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Contents Preface Acknowledgements 1 The finance function Learning objectives Introduction 1.1 Two key concepts in corporate finance 1.2 The role of the financial manager 1.3 Corporate objectives 1.4 How is shareholder wealth maximised? 1.5 Agency theory 1.6 Corporate governance 1.7 Conclusion Key points Self-test questions Questions for review Questions for discussion References Recommended reading 2 Capital markets, market efficiency and ratio analysis Learning objectives Introduction 2.1 Sources of business finance 2.2 Capital markets 2.3 Capital market efficiency 2.4 Assessing financial performance 2.5 Conclusion Key points Self-test questions Questions for review Questions for discussion References Recommended reading 3 Short-term finance and working capital management Learning objectives Introduction 3.1 The objectives of working capital management 3.2 Working capital policies 3.3 Working capital and the cash conversion cycle 3.4 Overtrading 3.5 Managing inventory 3.6 Managing cash 3.7 Managing trade receivables 3.8 Conclusion Key points Self-test questions Questions for review Questions for discussion References Recommended reading 4 Long-term finance: equity finance Learning objectives Introduction 4.1 Equity finance 4.2 The Stock Exchange 4.3 Rights issues 4.4 Scrip issues, share splits, scrip dividends and share repurchases 4.5 Preference shares 4.6 Conclusion Key points Self-test questions Questions for review Questions for discussion References Recommended reading 5 Long-term finance: debt finance, hybrid finance and leasing Learning objectives Introduction 5.1 Bonds, loan notes, loan stock and debentures 5.2 Bank and institutional debt 5.3 International debt finance 5.4 Convertible bonds 5.5 Warrants 5.6 Valuing fixed interest bonds 5.7 Valuing convertible bonds 5.8 Leasing 5.9 Evaluating the financial effects of financing choices 5.10 Conclusion Key points Self-test questions Questions for review Questions for discussion References Recommended reading 6 An overview of investment appraisal methods Learning objectives Introduction 6.1 The payback method 6.2 The return on capital employed method 6.3 The net present value method 6.4 The internal rate of return method 6.5 Comparing the NPV and IRR methods 6.6 The profitability index and capital rationing 6.7 The discounted payback method 6.8 Conclusion Key points Self-test questions Questions for review Questions for discussion References Recommended reading 7 Investment appraisal: applications and risk Learning objectives Introduction 7.1 Relevant project cash flows 7.2 Taxation and capital investment decisions 7.3 Inflation and capital investment decisions 7.4 Investment appraisal and risk 7.5 Appraisal of foreign direct investment 7.6 Empirical investigations of investment appraisal 7.7 Conclusion Key points Self-test questions Questions for review Questions for discussion References Recommended reading 8 Portfolio theory and the capital asset pricing model Learning objectives Introduction 8.1 The measurement of risk 8.2 The concept of diversification 8.3 Investor attitudes to risk 8.4 Markowitz's portfolio theory 8.5 Introduction to the capital asset pricing model 8.6 Using the CAPM to value shares 8.7 Empirical tests of the CAPM 8.8 Conclusion Key points Self-test questions Questions for review Questions for discussion References Recommended reading 9 The cost of capital and capital structure Learning objectives Introduction 9.1 Calculating the cost of individual sources of finance 9.2 Calculating the weighted average cost of capital 9.3 Average and marginal cost of capital 9.4 The CAPM and investment appraisal 9.5 Practical problems with calculating WACC 9.6 WACC in the real world 9.7 The cost of capital for foreign direct investment 9.8 Gearing: its measurement and significance 9.9 The concept of an optimal capital structure 9.10 The traditional approach to capital structure 9.11 Miller and Modigliani (I): net income approach 9.12 Miller and Modigliani (II): corporate tax 9.13 Market imperfections 9.14 Miller and personal taxation 9.15 Pecking order theory 9.16 Conclusion: does an optimal capital structure exist? Key points Self-test questions Questions for review Questions for discussion References Recommended reading 10 Dividend policy Learning objectives Introduction 10.1 Dividends: operational and practical issues 10.2 The effect of dividends on shareholder wealth 10.3 Dividend irrelevance 10.4 Dividend relevance 10.5 Dividend relevance or irrelevance? 10.6 Dividend policies 10.7 Alternatives to cash dividends 10.8 Empirical evidence on dividend policy 10.9 Conclusion Key points Self-test questions Questions for review Questions for discussion References Recommended reading 11 Mergers and takeovers Learning objectives Introduction 11.1 The terminology of mergers and takeovers 11.2 Justifications for acquisitions 11.3 Trends in takeover activity 11.4 Target company valuation 11.5 The financing of acquisitions 11.6 Strategic and tactical issues 11.7 Divestment 11.8 Private equity 11.9 Empirical research on acquisitions 11.10 Conclusion Key points Self-test questions Questions for review Questions for discussion References Recommended reading 12 Risk management Learning objectives Introduction 12.1 Interest and exchange rate risk 12.2 Internal risk management 12.3 External risk management 12.4 Futures contracts 12.5 Options 12.6 Swaps 12.7 Issues in interest and exchange risk management 12.8 Political risk 12.9 Conclusion Key points Self-test questions Questions for review Questions for discussion References Recommended reading Answers to self-test questions Glossary Present value tables Index

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