Preface |
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About the Author |
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vii | |
Welcome to the Revised and Amended Stock Markets and Corporate Finance |
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xv | |
The Important Formulas |
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xxi | |
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1 | (192) |
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1 Introduction: Stock Markets, Investments and Corporate Financial Decision-Making |
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3 | (8) |
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2 Financial Institutions and a History of Stock Markets |
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11 | (50) |
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2.1 The supporting cast for financial markets |
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12 | (11) |
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2.2 Prologue: The early background economy |
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23 | (38) |
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2.2.1 Act I: The 1980s bull market and Black Monday |
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25 | (7) |
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2.2.2 Act II: The dot.com bubble and Black Friday |
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32 | (6) |
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2.2.3 Act III: Securitisation and the global financial crisis |
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38 | (9) |
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2.2.4 Act IV: Market recovery, COVID-19 and cash injections: From here to eternity |
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47 | (14) |
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3 The Time Value of Money and Financial Planning |
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61 | (30) |
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62 | (1) |
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3.2 The time-value of money: Discrete returns, compounding, and discounting |
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63 | (4) |
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3.2.1 Percentages as fractions |
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63 | (1) |
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3.2.2 Single period growth |
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64 | (1) |
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3.2.3 Multiple period growth |
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65 | (1) |
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66 | (1) |
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3.3 Perpetuities and annuities |
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67 | (5) |
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3.3.1 A growing perpetuity |
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67 | (1) |
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68 | (1) |
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3.3.3 Present value of an annuity |
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69 | (1) |
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3.3.4 Future value of an annuity |
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70 | (2) |
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3.4 Quarterly (and semi-annual, etc.) payments |
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72 | (2) |
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74 | (2) |
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3.6 Planning for retirement |
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76 | (3) |
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79 | (2) |
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3.8 Planning for retirement allowing for money purchasing power |
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81 | (2) |
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3.9 Repayment of a mortgage |
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83 | (2) |
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3.10 Time for reflection: What have we learned? |
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85 | (6) |
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4 Market Debt, Interest Rates, and Bond Valuation |
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91 | (28) |
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92 | (1) |
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4.2 Short-term financing: The money markets |
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93 | (4) |
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96 | (1) |
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4.3 The role of a central bank in determining interest rates |
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97 | (1) |
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98 | (2) |
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100 | (4) |
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4.6 Required discount rate and risk of default |
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104 | (2) |
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106 | (6) |
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4.8 Time for reflection: What have we learned? |
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112 | (7) |
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5 The Valuation of Equity Shares |
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119 | (38) |
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120 | (1) |
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5.2 Share price response to new equity issues |
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121 | (5) |
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5.3 The discounting of dividends model of share valuation |
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126 | (4) |
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5.4 A firm with a fixed growth |
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130 | (2) |
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5.5 A firm with zero (real) growth |
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132 | (2) |
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5.6 Motivation for dividends |
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134 | (2) |
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5.7 Self-sustaining growth |
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136 | (5) |
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141 | (5) |
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5.9 Share price determination in practice |
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146 | (1) |
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5.10 Time for reflection: What have we learned? |
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147 | (10) |
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6 Shareholders' Required Rate of Return (The Cost of Equity Capital) |
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157 | (22) |
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159 | (1) |
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6.2 The CAPM as a determination of the discount rate |
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159 | (6) |
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6.3 Empirical issues with the CAPM |
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165 | (3) |
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6.4 Empirical tests of the CAPM |
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168 | (2) |
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6.5 The tournament nature of investing as an explanation for the ineffectiveness of the CAPM |
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170 | (1) |
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6.6 The Fama and French three-factor (FF-3F) model |
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171 | (2) |
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6.7 Time for reflection: What have we learned? |
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173 | (6) |
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7 Statistical Patterns of Stock Market Returns |
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179 | (14) |
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180 | (1) |
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7.2 Building a model of risk and return |
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181 | (3) |
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7.3 Empirical observations of stock market outcomes and the investment time horizon |
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184 | (3) |
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7.4 The "behavioural" nature of the market: Bull and bear markets |
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187 | (3) |
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7.5 Time for reflection: What have we learned? |
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190 | (3) |
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193 | (120) |
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195 | (32) |
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196 | (1) |
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8.2 Leverage of the firm's capital structure |
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197 | (3) |
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200 | (1) |
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8.4 Derivation of Modigliani and Miller's Propositions I and II |
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201 | (3) |
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8.5 The Modigliani and Miller propositions and the CAPM |
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204 | (4) |
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8.6 Consistency of the discounting of dividends model with leverage and the CAPM and MM propositions |
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208 | (5) |
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8.7 The MM propositions challenged |
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213 | (1) |
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8.8 An optimal debt leverage |
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214 | (3) |
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8.9 Time for reflection: What have we learned? |
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217 | (10) |
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9 Valuation of Cash Flows |
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227 | (32) |
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228 | (3) |
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9.2 Methods of discounting: The CFE (kE) and FCF (WACC) approaches |
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231 | (6) |
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9.2.1 The cash flow to equity (CFE) approach |
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231 | (3) |
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9.2.2 The operating free cash flow (FCF) discounted by the WACC approach |
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234 | (3) |
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9.3 Additional examples demonstrating consistency of the discounting methods |
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237 | (6) |
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9.4 The WACC as industry-favoured approach |
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243 | (1) |
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9.5 Key elements of the cash flow |
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244 | (3) |
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9.6 Time for reflection: What have we learned? |
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247 | (12) |
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248 | (11) |
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10 Investment Decision-Making: Theory and Practice |
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259 | (12) |
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260 | (1) |
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10.2 Investment decision-making |
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261 | (7) |
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10.3 Time for reflection: What have we learned? |
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268 | (3) |
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11 Financial Planning and Working Capital: The Firm's Financial Statements |
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271 | (36) |
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273 | (2) |
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275 | (11) |
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11.2.1 The Income Statement (Table 11.1) |
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275 | (3) |
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11.2.2 The Balance Sheet (Table 11.2) |
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278 | (4) |
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11.2.3 The self-locking nature of the Income Statement and Balance Sheet |
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282 | (1) |
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11.2.4 The Statement of Cash Flows (Table 11.3) |
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283 | (3) |
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11.3 Ratio analysis (Table 11.4) |
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286 | (12) |
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11.4 Du Pont ratio analysis |
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298 | (3) |
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11.4.1 The Du Pont analysis of Return on Assets (ROA) = Net income/total assets |
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298 | (1) |
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11.4.2 The Du Pont analysis of Return on Equity (ROA) = Net income/shareholders equity |
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299 | (2) |
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11.5 Time for reflection: What have we learned? |
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301 | (6) |
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307 | (6) |
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308 | (1) |
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12.2 The meaning of ethical behaviour |
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309 | (3) |
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12.3 Time for reflection: What have we learned? |
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312 | (1) |
Solutions to Multiple Choice Questions and Illustrative Examples |
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313 | (32) |
Index |
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345 | |