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Table Of Contents

1. Introducing Finance
1.1 The Stuff of Finance
1.2 The Firm
1.2.1 What is a firm?
1.2.2 The objective of the firm
1.1.2.1 Profit maximisation or wealth maximisation?
1.3 Corporate Structure
1.3.1 Sole proprietorship
1.3.2 Partnership
1.3.3 Limited companies
1.4 The Finance Function
1.5.2 Management goals
1.5.3 Shareholders’ goals
1.5.4 Bondholders’ goals
1.5.5 Other stakeholders’ goals
1.5.6 In summary
1.6 Finance versus Accounting
2. The Financial Environment
2.1 Macroeconomics and Finance
2.2 The Financial System: Markets and Institutions
2.2.1 Types of financial market
2.2.2 Efficient markets
2.3 Investment and Finance
2.4 Accounting for Finance
2.4.1 The balance sheet
2.4.2 The income statement
2.4.3 The cash flow statement
2.5 Taxation and Inflation
2.5.1 Personal taxation
2.5.2 Capital gains tax
2.5.3 Corporation tax
2.5.5 Inflation
Appendix: Sources of Financial Information
Traditional “print” media
Online and broadcast media
America Online, the Motley Fool and more
3. Value: Finance Foundations
3.1 What Is Value?
3.2 The Time Value of Money I: Simple Interest
3.3 Simple Interest: Applications
3.3.1 Term loans
3.3.2 Discount claims
3.3.3 Yield-quoted instruments
3.4 The Time Value of Money II: Compound Interest
3.4.1 The mechanics of compound interest
3.4.2 Comparing simple and compound interest
3.4.3 Annuities
3.5 Net Present Value and Internal Rate of Return
3.5.1 Net Present Value
3.5.2 “Special” cashflow streams
3.5.3 The Internal Rate of Return (IRR)
4. Sources of Finance: Debt
4.1 What is debt?
4.2 Debt valuation
4.3 Not-quite-debt: hybrids
4.4 Interest rate determination
4.5 The Term Structure of Interest Rates
4.5.1 The Expectations Hypothesis
4.5.2 Liquidity Preference
4.5.4 Clientele effect
4.5.5 Afterthoughts
Appendix: Notes on Debt Sources
Short- and Medium-Term Debt
5.2 Ordinary Shares (or Stock)
5.3 Preference Shares
5.4 Other Points of Note
5.5 Raising Equity Capital
5.6 Equity Valuation
5.8 Not-quite-equity: Options
6. Investment Appraisal: Capital Budgeting
6.1 Investment Projects
6.2 Cashflows
6.3 Investment Appraisal: Basic (Non-DCF) Methods
6.3.1 The payback period
6.3.2 The finite horizon criterion
6.3.3 Accounting Rate of Return
6.3.4 Profitability index
6.4.1 Net Present Value
6.4.2 Internal Rate of Return (IRR)
6.4.3 Capital rationing
6.5 Comparison of NPV with IRR
6.5.1 Number of solutions
6.5.2 Scale and duration
6.7 Real and nominal values
6.8 Sensitivity and Scenario Analysis
6.8.1 Sensitivity analysis
6.8.2 Scenario analysis
6.9 Newer Approaches to Capital Budgeting
7. Investment Appraisal: Risk
7.1 Risk and Return
7.1.1 Yield (or expected return)
7.1.2 Risk and uncertainty
7.1.2 Risk and probability
7.2 Portfolio theory: The Markowitz Approach
7.2.1 Portfolio returns
7.2.2 Portfolio risk
7.3 Market Risk
7.3.1 The beta coefficient (β)
7.4 The Capital Asset Pricing Model (CAPM)
7.4.1 Value additivity
7.5 Arbitrage Pricing Theory
8. The Cost of Capital
8.1 Overview
8.2 Sources of Capital
8.3 The Cost of Debt
8.4 The Cost of Equity
8.5 Other Costs of Capital
8.5.1 The cost of retained earnings
8.5.2 The cost of preference shares
8.6 The Total Cost of Capital
9. The Capital Structure Conundrum
9.1 Value maximisation
9.2 The “Traditional” View
9.3 Modigliani and Miller (1958)
9.3.1 Criticisms of Modigliani and Miller
9.3.2 MM Modifications
9.4 A Final Thought
10. Extending the Focus: Some Applications
10.1 Valuation of the Firm
10.1.1 Free cash flows
10.1.2 EVA and MVA
10.2.3 Merger evaluation
10.3 Pensions
10.3.1 FRS 17
10.4 Finance in the International Arena
10.5 The Limitations of Finance
Bibliography
Index
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Published by: cristinarosoiu on Jan 28, 2011
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