Corporate Financial Management

1107 Pages·2012·25.59 MB·English

by  Glen

CORPORATE FINANCIAL MANAGEMENT Fifth
edition CORPORATE
Fifth edition
Glen Arnold
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‘Comprehensive and well written, making a challenging subject easy to read and understand.’
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FINANCIAL
Ben Ukaegbu, London Metropolitan Business School
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‘The case studies are excellent, relevant and bring the theories to life.’
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Rob Jones, Newcastle University Business School
O
MANAGEMENT
Corporate Financial Management offers an extremely readable and comprehensive survey of the theory and practice of
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corporate fi nance. It progresses from a general overview of the fi nancial world, moving through investment appraisal,
risk and return, and sources of fi nance, to a unique treatment of corporate value. The fi nal part of the book introduces A
risk management, focusing on derivatives and exchange-rate risk. Theory and practice are closely integrated throughout
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the text, refl ecting the extent to which real-world practice has been profoundly shaped by fi nancial theory.
Fifth edition
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The book is suitable for both undergraduate and postgraduate students of business studies, fi nance, accounting,

economics, and banking. F
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This best-selling text explores how fi nance theory works in practice, teaching you how to make informed, successful N
fi nancial decisions that are crucial for a career in business.
Glen Arnold
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Key features
• fi nancial techniques are illustrated in practical terms N
• new Financial Times articles help you see the relevance of theory to the real world
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• worked examples and easy-to-follow mathematical explanations
• the latest statistics and data, ranging from the number of corporate mergers to the default rates on corporate bonds I
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• extensive range of examples, case studies and recommended websites
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M
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This text is supported by MyFinanceLab, an online resource that maps directly to Corporate Financial
Management. With questions designed to test and build your understanding, MyFinanceLab provides N
instant feedback and a personalised approach to mastering key fi nance concepts, as well as:
• a study plan designed just for you A
• worked solutions showing how to solve diffi cult problems
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• limitless opportunities to practise
• an eText for quick reference E
• Financial Times articles to help keep you up to date and observe the regular use in business of the M
concepts discussed in the book
• a ‘fi nance in the news’ blog, with accompanying podcasts E
Visit www.myfi nancelab.com to learn more. N
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Glen Arnold runs an investment fund and previously held positions as Professor F
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CVR_ARNO8839_05_SE_CVR.indd 1 01/08/2012 14:36
CORPORATE FINANCIAL
MANAGEMENT
Corporate Financial Management Online
A wide range of supporting resources are available at:
MyFinanceLab
Visit www.myfinancelab.com to create your own personal account and access the following
learning resources:
• A dynamic eText of the book that you can search, bookmark, annotate and highlight as you
please
• Self-assessment questions that identify your strengths before recommending a personalised
study plan that points you to the resources which can help you achieve a better grade
• A ‘finance in the news’ blog with accompanying podcasts
• FT articles keeping you up to date with key business concepts discussed in the book
• Flashcards to test your understanding of key terms
• Audio podcasts featuring real-word scenarios to allow for application of financial concepts
A01_ARNO8839_05_SE_FM.indd 1 12/07/2012 14:00
A01_ARNO8839_05_SE_FM.indd 2 12/07/2012 13:59
GLEN ARNOLD
BSc(Econ), PhD
CORPORATE FINANCIAL
MANAGEMENT
FIFTH EDITION
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Pearson Education Limited
Edinburgh Gate
Harlow
Essex CM20 2JE
England
and Associated Companies throughout the world
Visit us on the World Wide Web at:
www.pearsoned.co.uk
First published in Great Britain under the
Financial Times Pitman Publishing imprint in 1998
Second edition published 2002
Third edition published 2005
Fourth edition published 2008
Fifth edition published 2013
© Financial Times Professional Limited 1998
© Pearson Education Limited 2002, 2005, 2008, 2013
The right of Glen Arnold to be identified as author of this work has been asserted by
him in accordance with the Copyright, Designs and Patents Act 1988.
All rights reserved. No part of this publication may be reproduced, stored in a retrieval
system, or transmitted in any form or by any means, electronic, mechanical,
photocopying, recording or otherwise, without either the prior written permission of the
publisher or a licence permitting restricted copying in the United Kingdom issued by the
Copyright Licensing Agency Ltd, Saffron House, 6–10 Kirby Street, London EC1N 8TS.
Pearson Education is not responsible for the content of third-party internet sites.
The Financial Times. With a worldwide network of highly respected journalists, The Financial Times provides global
business news, insightful opinion and expert analysis of business, finance and politics. With over 500 journalists report-
ing from 50 countries worldwide, our in-depth coverage of international news is objectively reported and analysed
from an independent, global perspective. To find out more, visit www.ft.com/pearsonoffer.
ISBN: 978-0-273-75883-9 (Print)
ISBN: 978-0-273-75895-2 (PDF)
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging-in-Publication Data
Arnold, Glen.
Corporate financial management / Glen Arnold. – 5th ed.
p. cm.
ISBN 978-0-273-75883-9
1. Corporations–Finance–Management. 2. Corporations–Finance. I. Title.
HG4026.A755 2012
658.15–dc23
2012010978
10 9 8 7 6 5 4
16 15
Typeset in 10/11.5 pt Minion by 30
Printed in Slovakia by Neografia
The publisher’s policy is to use paper manufactured from sustainable forests
A01_ARNO8839_05_SE_FM.indd 4 11/03/15 6:25 PM
Dedicated to Lesley my wife, for her loving support and encouragement
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Brief contents
Topics covered in the book xxi
Introduction to the book xxiii
Guided tour xxxi
Guided tour of MyFinanceLab xxxiv
Acknowledgements xxxvii
Part 1 Introduction
1
1 The financial world 2
Part 2 The investment decision
49
2 Project appraisal: net present value and internal rate of return 50
3 Project appraisal: cash flow and applications 92
4 The decision-making process for investment appraisal 128
5 Project appraisal: capital rationing, taxation and inflation 154
Part 3 Risk and return
175
6 Risk and project appraisal 176
7 Portfolio theory 222
8 The Capital Asset Pricing Model and multi-factor models 268
Part 4 Sources of finance
329
9 Stock markets 330
10 Raising equity capital 368
11 Long-term debt finance 426
12 Short-term and medium-term finance 475
13 Stock market efficiency 542
Part 5 Corporate value
603
14 Value-based management 604
15 Value-creation metrics 648
16 The cost of capital 691
17 Valuing shares 722
18 Capital structure 771
19 Dividend policy 820
20 Mergers 849
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­viii Brief contents
Part 6 Managing risk
907
21 Derivatives 908
22 Managing exchange-rate risk 954
Appendices
A:1
I Future value of £1 at compound interest A:2
II Present value of £1 at compound interest A:3
III Present value of an annuity of £1 at compound interest A:4
IV The future value of an annuity of £1 at compound interest A:5
V Areas under the standardised normal distribution A:6
VI Answers to the mathematical tools exercises in Chapter 2, Appendix 2.1 A:7

Glossary G:1
Bibliography B:1
Index I:1

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Contents
Topics covered in the book xxi
Introduction to the book xxiii
Guided tour xxxi
Guided tour of MyFinanceLab xxxiv
Acknowledgements xxxvii
Part 1 Introduction
1
1 The financial world 2
Learning outcomes 2
Introduction 3
The objective of the firm 3
Case study 1.1 Xstrata plc 3
Some possible objectives 5
Corporate governance 16
Primitive and modern economies 22
The role of the financial manager 24
The flow of funds and financial intermediation 27
Growth in the financial services sector 33
The financial system 36
Concluding comments 41
Key points and concepts 42
References and further reading 43
Case study recommendations 46
Websites 46
Self-review questions 46
Questions and problems 47
Assignments 48
Part 2 The investment decision
49
2 Project appraisal: net present value and internal rate of return 50
Learning outcomes 50
Introduction 51
Value creation and corporate investment 52
Net present value and internal rate of return 56
Modified internal rate of return 75
Concluding comments 78
Key points and concepts 79
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