Corporate finance : principles and practice / by William J. Carney.
2010
KF1428 .C27 2010 (Map It)
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Items
Details
Author
Title
Corporate finance : principles and practice / by William J. Carney.
Published
New York, NY : Thomson Reuters/Foundation Press, 2010.
Call Number
KF1428 .C27 2010
Edition
Second edition.
ISBN
9781599416083
1599416085
1599416085
Description
xxv, 855 pages : illustrations ; 26 cm.
System Control No.
(OCoLC)607613393
Bibliography, etc. Note
Includes bibliographical references and index.
Series
Record Appears in
Table of Contents
Preface
v
Acknowledgments
vii
Table of Cases
xxi
ch. One
Introduction
1
ch. Two
Measuring Firm Output
4
1.
Introduction
4
2.
Forms of Financial Reports
10
A.
The Balance Sheet
10
i.
Assets
11
ii.
Liabilities
12
iii.
Stockholders' Equity
13
Bolt v. Merrimack Pharmaceuticals, Inc.
17
B.
The Income Statement
26
In re Software Toolworks, Inc.
30
C.
The Statement of Cash Flows
36
D.
The Statement of Changes in Stockholders' Equity
42
3.
Analysis of Financial Statements
43
A.
Accounting Options
44
B.
Ratios
50
i.
Profitability Ratios
51
ii.
Financial Leverage Ratios
53
iii.
Liquidity Ratios
54
iv.
Activity Ratios
55
v.
Market Value Ratios
56
C.
The Analysis of Ratios
58
Appendix 2-A
Examples of Contingent Liability Statements
62
Appendix 2-B
2001 Annual Statement Studies
71
ch. Three
Valuing Firm Output
88
1.
Introduction
88
2.
Discounting and Present Value
90
A.
Compounding
90
B.
The Frequency of Compounding
93
C.
Present Values
95
D.
Annuities
98
E.
Valuing a Perpetuity
101
F.
Valuing Common Stock
101
G.
Valuing Investments with Different Cash Flows at Different Times
103
H.
Net Present Value
104
3.
The Cost of Capital
106
A.
The Price of Risk
106
B.
Measurement of Risk---Of Expected Values and Standard Deviations
111
C.
Risk and Diversification
116
D.
Pricing Risk in Markets---The Capital Assets Pricing Model
118
E.
Levered Betas and the Cost of Capital for Leveraged Firms
128
F.
Challenges to CAPM
129
4.
Efficient Capital Markets
131
A.
The ECMH Model
131
Signalling and Causation in Insider Trading
131
B.
Challenges to ECMH
135
Inefficient Markets: An Introduction to Behavioral Finance (2000), 10-16
135
Are Markets Efficient?---No, Arbitrage Is Inherently Risky
140
Are Markets Efficient?---Yes, Even if They Make Errors
141
Takeover Defense When Financial Markets Are (Only) Relatively Efficient
144
C.
ECMH in the Courts
152
West v. Prudential Securities, Incorporated
152
Measuring Securities Market Efficiency in the Regulatory Setting
156
In re Time Warner Securities Litigation
159
5.
Valuation in the Courts
172
A.
CAPM in the Courts
172
Cede & Co. and Cinerama, Inc. v. Technicolor, Inc.
172
Piemonte v. New Boston Garden Corp
184
B.
Minority Discounts, Control Premia and Leverage
194
Rapid-American Corporation v. Harris
198
Appraising The Non-Existent: The Delaware Courts' Struggle with Control Premiums
204
ch. Four
Capital Structure
211
1.
Introduction
211
2.
The Range of Financial Choices
212
Eliasen v. Itel Corporation
218
3.
Modigliani & Miller's Irrelevance Hypothesis
226
4.
The Real World
236
A.
Debt and Taxes
237
B.
Weighted Average Cost of Capital
238
C.
Debt and Agency Costs
243
"Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure"
244
5.
Capital Structure in the Courts
248
New England Tel. and Tel. Co. v. Department of Public Utilities
248
Heckman v. Ahmanson
256
6.
The Wages of Excessive Debt
262
A.
Subordination
262
In re Fett Roofing and Sheet Metal Co., Inc., Bankrupt
263
B.
Fiduciary Duties to Creditors
270
Credit Lyonnais Bank Nederland, N.V. v. Pathe Communications Co.
271
C.
Creditor Liability
279
Krivo Industrial Supply Company v. National Distillers and Chemical Corporation
279
D.
The Close Corporation and Disallowance of Interest Deductions
290
Fin Hay Realty Co. v. United States
290
E.
Liability of Affiliated Parties under the "Deepening Insolvency" Doctrine
296
Official Committee of Unsecured Creditors v. R. F. Lafferty & Co.
297
Trenwick America Litigation Trust v. Ernst & Young, L.L.P.
302
F.
Structural Response to the Threat of Insolvency
307
ch. Five
Common Stock
309
1.
Limited Liability of Stockholders
309
Limited Liability
309
2.
The Problem of Dilution
313
A.
Preemptive Rights to Purchase a Portion of Any New Issue
316
Stokes v. Continental Trust Company
317
B.
Equitable Doctrines Governing Dilutive Stock Issues
323
Katzowitz v. Sidler et al.
323
C.
Dilution as a Takeover Defense---The Poison Pill
328
The Illusory Protections of the Poison Pill
328
Moran v. Household International, Inc.
335
D.
Creditor Protection: Legal Capital
346
E.
Public Securities Markets and Regulation
351
i.
The Federal Securities Laws in a Nutshell
351
ii.
The New Issues Market
355
iii.
Trading Markets
359
Market Making in the Electronic Age
359
ch. Six
Corporate Debt
364
1.
Introduction
364
Credit Report: Suddenly, Banks are Acting a Lot Like Bond Markets
365
2.
Contract Interpretation
371
Sharon Steel Corporation v. The Chase Manhattan Bank, N.A.
372
3.
Contract Terms
382
On Financial Contracting: An Analysis of Bond Covenants
382
A.
Capital Structure: Restricting New Debt
384
On Financial Contracting: An Analysis of Bond Covenants
384
Metropolitan Life Insurance Company v. RJR Nabisco, Inc.
389
B.
Alteration of Risks
409
On Financial Contracting: An Analysis of Bond Covenants
409
C.
Distributions
415
On Financial Contracting: An Analysis of Bond Covenants
415
D.
Underinvestment---Asset Maintenance
420
On Financial Contracting: An Analysis of Bond Covenants
420
E.
Conversion Rights as Substitutes for Covenants
423
On Financial Contracting: An Analysis of Bond Covenants
423
F.
Sinking Funds
424
On Financial Contracting: An Analysis of Bond Covenants
424
Principles of Corporate Finance, 6th Ed. (2000)
425
G.
Call Protection
426
Morgan Stanley & Co., Incorporated v. Archer Daniels Midland Company
426
H.
Monitoring Compliance
433
On Financial Contracting: An Analysis of Bond Covenants
433
I.
Amendments
435
On Financial Contracting: An Analysis of Bond Covenants
435
Katz v. Oak Industries, Inc.
437
J.
Enforcement of Covenant Breaches
445
Hedge Fund Activism in the Enforcement of Bondholder Rights
445
4.
The Indenture Trustee and the Trust Indenture Act
448
A.
The Nature of the Trustee and its Duties
448
On Financial Contracting: An Analysis of Bond Covenants
448
Elliott Associates v. J. Henry Schroder Bank & Trust Co.
450
B.
The Trustee's Duties in Default
458
LNC Investments, Inc. v. First Fidelity Bank, National Association
461
5.
Capital Leasing
465
6.
Asset Backed Financing
467
Appendix 6-A
Moody's Investor Services
472
Standard & Poors
473
Appendix 6-B
Revised Model Simplified Indenture
474
ch. Seven
Preferred Stock
477
1.
Introduction
477
A.
Defining Preferred Stock
477
B.
The Uses of Preferred Stock
481
2.
Dividends
482
A.
The Varieties of Dividends
482
Arizona Western Insurance Company v. L. L. Constantin & Co.
483
L.L. Constantin & Co. v. R.P. Holding Corp.
485
B.
Straight and Cumulative Dividends
489
Guttmann v. Illinois Central R. Co.
489
C.
Property Rights in Dividends
494
Hay v. Hay
494
Smith v. Nu-West Industries, Inc.
503
3.
Altering the Preferred Contract
508
A.
Voting Rules and Voting Rights
508
Elliott Associates, L.P. v. Avatex Corporation
510
B.
Dealing with the Class Veto Power
521
Schreiber v. Carney
522
Orban v. Field
531
4.
Board Duties
538
A.
Board Duties to Preferred Shareholders
538
Mary G. Dalton v. American Investment Company
538
B.
Duties of a Preferred-Controlled Board
548
Baron v. Allied Artists Pictures Corporation
548
Burton v. Exxon Corporation
555
5.
Share Redemptions and Repurchases
565
Gradient OC Master, Ltd. v. NBC Universal, Inc.
566
ch. Eight
Options and Convertible Securities
583
1.
Introduction
583
A.
The Uses of Options and Option Theory
583
B.
Real Options
586
C.
Long and Short Positions and Position Diagrams
587
2.
How Options Operate
589
A.
Call Options
589
i.
Long Positions in Call Options
590
ii.
Short Positions in Call Options
592
B.
Put Options
593
C.
Combining Options, Stocks and Bonds; Put-Call Parity
595
D.
Uses of Options
599
Brane v. Roth
599
Who Says You Can't Make Money Off Stalled Stocks? More Investors Use Options, Trading Upside for Steady Gains
601
3.
Valuation of Options
604
4.
Disclosure Issues With Options
612
Five Ways of Valuing Options of these possible methods, only one results in reliable, tamperproof, financial results
613
5.
Convertible Securities and Deal Protection
616
A.
Destruction of the Option
616
John Parkinson v. West End Street Railway Company
616
Simons v. Cogan
618
Andaloro v. PFPC Worldwide, Inc.
627
B.
Dilution of Option Rights
631
HB Korenvaes Investments, L.P. v. Marriott Corporation
633
Stephenson v. Plastics Corporation of America, Inc.
653
Wood v. Coastal States Gas Corporation
662
Coffman v. Acton Corporation
671
CL Investments, L.P. v. Advanced Radio Telecom Corp.
676
6.
Last Period Financing: Death Spirals
687
Internet Library, Inc. v. Southridge Capital Management LLC
689
GFL Advantage Fund, Ltd. v. Colkitt
692
ch. Nine
Dividends and Distributions
707
1.
Distributions and Investor Wealth
707
A.
Dividend Practices
707
Distribution of Incomes of Corporations Among Dividends, Retained Earnings, and Taxes
707
Disappearing Dividends: Changing Firm Characteristics or Lower Propensity to Pay?
711
B.
How Do Dividends Relate to Firm Value?
715
C.
Explaining Dividend Practices
720
i.
Clientele Effects and Expectations
720
ii.
Transaction Costs of Selling Shares
721
iii.
Taxes
722
iv.
Imperfect Capital Markets and the Signaling Value of Dividends
725
D.
Alternative Explanations of Dividends
726
Two Agency-Cost Explanations of Dividends
726
2.
Restrictions on Dividends and Other Distributions to Shareholders
733
Klang v. Smith's Food & Drug Centers, Inc.
739
Hullender v. Acts II
747
Stock Repurchase Agreements in Bankruptcy: A Tale of State Law Rights Discarded
748
3.
Board Discretion and Duties in Declaring Dividends
753
Caleb & Co. v. E. I. Dupont de Nemours & Company
753
Berwald.v. Mission Development Company
757
Smith v. Atlantic Properties, Inc.
764
4.
Stock Dividends and Stock Splits
768
A.
The Economics of Stock Dividends and Stock Splits
768
B.
Accounting for Dividends and Splits
769
C.
Reverse Stock Splits
776
Applebaum v. Avaya
777
5.
Stock Repurchases
788
A.
The Economics of Share Repurchases
788
B.
Legal Authority for Share Repurchases
790
C.
Regulation of Share Repurchases
791
i.
Market Repurchases
791
Securities and Exchange Commission v. Georgia-Pacific Corporation
792
ii.
Going Private Transactions
795
Howing Co. v. Nationwide Corporation
796
iii.
Repurchases During Hostile Tender Offers
803
AC Acquisitions Corp. v. Anderson, Clayton & Co.
804
iv.
Targeted Repurchases
811
Grobow v. Perot
811
D.
Duties in Share Repurchases
818
Nixon v. Blackwell
818
6.
Leveraged Buyouts
825
United States of America v. Tabor Court Realty Corp.
826
Matter of Munford, Inc., d.b.a. Majik Market, Debtor
836
7.
Spin-Offs and Tracking Stock
841
A.
Spin-Offs
841
B.
Tracking Stock
843
Index
845