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Fundamentals of Corporate Finance 7th Canadian Edition A Review and Summary of the Main Topics and Concepts

Fundamentals of Corporate Finance 7th Canadian Edition A Comprehensive Guide

If you are a student, instructor, or professional interested in learning about the principles and practices of corporate finance, you may want to check out Fundamentals of Corporate Finance 7th Canadian Edition This is a digital version of the popular textbook by Ross, Westerfield, Jordan, Roberts, and Marosi that covers the essential topics in corporate finance with a Canadian perspective. In this article, we will provide you with a comprehensive guide on what this book is about, what are its features and benefits, and how you can download it.

fundamentals of corporate finance 7th canadian edition

What is Corporate Finance and Why is it Important?

Before we dive into the details of the book, let us first understand what corporate finance is and why it is important. Corporate finance is the field of finance that deals with the financial decisions of corporations. It involves planning, raising, investing, and managing funds to achieve the objectives of the firm. Corporate finance also encompasses the analysis of the risks and returns associated with different financing and investment options.

The Definition and Scope of Corporate Finance

According to Ross et al. (2022), corporate finance can be defined as "the study of ways to answer three basic questions" (p.4):

  • What long-term investments should the firm take on? This is also known as the capital budgeting decision.

  • Where will the firm get the long-term financing to pay for its investments? This is also known as the capital structure decision.

  • How will the firm manage its everyday financial activities? This is also known as the working capital management decision.

The scope of corporate finance covers various topics related to these three questions, such as financial statement analysis, time value of money, valuation, risk and return, cost of capital, dividend policy, financial planning and forecasting, options, futures, derivatives, mergers, acquisitions, corporate restructuring, and more.

The Goals and Functions of Corporate Finance

The main goal of corporate finance is to maximize the value of the firm for its shareholders. This means that corporate finance aims to increase the current share price or the expected future cash flows of the firm. To achieve this goal, corporate finance performs several functions, such as:

  • Evaluating investment opportunities and selecting projects that add value to the firm.

  • Choosing the optimal mix of debt and equity financing that minimizes the cost of capital and maximizes the firm's value.

  • Determining the optimal dividend policy that balances the trade-off between retaining earnings for growth and paying dividends to shareholders.

  • Managing the liquidity and cash flow of the firm and ensuring that it has enough funds to meet its short-term obligations and invest in profitable opportunities.

  • Identifying and hedging the financial risks that the firm faces, such as interest rate risk, exchange rate risk, and market risk.

  • Exploring and executing strategic actions that can enhance the firm's value, such as mergers, acquisitions, divestitures, spin-offs, and leveraged buyouts.

By performing these functions, corporate finance helps the firm to achieve its financial goals and create value for its shareholders.

What are the Main Topics Covered in Fundamentals of Corporate Finance 7th Canadian Edition?

Fundamentals of Corporate Finance 7th Canadian Edition is a comprehensive textbook that covers the main topics in corporate finance. It is divided into 11 parts and 31 chapters, as follows:

Financial Statements and Cash Flow Analysis

This part introduces the basic concepts and tools of financial statement analysis, such as the balance sheet, the income statement, the statement of cash flows, and the statement of shareholders' equity. It also explains how to calculate and interpret financial ratios, such as liquidity ratios, leverage ratios, profitability ratios, market value ratios, and DuPont identity. It also discusses the concept of free cash flow and how it relates to the value of the firm.

Time Value of Money and Valuation

This part covers the fundamental principles of time value of money and valuation. It explains how to calculate and compare the present value and future value of different cash flows, such as single payments, annuities, perpetuities, growing annuities, growing perpetuities, and uneven cash flows. It also shows how to use these concepts to value bonds, stocks, and other financial assets.

Risk and Return

This part discusses the concepts of risk and return in finance. It defines risk as the variability of returns and return as the reward for bearing risk. It introduces the measures of risk and return, such as expected return, standard deviation, variance, coefficient of variation, beta, and alpha. It also explains the trade-off between risk and return and how investors can diversify their portfolios to reduce risk. It also presents the capital asset pricing model (CAPM) and the arbitrage pricing theory (APT) as models for estimating the required return on an asset or a portfolio.

Capital Budgeting and Investment Decisions

This part deals with the process of capital budgeting and investment decisions. It explains how to identify and evaluate investment opportunities using various techniques, such as net present value (NPV), internal rate of return (IRR), profitability index (PI), payback period (PP), discounted payback period (DPP), and modified internal rate of return (MIRR). It also discusses how to incorporate risk, inflation, taxes, depreciation, salvage value, working capital changes, and mutually exclusive projects into capital budgeting analysis. It also introduces the concept of real options and how they can affect investment decisions.

Cost of Capital and Capital Structure

This part covers the topics of cost of capital and capital structure. It explains how to estimate the cost of different sources of financing, such as debt, preferred stock, common stock, retained earnings, and new equity. It also shows how to calculate the weighted average cost of capital (WACC) for a firm using different methods, such as book value weights, market value weights, target weights, and adjusted present value (APV). It also discusses the factors that affect the optimal capital structure of a firm, such as taxes, bankruptcy costs, agency costs, asymmetric information, signaling effects, pecking order theory, trade-off theory, and market timing theory.

Dividend Policy and Payout Decisions

Working Capital Management and Short-Term Financing

This part covers the topics of working capital management and short-term financing. It explains how to manage the current assets and current liabilities of the firm, such as cash, marketable securities, accounts receivable, inventory, accounts payable, and accruals. It also discusses the trade-off between profitability and liquidity and how to optimize the cash conversion cycle. It also introduces the various sources and instruments of short-term financing, such as bank loans, commercial paper, trade credit, factoring, and leasing.

Financial Planning and Forecasting

This part deals with the topics of financial planning and forecasting. It explains how to prepare and analyze pro forma financial statements, such as pro forma income statement, pro forma balance sheet, and pro forma statement of cash flows. It also shows how to use these statements to estimate the external financing needed by the firm and to evaluate its financial performance. It also discusses the factors that affect the growth rate of the firm and how to estimate it using the sustainable growth rate and the internal growth rate formulas.

Options, Futures, and Derivatives

This part introduces the topics of options, futures, and derivatives. It defines what these financial instruments are and how they are used for hedging, speculation, and arbitrage purposes. It also explains how to value these instruments using various methods, such as binomial trees, Black-Scholes formula, delta hedging, and risk-neutral valuation. It also discusses the different types of options and futures contracts, such as call options, put options, American options, European options, stock options, index options, currency options, commodity futures, financial futures, forward contracts, swaps, and more.

Mergers, Acquisitions, and Corporate Restructuring

This part examines the topics of mergers, acquisitions, and corporate restructuring. It explains the motives and benefits of these strategic actions, such as synergy, diversification, market power, tax advantages, agency problems, free cash flow hypothesis, managerial hubris hypothesis, market timing hypothesis, and more. It also shows how to analyze and value these transactions using various techniques, such as comparable companies analysis, comparable transactions analysis, discounted cash flow analysis (DCF), net present value analysis (NPV), internal rate of return analysis (IRR), accretion/dilution analysis (EPS), enterprise value/EBITDA multiples (EV/EBITDA), price/earnings multiples (P/E), price/book multiples (P/B), price/sales multiples (P/S), and more. It also discusses the different types of mergers and acquisitions (M&A), such as horizontal mergers, vertical mergers, conglomerate mergers, friendly acquisitions, hostile takeovers, tender offers, proxy contests, leveraged buyouts (LBOs), management buyouts (MBOs), divestitures, spin-offs, split-offs, equity carve-outs, and more.

What are the Features and Benefits of Fundamentals of Corporate Finance 7th Canadian Edition

Fundamentals of Corporate Finance 7th Canadian Edition is a digital version of the textbook that offers several features and benefits for students and instructors who want to learn or teach corporate finance. Some of these features and benefits are:

The Format

The format is a compressed file that contains a PDF file of the textbook. The PDF file can be opened with any PDF reader software or application on any device that supports PDF files. The format has several advantages over other formats:

  • It is easy to download and store on your device or cloud storage service.

  • It is compatible with most devices and platforms.

  • It preserves the original layout and design of the textbook.

  • It allows you to zoom in or out on any page or section of the textbook.

  • It enables you to search for any word or phrase in the textbook.

  • It lets you bookmark any page or section of the textbook for easy reference.

  • It permits you to highlight or annotate any part of the textbook with your own notes or comments.

  • It facilitates you to print any page or section of the textbook if you prefer a hard copy.