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PDF Corporate Finance European Edition David Hillier Ebook Full Chapter
PDF Corporate Finance European Edition David Hillier Ebook Full Chapter
PDF Corporate Finance European Edition David Hillier Ebook Full Chapter
David Hillier
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page i
page ii
page iii
Corporate Finance
Third Edition
David Hillier
Stephen Ross, Randolph Westerfield,
Jeffrey Jaffe, Bradford Jordan
London Boston Burr Ridge, IL Dubuque, IA Madison, WI New York San Francisco St. Louis Bangkok
Bogotá Caracas Kuala Lumpur Lisbon Madrid Mexico City Milan Montreal New Delhi Santiago
Seoul Singapore Sydney Taipei Toronto
page iv
David Hillier, Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan
ISBN-13 9780077173630
ISBN-10 0077173635
Fictitious names of companies, products, people, characters and/or data that may
be used herein (in case studies or in examples) are not intended to represent any
real individual, company, product or event.
ISBN-13 9780077173630
ISBN-10 0077173635
eISBN-10 0077173643
© 2016. Exclusive rights by McGraw-Hill Education for manufacture and export.
This book cannot be re-exported from the country to which it is sold by McGraw-
Hill Education.
page v
Dedication
To Mary-Jo
page vi
1
Part 1: Overview
1 Introduction to Corporate Finance 2
2 Corporate Governance 25
63
Part 2: Value and Capital Budgeting
3 Financial Statement Analysis 64
4 Discounted Cash Flow Valuation 93
5 Bond, Equity and Firm Valuation 120
6 Net Present Value and Other Investment Rules 150
7 Making Capital Investment Decisions 177
8 Risk Analysis, Real Options and Capital Budgeting 204
231
Part 3: Risk
9 Risk and Return: Lessons from Market History 232
10 Risk and Return: The Capital Asset Pricing Model 253
11 Factor Models and the Arbitrage Pricing Theory 294
12 Risk, Cost of Capital and Capital Budgeting 315
13 Efficient Capital Markets and Behavioural Finance 343
14 Long-Term Financing: An Introduction 376
395
Part 4: Capital Structure and Dividend Policy
15 Capital Structure: Basic Concepts 396
16 Capital Structure: Limits to the Use of Debt 428
17 Valuation and Capital Budgeting for the Levered Firm 458
18 Dividends and Other Payouts 480
513
Part 5: Long-Term Financing
19 Equity Financing 514
20 Debt Financing 541
21 Leasing 565
585
Part 6: Options, Futures and Corporate Finance
22 Options and Corporate Finance 586
23 Options and Corporate Finance: Extensions and Applications 619
24 Warrants and Convertibles 648
25 Financial Risk Management with Derivatives 669
697
Part 7: Financial Planning and Short-term Finance
26 Short-term Finance and Planning 698
27 Short-term Capital Management 721
754
Part 8: Special Topics
28 Mergers and Acquisitions 755
29 Financial Distress 794
30 International Corporate Finance 813
Index 839
Appendix A Mathematical Tables
Web Glossary
page vii
1
Part 1: Overview
Endnotes 119
5 Bond, Equity and Firm Valuation 120
5.1 Definition and Example of a Bond 121
5.2 How to Value Bonds 122
5.3 Bond Concepts 124
5.4 The Present Value of Equity 125
5.5 Estimates of Parameters in the Dividend Growth Model 129
5.6 Growth Opportunities 132
5.7 The Dividend Growth Model and the NPVGO Model 135
5.8 Stock Market Reporting 136
5.9 Firm Valuation 138
Summary and Conclusions 141
Questions and Problems 142
Exam Question (45 minutes) 146
Mini Case 147
Practical Case Study 148
Relevant Accounting Standards 148
Additional Reading 148
Endnotes 149
6 Net Present Value and Other Investment Rules 150
6.1 Why Use Net Present Value? 151
6.2 The Payback Period Method 152
6.3 The Discounted Payback Period Method 155
6.4 The Average Accounting Return Method 155
6.5 The Internal Rate of Return 157
6.6 Problems with the IRR Approach 159
6.7 The Profitability Index 165
6.8 The Practice of Capital Budgeting 167
Summary and Conclusions 168
Questions and Problems 169
Exam Question (45 minutes) 174
Mini Case 174
Practical Case Study 175
Additional Reading 176
Endnotes 176
7 Making Capital Investment Decisions 177
231
Part 3: Risk
395
Part 4: Capital Structure and Dividend Policy
513 page x
Part 5: Long-term Financing
754
Part 8: Special Topics
755
28 Mergers and Acquisitions
28.1 The Basic Forms of Acquisition 756
28.2 Synergy 757
28.3 Sources of Synergy 758
28.4 Two ‘Bad’ Reasons for Mergers 762
28.5 A Cost to Shareholders from Reduction in Risk 764
28.6 The NPV of a Merger 766
28.7 Valuation of Mergers in Practice 768
28.8 Friendly versus Hostile Takeovers 770
28.9 Defensive Tactics 771
28.10 The Diary of a Takeover: AbbVie Inc. and Shire plc 773
28.11 Do Mergers Add Value? 775
28.12 Accounting and Tax Considerations 779
28.13 Going Private and Leveraged Buyouts 780
28.14 Divestitures 780
Summary and Conclusions 782
Questions and Problems 782
Exam Question (45 minutes) 788
Mini Case 788
Practical Case Study 789
Relevant Accounting Standards 790
References 790
Additional Reading 790
Endnotes 793
29 Financial Distress 794
29.1 What Is Financial Distress? 795
29.2 What Happens in Financial Distress? 796
29.3 Bankruptcy, Liquidation and Reorganization 799
I’ve been teaching Finance courses since 1994, first as a tutorial assistant in small group classes for
masters and undergraduate students, all the way through to large lecture auditoriums of several
hundred people. During that time, three books formed the basis of all my teaching (Ross, Westerfield
and Jaffe, Corporate Finance; Brealey, Myers and Allen, Principles of Corporate Finance; and
Grinblatt and Titman, Financial Markets and Corporate Strategy). In fact, coming from a
mathematics background, I initially learned about finance through these textbooks.
When McGraw-Hill approached me to work on Corporate Finance, I was at first reluctant. The
book is an institution. What could I do to improve on a text that has gone through so many editions and
been taught in so many places? On reflection, however, I knew that there were many areas where the
book needed to be changed for an international readership. Like many other lecturers, I had slipped
into the habit of recommending RWJ and BMA, but then replacing more than half of the slides and
examples so that the material was appropriate for my students. Differences in depreciation rules,
taxes, accounting standards, and bankruptcy regulations, changed everything except the bare bones.
Now in its third edition, the book has had to change to reflect the enormous developments in the
financial markets and the corporate world. Much has evolved over the past decade and business
practice and economic fundamentals have experienced a major shift. Uncertainty is the keyword and
financial managers are facing tighter financing conditions, very low interest rates and a considerably
more difficult investment environment. Government bonds have negative yields, inflation is near zero
and new economic power blocs are emerging. Now, more than ever, the principles and applications
of corporate finance are needed to ensure companies can steer through these uncharted territories
without taking too many casualties.
I have undertaken major updates of all chapters, introduced real world examples in each topic and
updated the discussion to reflect new research findings. The text has also been sense checked for
relevance and practice through my industry engagements. Finally, the references for each area have
been comprehensively updated to the most recent research in the area.
I’m exceptionally honoured to be part of the RWJ history and very proud of this version in
particular. I’ve thoroughly enjoyed writing the chapters and I sincerely hope you have the same
enjoyment reading them.
David Hillier
5 January 2016
page xiv
Mastery of Mathematics
Many find the hardest part of learning finance is mastering the jargon, maths, data and standardized
notation. Corporate Finance helps you by:
• Making extensive use of figures and tables which use real data throughout the text.
• Listing the variables and acronyms you will encounter as you read the chapter in key notation
boxes at the start of the chapter.
• Numbering maths equations the first time they appear in full for ease of reference and
understanding.
page xv
• New to this edition are Chapter Links which appear within the margin and are highlighted in the
text; they provide a chapter and page reference for quick cross-referencing for information
discussed in other chapters and they will aid in the enhancement of your understanding and
background to topics.
• Part Openers are also new to this edition and provide a preface for the chapters that are to
follow, linking the chapters together and explaining how and where topics are discussed within
the chapters.
Practice and Proficiency
To obtain a solid understanding of finance it has been proven that practising questions is essential.
• At the end of every chapter there are Questions and Problems; they are presented by topic and
level of difficulty and there are over 1,000 in the book altogether.
• These end of chapter questions and problems are all integrated into Connect.
• Algorithmic versions of the questions appear in Connect to ensure equations and calculations are
not learnt by rote but by thorough understanding and practice.
• Also at the end of the chapters are Exam Questions designed to take 45 minutes and testing you
on material learned in a more formal exam style.
• LearnSmart is also available to help you learn; it adaptively assesses your skill and knowledge
levels to track which topics you have mastered and which require further instruction and practice.
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