About the Book
Parrino/Kidwell, Fundamentals of Corporate Finance offers an innovative integration of conceptual understanding and problem-solving… of intuition and decision-making… of the authors’ industry and classroom/research experience…with current real-world examples and online practice.
Fundamentals of Corporate Finance helps students develop the intuition and analytical skills necessary to effectively apply financial tools in real-world decision-making situations. Authors Robert Parrino and David Kidwell provide a fully integrated framework for understanding how value creation relates to all aspects of corporate finance; whether it be evaluating an investment opportunity, determining the appropriate financing for a business, or managing working capital. This unique and integrated framework also provides robust coverage of problem solving and decision-making skills. The authors of Fundamentals of Corporate Finance believe that students who understand the intuition underlying the basic concepts of finance are better able to develop the critical judgments necessary to apply financial tools in real-world decision- making situations. This text develops intuitive thinking while simultaneously helping students develop problem solving and computational skills. It then shows students how to apply intuition and analytical skills to decision making while integrating it all with valuation and building shareholder value.
Table of Contents:
Part 1: Introduction. Chapter 1: The Financial Manager and the Firm.
1.1 The Role of the Financial Manager.
1.2 Forms of Business Organization.
1.3 Managing the Financial Function.
1.4 The Goal of the Firm.
1.5 Agency Conflicts: Separation of Ownership and Control.
1.6 The Importance of Ethics in Business.
Summary of Learning Objectives / Self-Study Problems / Solutions to Self-Study Problems / Critical Thinking Questions / Questions and Problems / Sample Test Problems.
Part 2: Foundations.
Chapter 2:The Financial Environment and the Level of Interest Rates.
2.1 The Financial System.
2.2 Direct Financing.
2.3 Types of Financial Markets.
2.4 The Stock Market.
2.5 Financial Institutions and Indirect Financing.
2.6 The Determinants of Interest Rate Levels.
Summary of Learning Objectives / Summary of Key Equations / Self-Study Problems / Solutions to Self-Study Problems / Critical Thinking Questions / Questions and Problems / Sample Test Problems.
Chapter 3: Financial Statements, Cash Flows, and Taxes.
3.1 Financial Statements and Accounting Principles.
3.2 The Balance Sheet.
3.3 Market Value versus Book Value.
3.4 The Income Statement and the Statement of Retained Earnings.
3.5 Cash Flows.
3.6 Tying the Financial Statements Together.
3.7 Federal Income Tax.
Summary of Learning Objectives / Summary of Key Equations / Self-Study Problems / Solutions to Self-Study Problems / Critical Thinking Questions / Questions and Problems / Sample Test Problems.
Chapter 4: Analyzing Financial Statements.
4.1 Background for Financial Statement Analysis.
4.2 Common-Size Financial Statements.
4.3 Financial Statement Analysis.
4.4 The DuPont System: A Diagnostic Tool.
4.5 Selecting a Benchmark.
4.6 Using Financial Ratios.
Summary of Learning Objectives / Summary of Key Equations / Self-Study Problems / Solutions to Self-Study Problems / Critical Thinking Questions / Questions and Problems / Sample Test Problems.
Ethics Case: A Sad Tale: The Demise of Arthur Andersen.
Part 3: Valuation of Future Cash Flows and Risk.
Chapter 5: The Time Value of Money.
5.1 The Time Value of Money.
5.2 Future Value and Compounding.
5.3 Present Value and Discounting.
5.4 Additional Concepts and Applications.
Summary of Learning Objectives / Summary of Key Equations / Self-Study Problems / Solutions to Self-Study Problems / Critical Thinking Questions / Questions and Problems / Sample Test Problems.
Chapter 6: Discounted Cash Flows and Valuation.
6.1 Multiple Cash Flows.
6.2 Level Cash Flows: Annuities and Perpetuities.
6.3 Cash Flows That Grow at a Constant Rate.
6.4 The Effective Annual Interest Rate.
Summary of Learning Objectives / Summary of Key Equations / Self-Study Problems / Solutions to Self-Study Problems / Critical Thinking Questions / Questions and Problems / Sample Test Problems.
Appendix: Deriving the Formula for the Present Value of an Ordinary Annuity.
Problem.
Ethics Case: Buy It on Credit and Be True to Your School.
Chapter 7: Risk and Return.
7.1 Risk and Return.
Building Intuition: More Risk Means a Higher Expected Return.
7.2 Quantitative Measures of Return.
7.3 The Variance and Standard Deviation as Measures of Risk.
7.4 Risk and Diversification.
7.5 Systematic Risk.
7.6 Compensation for Bearing Systematic Risk.
7.7 The Capital Asset Pricing Model.
Summary of Learning Objectives / Summary of Key Equations / Self-Study Problems / Solutions to Self-Study Problems / Critical Thinking Questions / Questions and Problems / Sample Test Problems.
Chapter 8: Bond Valuation and the Structure of Interest Rates.
8.1 Capital Market Efficiency.
Efficient Market Hypotheses.
8.2 Corporate Bonds.
8.3 Bond Valuation.
8.4 Bond Yields.
8.5 Interest Rate Risk.
8.6 The Structure of Interest Rates.
Summary of Learning Objectives / Summary of Key Equations / Self-Study Problems / Solutions to Self-Study Problems / Critical Thinking Questions / Questions and Problems / Sample Test Problems.
Chapter 9: Stock Valuation.
9.1 The Market for Stocks.
9.2 Common Stock Valuation.
9.3 Stock Valuation: Some Simplifying Assumptions.
9.4 Valuing Preferred Stock.
Summary of Learning Objectives / Summary of Key Equations / Self-Study Problems / Solutions to Self-Study Problems / Critical Thinking Questions / Questions and Problems / Sample Test Problems.
Ethics Case: Insider Trading: Have I Got a Stock Tip for You!
Part 4: Capital Budgeting Decisions.
Chapter 10: The Fundamentals of Capital Budgeting.
10.1 An Introduction to Capital Budgeting.
10.2 Net Present Value.
10.3 The Payback Period.
10.4 The Accounting Rate of Return.
10.5 Internal Rate of Return.
10.6 Capital Budgeting in Practice.
Summary of Learning Objectives / Summary of Key Equations / Self-Study Problems / Solutions to Self-Study Problems / Critical Thinking Questions / Questions and Problems / Sample Test Problems.
Chapter 11: Cash Flows and Capital Budgeting.
11.1 Calculating Project Cash Flows.
11.2 Estimating Cash Flows in Practice.
11.3 Forecasting Free Cash Flows.
11.4 Special Cases (Optional).
Summary of Learning Objectives / Summary of Key Equations / Self-Study Problems / Solutions to Self-Study Problems / Critical Thinking Questions / Questions and Problems / Sample Test Problems.
Ethics Case: Doing the Right Thing: The Schwan Food Company.
Chapter 12: Evaluating Project Economics and Capital Rationing.
12.1 Variable Costs, Fixed Costs, and Project Risk.
12.2 Calculating Operating Leverage.
12.3 Break-Even Analysis.
12.4 Risk Analysis.
12.5 Investment Decisions with Capital Rationing.
Summary of Learning Objectives / Summary of Key Equations / Self-Study Problems / Solutions to Self-Study Problems / Critical Thinking Questions / Questions and Problems / Sample Test Problems.
Chapter 13: The Cost of Capital.
13.1 The Firm’s Overall Cost of Capital.
13.2 The Cost of Debt.
13.3 The Cost of Equity.
13.4 Using the WACC in Practice.
Summary of Learning Objectives / Summary of Key Equations / Self-Study Problems / Solutions to Self-Study Problems / Critical Thinking Questions / Questions and Problems / Sample Test Problems.
Part 5: Financing Decisions.
Chapter 14: Working Capital Management.
14.1 Working Capital Basics.
14.2 The Operating and Cash Conversion Cycles.
14.3 Working Capital Investment Strategies.
14.4 Accounts Receivable.
14.5 Inventory Management.
14.6 Cash Management and Budgeting.
14.7 Financing Working Capital.
Summary of Learning Objectives / Summary of Key Equations / Self-Study Problems / Solutions to Self-Study Problems / Critical Thinking Questions / Questions and Problems / Sample Test Problems.
Chapter 15: How Firms Raise Capital.
15.1 Bootstrapping.
15.2 Venture Capital.
15.3 Initial Public Offering.
15.4 IPO Pricing and Cost.
15.5 General Cash Offer by a Public Company.
15.6 Private Markets and Bank Loans.
Summary of Learning Objectives / Summary of Key Equations / Self-Study Problems / Solutions to Self-Study Problems / Critical Thinking Questions / Questions and Problems / Sample Test Problems.
Ethics Case: Profiting from Death: "Janitor’s Insurance".
Chapter 16: Capital Structure Policy.
16.1 Capital Structure and Firm Value.
16.2 The Benefits and Costs of Using Debt.
16.3 Two Theories of Capital Structure.
16.4 Practical Considerations in Choosing a Capital Structure.
Summary of Learning Objectives / Summary of Key Equations / Self-Study Problems / Solutions to Self-Study Problems / Critical Thinking Questions / Questions and Problems / Sample Test Problems.
Chapter 17: Dividends and Dividend Policy.
17.1 Dividends.
17.2 Stock Repurchases.
17.3 Dividend Policy and Firm Value.
17.4 Stock Dividends and Stock Splits.
17.5 Setting a Dividend Policy.
Summary of Learning Objectives / Self-Study Problems / Solutions to Self-Study Problems / Critical Thinking Questions / Questions and Problems / Sample Test Problems.
Part 6: Business Formation, Valuation, and Financial Planning.
Chapter 18: Business Formation, Growth, and Valuation.
18.1 Starting a Business.
18.2 The Role of the Business Plan.
18.3 Valuing a Business.
18.4 Important Issues in Valuation.
Summary of Learning Objectives / Summary of Key Equations / Self-Study Problems / Solutions to Self-Study Problems / Critical Thinking Questions / Questions and Problems / Sample Test Problems.
Ethics Case: The Subprime Mortgage Market Meltdown: How Did It Happen?
Chapter 19: Financial Planning and Forecasting.
19.1 Financial Planning.
19.2 Financial Planning Models.
19.3 A Better Financial Planning Model.
19.4 Beyond the Basic Planning Models.
19.5 Managing and Financing Growth.
Summary of Learning Objectives / Summary of Key Equations / Self-Study Problems / Solutions to Self-Study Problems / Critical Thinking Questions / Questions and Problems / Sample Test Problems.
Part 7: Valuation and International Decisions.
Chapter 20: Options and Corporate Finance.
20.1 Financial Options.
20.2 Option Valuation.
20.3 Real Options.
20.4 Agency Costs.
20.5 Options and Risk Management.
Summary of Learning Objectives / Summary of Key Equations / Self-Study Problems / Solutions to Self-Study Problems / Critical Thinking Questions / Questions and Problems / Sample Test Problems.
Ethics Case: Compensation—How Much Is Enough?
Chapter 21: International Financial Management.
21.1 Introduction to International Finance Management.
21.2 Foreign Exchange Markets.
21.3 International Capital Budgeting.
21.4 Global Money and Capital Markets.
21.5 International Banking.
Summary of Learning Objectives / Summary of Key Equations / Self-Study Problems / Solutions to Self-Study Problems / Critical Thinking Questions / Questions and Problems / Sample Test Problems.
About the Author :
Robert Parrino, Lamar Savings Centennial Professor of Finance, McCombs School of Business, University of Texas at Austin
A member of the faculty at University of Texas since 1992, Dr. Parrino teaches courses in regular degree and executive education programs at the University of Texas, as well as customized executive education courses for industrial, financial, and professional firms. He has also taught at the University of Chicago, University of Rochester, and IMADEC University in Vienna. Dr. Parrino has received numerous awards for teaching excellence at University of Texas from students, faculty, and the Texas Ex’s (alumni association).
Dr. Parrino has been involved in advancing financial education outside of the classroom in a variety of ways. As a Chartered Financial Analyst (CFA) charter holder he has been very active with the CFA Institute, having been a member of the candidate curriculum committee, served as a regular speaker at the annual Financial Analysts Seminar, spoken at over 20 Financial Analyst Society meetings, and as a current member if the planning committee for the CFA Institute Annual Meeting. In addition Dr. Parrino was the founding director of the Hicks, Muse, Tate & Furst Center for Private Equity Finance at the University of Texas. In 2008, Dr. Parrino was elected Vice President for Financial Education of the Financial Management Association for 2008-2010.
Dr. Parrino is also co-founder of the National Forum for Corporate Finance and the Financial Research Association and is Associate Editor of the Journal of Corporate Finance and the Journal of Financial Research. Dr. Parrino’s research includes work on corporate governance, financial policies, restructuring, and mergers and acquisitions, as well as research on private equity markets. He has published his research in a number of journals, including the Journal of Finance, Journal of Financial Economics, Journal of Financial and Quantitative Analysis, Journal of Law and Economics, Journal of Portfolio Management, and Financial Management. Dr. Parrino has won a number of awards for his research.
Dr. Parrino has experience in the application of corporate finance concepts in a variety of business situations. Since entering the academic profession he has been retained as an advisor on valuation issues concerning businesses with enterprise values ranging to more than $1 billion and has consulted in areas such as corporate financing, compensation, and corporate governance. Dr. Parrino holds a B.S. in chemical engineering from Lehigh University, an MBA degree from The College of William and Mary, and M.S. and Ph.D. degrees in applied economics and finance, respectively, from University of Rochester. Dr. David S. Kidwell is Professor of Finance and Dean Emeritus at the Curtis L. Carlson School of Management at the University of Minnesota. He holds an undergraduate degree in mechanical engineering from California State University at San Diego, an MBA from California Sate University at San Francisco, and a PhD in finance from the University of Oregon.
Before joining the University of Minnesota, Dr. Kidwell was Dean of the School of Business Administration at the University of Connecticut. Prior to joining the University of Connecticut, he held endowed chairs in banking and finance at Tulane University, the University of Tennessee, and Texas Tech University. He was also on the faculty at the Krannert Graduate School of Management, Purdue University, where he was twice voted the outstanding undergraduate teacher of the year. Dr. Kidwell has published research in the leading journals, including Journals of Finance, Journal of Financial Economics, Journal of Financial and Quantitative Analysis, Financial Management, and Journal of Money, Credit, and Banking.
Dr. Kidwell has been a management consultant for Coopers & Lybrand and a sales engineer for Bethlehem Steel Corporation. He is an expert on the U.S. financial system and is the author of more than 80 articles dealing with the U.S. financial system and capital markets. Dr. Kidwell has participated in a number of research grants funded by the National Science Foundation to study the efficiency of U.S. capital markets, and to study the impact of government regulation upon the delivery of consumer financial services.
Dr. Kidwell currently serves on the Board of the Schwan Food Company. He is the past Secretary-Treasurer of the Board of Directors of AACSB, the International Association for Management Education. He is a past member of the Boards of the Minnesota Council for Quality, the Stonier Graduate School of Banking, and the Minnesota Center for Corporate responsibility. He has also served as an Examiner for the 1995 Malcolm Baldrige National Quality Award, on the Board of Directors of the Juran Center for Leadership in Quality and on the Board of the Minnesota Life Insurance Company.
Robert Parrino, Lamar Savings Centennial Professor of Finance, McCombs School of Business, University of Texas at Austin
A member of the faculty at University of Texas since 1992, Dr. Parrino teaches courses in regular degree and executive education programs at the University of Texas, as well as customized executive education courses for industrial, financial, and professional firms. He has also taught at the University of Chicago, University of Rochester, and IMADEC University in Vienna. Dr. Parrino has received numerous awards for teaching excellence at University of Texas from students, faculty, and the Texas Ex’s (alumni association).
Dr. Parrino has been involved in advancing financial education outside of the classroom in a variety of ways. As a Chartered Financial Analyst (CFA) charter holder he has been very active with the CFA Institute, having been a member of the candidate curriculum committee, served as a regular speaker at the annual Financial Analysts Seminar, spoken at over 20 Financial Analyst Society meetings, and as a current member if the planning committee for the CFA Institute Annual Meeting. In addition Dr. Parrino was the founding director of the Hicks, Muse, Tate & Furst Center for Private Equity Finance at the University of Texas. In 2008, Dr. Parrino was elected Vice President for Financial Education of the Financial Management Association for 2008-2010.
Dr. Parrino is also co-founder of the National Forum for Corporate Finance and the Financial Research Association and is Associate Editor of the Journal of Corporate Finance and the Journal of Financial Research. Dr. Parrino’s research includes work on corporate governance, financial policies, restructuring, and mergers and acquisitions, as well as research on private equity markets. He has published his research in a number of journals, including the Journal of Finance, Journal of Financial Economics, Journal of Financial and Quantitative Analysis, Journal of Law and Economics, Journal of Portfolio Management, and Financial Management. Dr. Parrino has won a number of awards for his research.
Dr. Parrino has experience in the application of corporate finance concepts in a variety of business situations. Since entering the academic profession he has been retained as an advisor on valuation issues concerning businesses with enterprise values ranging to more than $1 billion and has consulted in areas such as corporate financing, compensation, and corporate governance. Dr. Parrino holds a B.S. in chemical engineering from Lehigh University, an MBA degree from The College of William and Mary, and M.S. and Ph.D. degrees in applied economics and finance, respectively, from University of Rochester. Dr. David S. Kidwell is Professor of Finance and Dean Emeritus at the Curtis L. Carlson School of Management at the University of Minnesota. He holds an undergraduate degree in mechanical engineering from California State University at San Diego, an MBA from California Sate University at San Francisco, and a PhD in finance from the University of Oregon.
Before joining the University of Minnesota, Dr. Kidwell was Dean of the School of Business Administration at the University of Connecticut. Prior to joining the University of Connecticut, he held endowed chairs in banking and finance at Tulane University, the University of Tennessee, and Texas Tech University. He was also on the faculty at the Krannert Graduate School of Management, Purdue University, where he was twice voted the outstanding undergraduate teacher of the year. Dr. Kidwell has published research in the leading journals, including Journals of Finance, Journal of Financial Economics, Journal of Financial and Quantitative Analysis, Financial Management, and Journal of Money, Credit, and Banking.
Dr. Kidwell has been a management consultant for Coopers & Lybrand and a sales engineer for Bethlehem Steel Corporation. He is an expert on the U.S. financial system and is the author of more than 80 articles dealing with the U.S. financial system and capital markets. Dr. Kidwell has participated in a number of research grants funded by the National Science Foundation to study the efficiency of U.S. capital markets, and to study the impact of government regulation upon the delivery of consumer financial services.
Dr. Kidwell currently serves on the Board of the Schwan Food Company. He is the past Secretary-Treasurer of the Board of Directors of AACSB, the International Association for Management Education. He is a past member of the Boards of the Minnesota Council for Quality, the Stonier Graduate School of Banking, and the Minnesota Center for Corporate responsibility. He has also served as an Examiner for the 1995 Malcolm Baldrige National Quality Award, on the Board of Directors of the Juran Center for Leadership in Quality and on the Board of the Minnesota Life Insurance Company.
