Capital Investment & Financing: a practical guide to financial evaluation PDF
Preview Capital Investment & Financing: a practical guide to financial evaluation
CAPITAL INVESTMENT & FINANCING A Practical Guide to Financial Evaluation This Page Intentionally Left Blank CAPITAL INVESTMENT & FINANCING A Practical Guide to Financial Evaluation Christopher Agar This Page Intentionally Left Blank In memory of Carrie This Page Intentionally Left Blank CONTENTS ListofEquations,Examples,andExhibits xi Preface xix Chapter1 CAPITALINVESTMENT 3 Introduction 3 Capital ExpenditureonTangibleAssets 4 Acquisitions– an Overview 5 Introduction 5 The Acquisition Process 6 FinancialDueDiligence 8 FinancialEvaluation 11 CorporateValuation 13 Introduction 13 Discounted Cash FlowValuation 15 ValuingRealOptions 28 Valuation Using Multiples 31 AcquisitionStructuring & Evaluation 33 Introduction 33 PurchasePrice 33 PurchaseConsideration 36 Chapter2 CAPITALRAISING 43 Introduction 43 Debt 44 Introduction 44 Loans 46 CorporateBonds 61 Equity 68 Introduction 68 InitialPublicOfferings 68 RightsIssues 70 Warrants 72 Chapter3 CAPITALMANAGEMENT 73 Introduction 73 Long Term Capital Management 74 Debt 74 Equity 76 vii viii CONTENTS ShortTerm Capital Management 82 WorkingCapital 82 ShortTerm Instruments– theMoney Market 87 Chapter4 FINANCIALRISKMANAGEMENT 91 Introduction 91 InterestRateRisk 92 Measuring InterestRateRisk 92 ManagingInterestRateRiskwithDerivatives 93 -ForwardRateAgreements 93 -Short TermInterestRateFutures 96 -Long Term InterestRateFutures 111 -InterestRateSwaps 128 -InterestRateOptions 132 Currency Risk 134 NatureofCurrency Risk 134 Managing Currency Risk with Derivatives 135 -ForwardCurrency Contracts 135 -Currency Futures 138 -Currency Swaps 138 -Currency Options 140 Appendix A FinancialRatios 143 EquityRatios 143 DebtRatios 153 Appendix B Pricing Techniques B1 CorporateDCF Valuation 157 Discounting andPresent Values 157 TheCostofCapital(andCAPM) 166 The DiscountRateforDomesticInvestments 166 The DiscountRateforInternationalInvestments 184 DCF ValuationMethods 187 Valuation Approaches 187 TerminalValues 195 B2 StraightBondPricing 205 Introductionto InterestRates 205 Bond Prices 211 Bond Yields 214 Bond PriceVolatility 218 ix B3 ForwardPricing 225 Forward Prices 225 Forward InterestRates 229 Forward InterestRatesand FRAs 231 Forward Ratesand SpotRates 233 Forward Bond Prices 237 B4 BasicOptionPricing 243 Overviewof PricingApproach 243 Binomial Model 244 ProbabilityDistributions:TowardsBlack-Scholes 262 Black-Scholes Model 273 ConvergenceofBinomialandBlack-ScholesModels 276 Binomial ModelRevisited – Setting theParameters 279 OptionPriceSensitivity 283 AdvancedOptionPricing - furtherstudy 287 B5 OptionPricing Applications 289 RealOptions 289 ConvertibleBonds 297 Warrants 308 InterestRateandCurrencyOptions 309 AppendixC Leasing 315 NatureandCharacteristics 315 LeaseClassification 316 LeaseFinancialEvaluation 317 Leveraged Leasing 326 Appendix D Examples D1 ManagementBuyout 345 D2 Bank Lending Review 357 D3 InitialPublicOffering 367 D4 Valuation 375 D5 Acquisition 387 D6 ShortTerm InterestRateFutures Hedging 399 Bibliography 409 Index 413
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