017 and its implications for corporate finance valuation.

Written by acclaimed professors from MIT and Tufts University, this innovative text integrates academic research with practical application to provide an in-depth learning experience. Chapter summaries and appendices increase student comprehension. Material is presented from the perspective of real-world chief financial officers making decisions about how firms obtain and allocate capital, including how to:

  • Manage cash flow and make good investment and financing decisions
  • Understand the five essential valuation methods and their sub-families
  • Execute leveraged buyouts, private equity financing, and mergers and acquisitions
  • Apply basic corporate finance tools, techniques, and policies

 Lessons in Corporate Finance, Second Edition provides an accessible and engaging introduction to the basic methods and principles of corporate finance. From determining a firm’s financial health to valuation nuances, this text provides the essential groundwork for independent investigation and advanced study. 

Table of contents

  1. Cover
  2. About the Authors
  3. Acknowledgments
  4. Preface
    1. NOTE
  5. 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
  6. PART One: Financial Health of a Firm and Cash Flow Management
    1. 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
    2. 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 2018 AND 2019
      6. EVALUATING THE LOAN
      7. SUMMARY
      8. APPENDIX 3A: ACCOUNTING IS NOT ECONOMIC REALITY
      9. NOTES
    3. 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, 2018
      6. APPENDIX 4B: PIPES MONTHLY PRO FORMA INCOME STATEMENTS AND BALANCE SHEETS, 2019
      7. NOTES
  7. PART Two: Firm Financing and Financial Policies
    1. 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
    2. 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
    3. 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
    4. 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
    5. 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
    6. 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
    7. CHAPTER 11: Dividends and Stock Repurchases (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 ABOUT DIVIDENDS?
      5. WHAT HAPPENED NEXT
      6. SUMMARY
      7. NOTES
    8. 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. START WITH THE AMOUNT OF FINANCING REQUIRED
      8. SUMMARY
      9. NOTES
    9. CHAPTER 13: Restructuring and Bankruptcy: When Things Go Wrong (Avaya Holdings)
      1. WHEN THINGS GO WRONG
      2. THE KEY ECONOMIC PRINCIPLE OF BANKRUPTCY IS TO SAVE VIABLE FIRMS
      3. WHEN SHOULD A FIRM FILE FOR BANKRUPTCY?
      4. THE RULES OF BANKRUPTCY
      5. MAINTAINING THE VALUE OF A FIRM IN BANKRUPTCY
      6. AVAYA EMERGES FROM BANKRUPTCY
      7. SUMMARY
      8. APPENDIX 13.A: THE CREDITORS COORDINATION PROBLEM
      9. NOTES
  8. PART Three: Investments and Valuation
    1. CHAPTER 14: 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
    2. CHAPTER 15: 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
    3. CHAPTER 16: 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
    4. CHAPTER 17: 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
    5. CHAPTER 18: 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. THE WORLD KEEPS CHANGING
      7. APPENDIX 18A: CONGOLEUM'S PRO FORMAS WITH AND WITHOUT THE LBO
      8. APPENDIX 18B: HIGHLIGHTS OF THE LAZARD FAIRNESS OPINION
      9. NOTES
    6. CHAPTER 19: 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
    7. CHAPTER 20: 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 20A: FAMILY DOLLAR PRO FORMA FINANCIAL STATEMENTS WITH AUTHORS' CONSTANT DEBT RATIO
      9. NOTES
    8. CHAPTER 21: 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 21A: FAMILY DOLLAR PRO FORMA FREE CASH FLOWS TO EQUITY WITH CONSTANT DEBT RATIO
      7. NOTES
    9. CHAPTER 22: 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 22.A: KEY EVENTS IN THE BIDDING FOR FAMILY DOLLAR, 2014–2015
      9. NOTES
    10. CHAPTER 23: Review
      1. CHAPTERS 2–4: CASH FLOW MANAGEMENT—FINANCIAL TOOLS
      2. CHAPTERS 5–13: FINANCING DECISIONS AND FINANCIAL POLICIES
      3. CHAPTERS 14–22: 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
  9. Glossary
  10. Index
  11. End User License Agreement

Product information

  • Title: Lessons in Corporate Finance, 2nd Edition
  • Author(s): Paul Asquith, Lawrence A. Weiss
  • Release date: March 2019
  • Publisher(s): Wiley
  • ISBN: 9781119537830