Corporate finance principles and practice 7th by watson head

Giáo trình Corporate finance principles and practice 7th by watson head Giáo trình Corporate finance principles and practice 7th by watson head Giáo trình Corporate finance principles and practice 7th by watson head Giáo trình Corporate finance principles and practice 7th by watson head Giáo trình Corporate finance principles and practice 7th by watson head Giáo trình Corporate finance principles and practice 7th by watson head Giáo trình Corporate finance principles and practice 7th by watson head

CORPORATE FINANCE CORPORATE FINANCE PRINCIPLES AND PRACTICE Seventh edition Denzil Watson and Antony Head Sheffield Hallam University PEARSON EDUCATION LIMITED Edinburgh Gate Harlow CM20 2JE United Kingdom Tel: +44 (0)1279 623623 Web: www.pearson.com/uk First published under the Financial Times Pitman Publishing Imprint 1998 (print) Second edition published under the Financial Times Prentice Hall Imprint 2001 (print) Third edition published 2004 (print) Fourth edition published 2007 (print) Fifth edition published 2010 (print) Sixth edition published 2013 (print and electronic) Seventh edition published 2016 (print and electronic) © Pearson Education Limited 2001, 2010 (print) © Pearson Education Limited 2013, 2016 (print and electronic) The rights of Denzil Watson and Antony Head to be identified as author of this work has been asserted by them in accordance with the Copyright, Designs and Patents Act 1988 The print publication is protected by copyright Prior to any prohibited reproduction, storage in a retrieval system, distribution or transmission in any form or by any means, electronic, mechanical, recording or otherwise, permission should be obtained from the publisher or, where applicable, a licence permitting restricted copying in the United Kingdom should be obtained from the Copyright Licensing Agency Ltd, Barnard’s Inn, 86 Fetter Lane, London EC4A 1EN The ePublication is protected by copyright and must not be copied, reproduced, transferred, distributed, leased, licensed or publicly performed or used in any way except as specifically permitted in writing by the publishers, as allowed under the terms and conditions under which it was purchased, or as strictly permitted by applicable copyright law Any unauthorised distribution or use of this text may be a direct infringement of the authors’ and the publisher’s rights and those responsible may be liable in law accordingly All trademarks used herein are the property of their respective owners The use of any trademark in this text does not vest in the author or publisher any trademark ownership rights in such trademarks, nor does the use of such trademarks imply any affiliation with or endorsement of this book by such owners Contains public sector information licensed under the Open Government Licence (OGL) v3.0 http://www nationalarchives.gov.uk/doc/open-government-licence/version/3/ Contains Parliamentary information licensed under the Open Parliament Licence (OPL) v3.0 http://www parliament.uk/site-information/copyright/open-parliament-licence/ The screenshots in this book are reprinted by permission of Microsoft Corporation 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 reporting 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: 978-1-292-10303-7 (print) 978-1-292-10308-2 (PDF) 978-1-292-14424-5 (ePub) British Library Cataloguing-in-Publication Data A catalogue record for the print edition is available from the British Library Library of Congress Cataloging-in-Publication Data A catalog record for the print edition is available from the Library of Congress 10 9 8 7 6 5 4 3 2 1 20 19 18 17 16 Cover image: © Denzil Watson Print edition typeset in 9.25/13.5pt Stone Humanist ITC Pro by Lumina Datamatics Inc Printed in Slovakia by Neografia NOTE THAT ANY PAGE CROSS REFERENCES REFER TO THE PRINT EDITION Antony Head is an Associate Lecturer in the Sheffield Business School at Sheffield Hallam University, having formerly been a Principal Lecturer in Financial Management there and Leader of the Financial Accounting and Management Accounting Subject Group Tony joined Hallam after various jobs, which included spells as a chemical engineer and health-food shop proprietor His higher education began in Sheffield, where he took an honours degree in Chemical Engineering and Fuel Technology at Sheffield University in the early 1970s Since then Tony has completed an MBA and a PGCFHE and can be found teaching financial management, corporate finance and risk management as required on undergraduate, postgraduate and professional modules at Sheffield Hallam University Tony, like Denzil, has a number of interests outside of academia He is a dedicated Derby County fan and a season ticket holder at Pride Park His musical tastes are wide and varied, including Bob Dylan, Miles Davis, King Crimson, David Sylvian, Mahler and Bruckner Tony lives with his wife Sandra and has a daughter Rosemary, a son Aidan, a step-daughter Louise, step-sons Michael and Robert, and five grandchildren: Joshua, Isaac, Elizabeth, Amelia and Magnus v Photo: Denzil Watson Denzil Watson is a Principal Lecturer in Finance in the Sheffield Business School at Sheffield Hallam University (www.shu.ac.uk) Denzil has been teaching finance since he joined Hallam in 1991, having completed his BA(Hons) in Economics and MA(Hons) in Money, Banking and Finance at Sheffield University in the 1980s He has taught financial management, corporate finance, risk management, microeconomics and financial markets for 25 years over a range of undergraduate, postgraduate and distance learning modules Finance is by no means Denzil’s only passion He is a committed traveller, having now visited 50 countries including ones as diverse as Peru, Syria, Uzbekistan, Vietnam, Laos and the Chinese Silk Road Travel photography is also high up on his list as can be witnessed by the covers of this book and its previous four editions He is a keen Urbexer and, along with his co-author, a long-time suffering Derby County fan His other great love is music He can be found fronting Sheffield post-New Wave indie group RepoMen (http://repomen.bandcamp.com) or listening to the likes of Joy Division, The Stranglers, The Perfect Disaster, Luke Haines, Gogol Bordello, That Petrol Emotion, Sleaford Mods, The Undertones, Dead Kennedys, The Clash and other fine bands His inspirations include his mother Doreen, his sadly departed father Hugh, Kevin Hector, Ian Curtis, Michael Palin, Aung San Suu Kyi, Joe Strummer and John Peel Denzil lives with his wife Dora and their two children, Leonardo and Angelina Photo: Andy Brown About the Authors This page intentionally left blank Contents Preface xiii Acknowledgements xv The finance function Learning objectives Introduction 2 1.1 Two key concepts in corporate finance 1.2 The role of the financial manager 1.3 Corporate objectives 1.4 How is shareholder wealth maximised? 1.5 Agency theory 1.6 Corporate governance 1.7 Conclusion 11 13 20 26 Key points 28 Self-test questions 30 Questions for review 31 Questions for discussion 32 References 32 Recommended reading 33 Capital markets, market efficiency and ratio analysis 34 Learning objectives 34 Introduction 35 2.1 Sources of business finance 2.2 Capital markets 2.3 Capital market efficiency 2.4 Assessing financial performance 2.5 Conclusion 35 38 42 54 73 Key points 73 Self-test questions 75 Questions for review 76 Questions for discussion 77 References 78 Recommended reading 80 vii Contents 3 Short-term finance and the management of working capital 81 Learning objectives 81 Introduction 82 3.1 The objectives of working capital management 3.2 Working capital policies 3.3 Working capital and the cash conversion cycle 3.4 Overtrading 3.5 Managing inventory 3.6 Managing cash 3.7 Managing receivables 3.8 Conclusion 82 82 88 90 91 95 99 105 Key points 105 Self-test questions 106 Questions for review 107 Questions for discussion 108 References 110 Recommended reading 110 Long-term finance: equity finance 111 Learning objectives 111 Introduction 112 4.1 Equity finance 4.2 The stock exchange 4.3 Rights issues 4.4 Scrip issues, share splits, scrip dividends and share repurchases 4.5 Preference shares 4.6 Conclusion 112 114 119 126 129 132 Key points 133 Self-test questions 134 Questions for review 135 Questions for discussion 136 References 138 Recommended reading 138 5 Long-term finance: debt finance, hybrid finance and leasing 139 Learning objectives 139 Introduction 140 5.1 5.2 5.3 5.4 viii Bonds, loan notes, loan stock and debentures Bank and institutional debt International debt finance Convertible bonds 140 146 149 149 Contents 5.5 Warrants 5.6 The valuation of fixed-interest bonds 5.7 The valuation of convertible bonds 5.8 Leasing 5.9 Evaluating the financial effect of financing choices 5.10 Conclusion 153 154 156 158 165 167 Key points 167 Self-test questions 169 Questions for review 170 Questions for discussion 171 References 172 Recommended reading 172 An overview of investment appraisal methods 174 Learning objectives 174 Introduction 175 6.1 The payback method 6.2 The return on capital employed method 6.3 The net present value method 6.4 The internal rate of return method 6.5 A comparison of the npv and irr methods 6.6 The profitability index and capital rationing 6.7 The discounted payback method 6.8 Conclusion 175 177 180 183 187 191 196 197 Key points 197 Self-test questions 198 Questions for review 199 Questions for discussion 201 References 203 Recommended reading 203 Investment appraisal: applications and risk 204 Learning objectives 204 Introduction 205 7.1 Relevant project cash flows 7.2 Taxation and capital investment decisions 7.3 Inflation and capital investment decisions 7.4 Investment appraisal and risk 7.5 Appraisal of foreign direct investment 7.6 Empirical investigations of investment appraisal 7.7 Conclusion 205 207 212 215 222 228 231 Key points Self-test questions 232 233 ix .. .CORPORATE FINANCE CORPORATE FINANCE PRINCIPLES AND PRACTICE Seventh edition Denzil Watson and Antony Head Sheffield Hallam University PEARSON EDUCATION... Louise, step-sons Michael and Robert, and five grandchildren: Joshua, Isaac, Elizabeth, Amelia and Magnus v Photo: Denzil Watson Denzil Watson is a Principal Lecturer in Finance in the Sheffield... www.pearsoned.co.uk/watsonhead xii 411 ON THE WEBSITE Preface Introduction Corporate finance is concerned with the financing and investment decisions made by the management of companies in pursuit of corporate