Description
Introduction
Corporate finance is concerned with the financing and investment decisions made by the management of companies in pursuit of corporate goals. As a subject, corporate finance has a theoretical base which has evolved over many years and which continues to evolve as we write. It has a practical side too, concerned with the study of how companies actually make financing and investment decisions, and it is often the case that theory and practice disagree.
The fundamental problem that faces financial managers is how to secure the greatest possible return in exchange for accepting the smallest amount of risk. This necessarily requires that financial managers have available to them (and are able to use) a range of appropriate tools and techniques. These will help them to value the decision options open to them and to assess the risk of those options. The value of an option depends upon the extent to which it contributes towards the achievement of corporate goals. In corporate finance, the fundamental goal is usually taken to be to increase the wealth of shareholders.
The aim of this book
The aim of this text is to provide an introduction to the core concepts and key topic areas of corporate finance in an approachable, ‘user-friendly’ style. Many texts on corporate finance adopt a theory-based or mathematical approach which is not appropriate for those coming to the subject for the first time. This book covers the core concepts and key topic areas without burdening the reader with what we regard as unnecessary detail or too heavy a dose of theory.
Flexible course design
Many undergraduate courses are now delivered on a modular or unit basis over one teaching semester of 12 weeks’ duration. In order to meet the constraints imposed by such courses, this book has been designed to support self-study and directed learning. There is a choice of integrated topics for the end of the course.
Each chapter offers:
■ a comprehensive list of key points to check understanding and aid revision;
■ self-test questions, with answers at the end of the book, to check comprehension of concepts and computational techniques;
■ questions for review, with answers at the end of the book, to aid in deepening understanding of particular topic areas;
■ questions for discussion, answers for which are available in the Lecturer’s Guide;
■ comprehensive references to guide the reader to key texts and articles;
■ suggestions for further reading to guide readers who wish to study further.
A comprehensive glossary is included at the end of the text to assist the reader in grasping any unfamiliar terms that may be encountered in the study of corporate finance.
New for the fifth edition
The fifth edition has been revised and updated in order to keep its content fresh and relevant. Apart from a thorough revision of the text, many vignettes have been updated to reflect current events and developments in the financial world, such as the crisis that struck the financial world in 2008, leading to turmoil in the financial markets and an ensuing global recession. The fifth edition also sees a reduction in the number of chapters from thirteen to twelve, with important corporate finance elements relating to international investment decisions being integrated into remaining chapters. Evaluation of foreign direct investment, for example, has been integrated into the study of investment appraisal in Chapter 6, while the cost of capital for foreign direct investment has been integrated into the study of the cost of capital and capital structure in Chapter 9. We feel this restructuring will improve the logical flow of the book and make the fifth edition even more approachable and user-friendly.
A new online resource, MyFinanceLab, will support students in self-study and directed learning. The Lecturer’s Guide and PowerPoint slides offered to lecturers have been revised to reflect the content of the fifth edition. We trust our readers will find these changes useful and supportive.