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Lessons in Corporate Finance
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Lessons in Corporate Finance
by Lawrence A. Weiss, Paul Asquith
Lessons in Corporate Finance
Preface
Note
Acknowledgments
About the Authors
Chapter 1: Introduction
Two Markets: Product and Capital
The Basics: Tools and Techniques
A Diagram of Corporate Finance
A Brief History of Modern Finance
Reading This Book
Notes
Chapter 2: Determining a Firm’s Financial Health (PIPES-A)
The Conversation with the Banker Is Like a Job Interview
Starting with the Product Market Strategy
Is PIPES Profitable?
Doing the Math
Sources and Uses of Funds
Ratio Analysis
The Cash Cycle
Summary
Notes
Chapter 3: Pro Forma Forecasts (PIPES-B)
First, Let’s Take a Closer Look at Ratio Analysis
Pro Forma Forecasts
Circular Relationships
Back to (Forecasting) the Future
Projecting Out to 2014 and 2015
Evaluating the Loan
Summary
Appendix 3A: Accounting Is Not Economic Reality
Notes
Chapter 4: The Impact of Seasonality on a Firm’s Funding (PIPES-C)
Monthly Pro Forma Income Statements
Monthly Pro Forma Balance Sheets
A Different Picture of the Firm
Summary
Appendix 4A: PIPES Monthly Pro Forma Income Statements and Balance Sheets 2014
Appendix 4B: PIPES Monthly Pro Forma Income Statements and Balance Sheets 2015
Notes
Chapter 5: Why Financing Matters (Massey Ferguson)
Product Market Position and Strategy
Political Risk and Economies of Scale in Production
Massey Ferguson 1971–1976
Sustainable Growth
The Period after 1976
Conrad Runs Away
The Competitors
Back to Massey
Massey’s Restructuring
Postscript: What Happened to Massey
Summary
Appendix 5A: Massey Ferguson Financial Statements
Notes
Chapter 6: An Introduction to Capital Structure Theory
Optimal Capital Structure
M&M and Corporate Finance
Taxes
Costs of Financial Distress
The Textbook View of Capital Structure
The Cost of Capital
Summary
Notes
Chapter 7: Capital Structure Decisions (Marriott Corporation and Gary Wilson)
Capital Structure
The Cost of Capital
How Firms Set Capital Structure in Practice
Corporate Financial Policies
Sustainable Growth and Excess Cash Flow
What to Do with Excess Cash?
Summary
Appendix 7A: Marriott Corporation Income Statements and Balance Sheets
Appendix 7B: Marriott Corporation Selected Ratios
Notes
Chapter 8: Investment Decisions (Marriott Corporation and Gary Wilson)
What Is the Correct Price?
How Should Marriott Buy Its Shares?
The Loan Covenants
The Impact of the Product Market on Financial Policies
The Capital Market Impact and the Future
Summary
Notes
Chapter 9: Financial Policy Decisions (AT&T: Before and After the 1984 Divestiture)
Background on AT&T
M&M and the Practice of Corporate Finance
Old (pre-1984) AT&T
New (Post-1984) AT&T
Summary
Appendix 9A: Development of AT&T Pro Formas 1984–1988 (Expected-Case)
Notes
Chapter 10: The Impact of Operating Strategy on Corporate Finance Policy (MCI)
A Brief Summary
A Brief History of MCI
Convertible Preferred Stock and Convertible Bonds
Interest Rates and Debt Ratios
Leases
Financing Needs of the New MCI
MCI’s Financing Choice
MCI Postscript
Summary
Appendix 10A: Development of MCI’s Pro Formas 1984–1988
Notes
Chapter 11: Dividend Policy (Apple Inc.)
The Theory of Dividend Policy
Empirical Evidence
Apple Inc. and the Decision on Whether to Pay Dividends
What Did Apple Do?
Summary
Notes
Chapter 12: A Continuation of Capital Structure Theory
The Tax Shield of Debt
The Costs of Financial Distress
Transaction Costs, Asymmetric Information, and Agency Costs
Asymmetric Information and Firm Financing
Agency Costs: Manager Behavior and Capital Structure
Leverage and Agency Conflicts Between Equity and Debt Holders
The Amount of Financing Required
Summary: An Integrated Approach
Coming Attractions
Notes
Chapter 13: The Time Value of Money: Discounting and Net Present Values
The Time Value of Money
Net Present Value (NPV)
Payback
Projects with Unequal Lives
Perpetuities
Summary
Notes
Chapter 14: Valuation and Cash Flows (Sungreen A)
Investment Decisions
How to Value a Project
The Weighted Average Cost of Capital (WACC)
Terminal Values
Summary
Notes
Chapter 15: Valuation (Sungreen B)
Sungreen’s Projected Cash Flows
The Weighted Average Cost of Capital (WACC)
Twin Firms
The Cost of Equity
The Cost of Debt
The Final Valuation
Strategic Analysis
Summary
Notes
Chapter 16: Valuation Nuances
Cash Flow Nuances
Cost of Capital Nuances
Nuances on Calculating the Cost of Equity: Levering and Unlevering Beta
Separating Cash Flows and Terminal Values
Nuances of Terminal Value Methods
Other Valuation Techniques: DCF Variations
Real Options (aka Strategic Choices)
Summary
Notes
Chapter 17: Leveraged Buyouts and Private Equity Financing (Congoleum)
Congoleum: A Short History
Leading Up to the LBO: What Makes a Firm a Good LBO Target?
Details of the Deal
Postscript: What Happened to LBOs?
Summary
Appendix 17A: Congoleum’s Pro Formas with and without the LBO
Appendix 17B: Highlights of the Lazard Fairness Opinion
Notes
Chapter 18: Mergers and Acquisitions: Strategic Issues (The Dollar Stores)
The Three Main Competitors
Recent History
Shopping a Firm/Finding a Buyer
Summary
Notes
Chapter 19: Valuing an Acquisition: Free Cash Flows to the Firm (The Dollar Stores)
The Bid for Family Dollar
Free Cash Flows to the Firm
Estimating the Cost of Capital
Discounted Cash Flows
Terminal Values
The Three Pieces
Summary
Appendix 19A: Family Dollar Pro Forma Financial Statements with Authors’ Constant Debt Ratio
Notes
Chapter 20: Understanding Free Cash Flows (The Dollar Stores)
Comparing the Free-Cash-Flows Formulas
Back to Discount Rates
On to Free Cash Flows to Equity
Discounting the Free Cash Flows to Equity
Summary
Appendix 20A: Family Dollar Pro Forma Free Cash Flows to Equity with Constant Debt Ratio
Notes
Chapter 21: Mergers and Acquisitions: Execution (The Dollar Stores)
The Time Line
Managerial Discretion
Activist ShareholderS
The Federal Trade Commission (FTC)
Shareholder Lawsuits
The Vote
Summary
Appendix 21.A: Key Events in the Bidding for Family Dollar during 2014 and 2015
Notes
Chapter 22: Review
Chapters 2–4: Cash Flow Management—Financial Tools
Chapters 5–12: Financing Decisions and Financial Policies
Chapters 13–21: Valuation
Tools and Concepts Discussed in This Book
Finance as Art, Not Science
Bottom Lines
An Intelligent Approach to Finance
Keeping Current
Larry’s Last (Really a True) Story
Paul’s Theory of Pies
Rules to Live By
Notes
Glossary
Index
EULA
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