This textbook takes on a systematic approach to elaborating on the different subjects within corporate finance. The chapters bring together existing concepts with examples and stories that allow students to easily understand and apply financial tools. In doing so, the book strives to clarify misconceptions in the literature on topics related to firm’s ownership and control, problems of the Modigliani-Miller first and second propositions, relationship between options and corporate finance, behavioral finance versus corporate finance, etc.
The book takes into consideration the growing importance of the Asian economy and financial markets in recent years, and constructs the P-index to measure and compare the risk structures of US and China’s stocks and stock indexes.
This book is a primary text written for the introductory courses in corporate finance at the M.B.A. level and for the intermediate courses in undergraduate programs, but can also be of great use to Ph.D. students as well as professionals.
Author(s): Kuo-Ping Chang
Series: Springer Texts in Business and Economics
Publisher: Springer
Year: 2023
Language: English
Pages: 209
City: Singapore
Preface
Contents
1 Introduction
1.1 Decision Making and Cost–Benefit Analysis
1.2 Risks and Returns
1.3 Derivatives and Corporate Finance
1.4 Behavioral Finance and Corporate Finance
2 The Ownership and Objectives of the Firm
2.1 The Ownership of the Firm—A Story of Robin Hood
2.2 Power (Authority), Entrepreneur, and Objectives and Boundary of the Firm
2.3 Choice Set, Risk Attitude, and Types of Contract
2.4 Legal Forms of Firms, and the Market Value and Capital Structure of the Firm
Appendix: Equivalency between Maximizing Profits and Maximizing Resource Providers’ Wealth
References
3 Basic Concepts of Valuation
3.1 The Time Value of Money Versus Choice Set
3.2 Present Value, Future Value and Compounding
3.3 Annuity and Perpetuities
3.4 Annual Interest Rate and Effective Annual Rate
3.5 Bond Price Volatility and Term Structure of Interest Rates
4 Financial Statements and Financial Ratios
4.1 Understanding Financial Statements
4.2 Financial Ratios Analysis
5 Opportunity Cost and Investment Criteria
5.1 Cost, Budgeting, and Accounting Numbers
5.2 From Financial Statements to Cash Flows
5.3 Fundamental Cost and Benefit Analysis: Net Present Value Method
5.4 Opportunity Cost Versus Sunk Expense
References
6 Internal Rate of Return, Profitability Index and Payback Period Methods
6.1 Internal Rate of Return and Modified Internal Rate of Return
6.2 Profitability Index
6.3 Payback Period
6.4 Empirical Evidence of the Use of Investment Criteria
References
7 Risk and Return
7.1 Risk-Averse, Risk-Love and Risk-Neutral
7.2 Mean–Variance Portfolio Analysis
7.3 Capital Asset Pricing Model and Two-Factor Model
7.4 Some Alternative Models
References
8 Capital Structure in a Perfect Market
8.1 The Modigliani–Miller First Proposition: Capital Structure Irrelevancy
8.2 The Modigliani–Miller Second Proposition: Debt/Equity Ratio, Return, and Risk to Equityholder
References
9 Derivatives and Corporate Finance
9.1 Forward and Futures Contracts: Expectation Matters
9.2 Put-Call Parity, Option Greeks, and Corporate Finance
9.3 The Binomial Option Pricing Model and Corporate Finance
9.4 The NPV Analysis Under Uncertainty
9.5 P-Index: The Measure of Risk Structure of Asset
Appendix: Do Arbitrage When System 2 of the Gordan Theorem Fails
References
10 Real Options
10.1 The Option (Choice) to Expand
10.2 The Option (Choice) to Abandon
10.3 Timing Options (Choices)
Reference
11 Behavioral Finance and Corporate Finance
11.1 Behavioral Economics Versus Traditional Economics
11.2 Behavioral Finance and Corporate Finance
Appendix A: Opportunity Cost in Practice
Appendix B: Expected Utility Theory and Risky Assets
References
12 Capital Structure in an Imperfect Market
12.1 Transaction Costs with Low Debt
12.2 Transaction Costs with High Debt
12.3 Pecking Order Theory and Trade-Off Theory
References
13 Payout Policy
13.1 Payout Policy with Zero Transaction Costs: Financial Diversification Irrelevancy
13.2 Payout Policy with Transaction Costs
References
14 Mergers and Acquisitions, and Corporate Governance
14.1 Ways to Merge and Take-Over
14.2 Defensive Tactics
14.3 Role of the Board
14.4 Corporate Governance in Practice
15 International Corporate Finance
15.1 Advantages and Disadvantages of Multinational Corporations
15.2 Purchasing Power Parity and Interest Rate Parity
Author Index
Subject Index
