Corporate Finance: Asia-Pacific Edition

886 Pages·2020·31.736 MB·English

by  John Graham, Chris Adam, Brindha Gunasingham

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The up-to-date content in this book
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helps you to get the knowledge
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you need to succeed.
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Shows you how financial management
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really works using a dynamic, modern
and practical approach to help A
prepare you for a career in finance
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Provides insight into how senior
financial executives apply many of
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the concepts and techniques that
are presented throughout the text
Includes many examples of how you
may utilise key chapter ideas in your
own life
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I always limit myself to 45 minutes of study GAA
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Sam, student, Brisbane DIT SIA HIR
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ISBN 978-0170446075
JOHN GRAHAM • CHRISTOPHER ADAM • BRINDHA GUNASINGHAM
9 780170 446075
Copyright 2021 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-202
CORPORATE
FINANCE
THIRD
ASIA-PACIFIC
EDITION
Copyright 2021 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-202
JOHN GRAHAM • CHRISTOPHER ADAM • BRINDHA GUNASINGHAM
Copyright 2021 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-202
CORPORATE
FINANCE
THIRD
ASIA-PACIFIC
EDITION
JOHN GRAHAM • CHRISTOPHER ADAM • BRINDHA GUNASINGHAM
Copyright 2021 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-202
Corporate Finance © 2021 Cengage Learning Australia Pty Limited
3rd Asia-Pacific Edition
John Graham Copyright Notice
Chris Adam This Work is copyright. No part of this Work may be reproduced, stored in a
Brindha Gunasingham retrieval system, or transmitted in any form or by any means without prior written
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National Library of Australia Cataloguing-in-Publication Data
Creator: Graham, John R., author.
Title: Corporate finance / John R. Graham, Christopher Adam, Brindha
Gunasingham.
Edition: 3rd Asia-Pacific edition
ISBN: 9780170446075 (paperback)
Includes index.
Other Creators/Contributors:
Adam, Christopher, author. Gunasingham, Brindha, author.
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1 2 3 4 5 6 7 24 23 22 21 20
Copyright 2021 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-202
BRIEF CONTENTS
PART 1
INTRODUCTION 3
CHAPTER 1: THE SCOPE OF CORPORATE FINANCE 4
CHAPTER 2: FINANCIAL STATEMENT AND CASH FLOW ANALYSIS 29
CHAPTER 3: THE TIME VALUE OF MONEY 66
SOUND BITES: ETHICS IN CORPORATE FINANCE – PART 1 114
PART 2
VALUATION, RISK AND RETURN 117
CHAPTER 4: VALUING BONDS 119
CHAPTER 5: VALUING SHARES 153
CHAPTER 6: THE TRADE-OFF BETWEEN RISK AND RETURN 183
CHAPTER 7: RISK, RETURN AND THE CAPITAL ASSET PRICING MODEL 220
CHAPTER 8: OPTIONS 256
SOUND BITES: ETHICS IN CORPORATE FINANCE – PART 2 297
PART 3
CAPITAL BUDGETING 301
CHAPTER 9: CAPITAL BUDGETING PROCESS AND DECISION CRITERIA 302
CHAPTER 10: CASH FLOW AND CAPITAL BUDGETING 348
CHAPTER 11: RISK AND CAPITAL BUDGETING 391
SOUND BITES: ETHICS IN CORPORATE FINANCE – PART 3 423
PART 4
FINANCIAL STRATEGY 427
CHAPTER 12: RAISING LONG-TERM FINANCING 429
CHAPTER 13: CAPITAL STRUCTURE 465
CHAPTER 14: LONG-TERM DEBT AND LEASING 499
CHAPTER 15: PAYOUT POLICY 534
CHAPTER 16: EXCHANGE RATES AND INTERNATIONAL INVESTMENT
DECISIONS 564
CHAPTER 17: MERGERS, ACQUISITIONS AND CORPORATE CONTROL 589
SOUND BITES: ETHICS IN CORPORATE FINANCE – PART 4 633
Brief Contents v
Copyright 2021 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-202
ONLINE CHAPTERS
PART 5
FINANCIAL LIFECYCLE 637
CHAPTER 18: FINANCIAL PLANNING 639
CHAPTER 19: INTRODUCTION TO FINANCIAL RISK MANAGEMENT 671
CHAPTER 20: ENTREPRENEURIAL FINANCE AND VENTURE CAPITAL 701
CHAPTER 21: CASH CONVERSION, INVENTORY AND RECEIVABLES
MANAGEMENT 729
CHAPTER 22: CASH, PAYABLES AND LIQUIDITY MANAGEMENT 762
CHAPTER 23: INSOLVENCY AND FINANCIAL DISTRESS 788
SOUND BITES: ETHICS IN CORPORATE FINANCE – PART 5 812
vi Brief Contents
Copyright 2021 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-202
CONTENTS
Guide to the text xxi
Guide to the online resources xxv
Preface xxvii
About the authors xxx
Acknowledgements xxxii
PART 1
INTRODUCTION 3
CHAPTER 1 THE SCOPE OF CORPORATE FINANCE 4
1.1 Corporate Finance Elements and Functions 5
1.1a Elements and Structure of Corporate Finance Learning 5
1.1b The Five Basic Corporate Finance Functions 7
1.1c Debt and Equity: The Two Flavours of Capital 10
1.1d The Role of Financial Intermediaries in Corporate Finance 11
1.2 Goals for the Corporate Financial Manager 12
1.2a What Should a Financial Manager Try to Maximise? 12
1.2b How Can Agency Costs be Controlled in Corporate Finance? 14
1.2c Ethics are Important in Corporate Finance 15
1.3 The Role of Corporate Finance in Business 17
1.3a How Finance Interacts with other Functional Business Areas 18
1.3b Legal Forms of Business Organisation 18
1.3c Special Forms of Business Organisation 21
1.4 Career Opportunities In Finance 22
1.4a Corporate Finance 23
1.4b Commercial Banking 23
1.4c Investment Banking 24
1.4d Money Management 25
1.4e Consulting 26
Study Tools 26
Problems 27
CASE STUDY The Scope of Corporate Finance 28
CHAPTER 2 FINANCIAL STATEMENT AND CASH FLOW ANALYSIS 29
2.1 Financial Statements 30
2.1a Balance Sheet 31
2.1b Income Statement 33
2.1c Statement of Retained Earnings 34
2.1d Statement of Cash Flows 35
2.1e Notes to Financial Statements 35
Contents vii
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2.2 Cash Flow Analysis 36
2.2a The Company’s Cash Flows 36
2.2b Developing and Interpreting the Statement of Cash Flows 40
2.3 Assessing Financial Performance Using Ratio Analysis 42
2.3a Using Financial Ratios 42
2.3b Liquidity Ratios 43
2.3c Activity Ratios 43
2.3d Debt Ratios 46
2.4 Profitability Ratios 47
2.4a Dupont System of Analysis 49
2.5 Market Ratios 52
2.6 Corporate Taxes 54
2.6a Ordinary Corporate Income 54
2.6b Corporate Capital Gains 54
Study tools 55
Problems 60
CASE STUDY Financial Statement and Cash Flow Analysis 65
CHAPTER 3 THE TIME VALUE OF MONEY 66
3.1 Introduction to the Time Value of Money 67
3.2 Future Value of a Lump Sum Received Today 68
3.2a The Concept of Future Value 68
3.2b The Equation for Future Value 69
3.2c A Graphic View of Future Value 71
3.3 Present Value of a Lump Sum Received in the Future 72
3.3a The Concept of Present Value 72
3.3b The Equation for Present Value 73
3.3c A Graphic View of Present Value 74
3.4  Additional Applications Involving Lump Sums 75
3.5 Future Value of Cash Flow Streams 78
3.5a Finding the Future Value of a Mixed Stream 78
3.5b Types of Annuities 80
3.5c Finding the Future Value of an Ordinary Annuity 80
3.5d Finding the Future Value of an Annuity Due 83
3.6 Present Value of Cash Flow Streams 85
3.6a Finding the Present Value of a Mixed Stream 85
3.6b Finding the Present Value of an Ordinary Annuity 87
3.6c Finding the Present Value of an Annuity Due 89
viii Contents
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3.6d Finding the Present Value of a Perpetuity 90
3.6e Finding the Present Value of a Growing Perpetuity 93
3.7 Advanced Applications of Time Value 94
3.7a Compounding More Frequently than Annually 94
3.7b Stated Versus Effective Annual Interest Rates 96
3.7c Calculating Deposits Needed to Accumulate a Future Sum 98
3.7d Loan Amortisation 99
Study Tools 102
Problems 106
CASE STUDY Present Value 111
Real-World Case Study: All in the Family 112
Sound Bites: Ethics in Corporate Finance – Part 1 114
PART 2
VALUATION, RISK AND RETURN 117
CHAPTER 4 VALUING BONDS 119
4.1 Valuation Basics 120
4.1a The Fundamental Valuation Model 121
4.2 Bond Prices and Interest Rates 123
4.2a Bond Vocabulary 123
4.2b The Basic Equation (Assuming Annual Interest) 124
4.2c Semiannual Compounding 127
4.2d Bond Prices and Interest Rates 129
4.3 Types of Bonds 134
4.3a By Issuer 135
4.3b By Features 136
4.4 Bond Markets 141
4.4a Bond-Price Quotations 141
4.4b Bond Ratings 142
4.5 The Term Structure of Interest Rates 144
4.5a The Yield Curve 144
4.5b Using the Yield Curve to Forecast Interest Rates 146
4.5c The Liquidity Preference and Preferred Habitat Theories 147
4.5d Conclusion 148
Study Tools 148
Problems 150
CASE STUDY Bond Purchase Decision 152
Contents ix
Copyright 2021 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-202