CORPORATE FINANCE Strategic Corporate Finance_Applications in Valuation and Capital ...

307 Pages·2012·1.52 MB·English

Strategic
Corporate
Finance
Applications in Valuation and
Capital Structure
JUSTIN PETTIT
John Wiley & Sons, Inc.

Additional Praise for
Strategic Corporate Finance
‘‘StrategicCorporateFinanceprovidesexcellentinsightintothekey
financialissuesthatcorporationsaredealingwitheveryday.’’
—RhodHarries,VPandTreasurer,Alcan
‘‘This book is a MUST for all corporate finance professionals. I
haveneverreadacorporatefinancebookbeforethatprovidessuch
acompleteandintegratedoverviewofwhichrelevantvaluedrivers
and implications should be considered before making strategic
corporate finance related decisions—M&A projects, equity and
debt financing, Asset and Liability Management, rating, pensions.
You financial advisors out there: These are the relevant questions
and necessary answers your industrial clients are expecting from
you!’’
—Dr.DietmarNienstedt,HeadofMergers&Acquisitions,
LANXESSAG
‘‘In Strategic Corporate Finance: Applications in Valuation and
Capital Structure, Pettit brings a fresh and practical approach to
corporate finance, effectively bridging the gap between theory and
practice.Headdressestimelyandpertinenttopicsthatcorporations
faceconstantly.IhaveoftenreliedonPettit’spriorworksasuseful
references, and it will be nice to have them all in one place. I
highly recommend his work to anyone looking for a practical and
actionableguidetocorporatefinance.’’
—DavidA.Bass,VicePresident,TreasurerGlobal
Operations,AlconLaboratories,Inc.

Strategic
Corporate
Finance
Applications in Valuation and
Capital Structure
JUSTIN PETTIT
John Wiley & Sons, Inc.
Copyright(cid:1)c 2007byJustinPettit.Allrightsreserved.
PublishedbyJohnWiley&Sons,Inc.,Hoboken,NewJersey.
PublishedsimultaneouslyinCanada.
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TheauthorwishestoacknowledgethegenerouspermissionofBlackwellPublishingin
allowinghimtoreuse‘‘CorporateCapitalCosts:APractitioner’sGuide’’(JournalofApplied
CorporateFinance,Vol.12,No.1,Spring1999)and‘‘AMethodForEstimatingGlobal
CorporateCapitalCosts:TheCaseofBestfoods’’(JournalofAppliedCorporateFinance,Vol.
12,No.3,Fall1999)inChapter1ofthisbook.
LibraryofCongressCataloging-in-PublicationData:
Pettit,Justin,1965-
Strategiccorporatefinance:applicationsinvaluationandcapitalstructure/JustinPettit.
p.cm.—(Wileyfinanceseries)
Includesbibliographicalreferencesandindex.
ISBN-13:978-0-470-05264-8(cloth)
ISBN-10:0-470-05264-3(cloth)
1.Corporations–Finance.2.Capital.3.Value.I.Title.
HG4026.P4682007
658.15—dc22
2006021653
PrintedintheUnitedStatesofAmerica.
10987654321
To Krista, Trevor, and Madeleine, for their support,
patience, and laughter.

Contents
Preface xi
ListofFigures xiii
ListofTables xv
Acknowledgments xvii
AbouttheAuthor xix
PARTONE
ManagingtheLeft-HandSideoftheBalanceSheet
CHAPTER1
TheCostOfCapital 3
CalculationPitfalls 3
MarketRiskPremium(MRP) 5
TowardaBetterBeta 10
The‘‘RisklessRate’’ 13
TheCostofDebt 14
GlobalCapitalCosts 16
WACCandHurdleRates 23
CHAPTER2
Fix:FindingYourSourcesofValue 26
WhyShareownerValue? 27
PerformanceMeasurementPitfalls 28
MeasuringEconomicProfitandValue 30
AnalyzingtheCorporatePortfolio 35
IncorporatingtheCostofCapacity 39
Value-BasedStrategiesandTactics 43
ManagingforValue 45
BalancingPerformancewithValue 52
vii