Corporate Finance: Theory and Practice
This web site is designed to support "Corporate Finance: Theory and Practice". The publisher is John Wiley and Sons. You can navigate the site by either going to individual chapters and getting supporting material by chapter, or by going to the supporting material directly. The supporting material include:

  1. Chapter Outlines and overheads: These are saved as pdf files, and you need Adobe Acrobat to read them. You can download Adobe Acrobat by going to the Adobe site. (www.adobe.com) The overheads are categorized by topic, rather than chapter. To go to overheads, click here.
  2. Answers to Concept Checks: These are the answers to the concept checks in the chapters. The concept checks are categorized by chapter, and specify the page number on the book on which the concept appears.
  3. Derivations and Discussion: These represent interesting questions that often come up in the context of the specified topic, with discussions and analyses.
  4. Readings: These are readings from business and academic publications that supplement the specific topic.
  5. Solutions: This portion of the site is accessible only to instructors, with a password. If you are reading the book on your own, you can email me at adamodar@stern.nyu.edu and I will supply you with the password.
  6. Powerpoint Presentations: These are power point presentations that are designed for use by instructors. You will need the password to download these as well.
  7. Spreadsheets: These are spreadsheets that supplement the topic. They are in Microsoft Excel 95 format, and can be used on either a Mac or Windows system.
  8. Datasets: These are useful datasets to supplement each chapter. They generally include industry averages for key variables and represent updates on many of the tables in the book.
  9. Live Case Study: This is an example of the concepts in this chapter applied to a specific company.

You can read the preface to the book by clicking here.

You can pick the chapter that you would like to go to, to see illustrations, solutions and other supporting material.
1
2 3 4 5 6
7 8 9 10 11 12
13 14 15 16 17 18
19 20 21 22 23 24
25 26 27 28 29 30
31

Or you can pick the material that you are interested in.
Spreadsheets Overheads Datasets References
Solutions Derivations and Discussion Live Case Study Powerpoint Presentations

Chapter 1: The Foundations
Overheads Big Picture
Companies: Background
  1. Boeing
  2. Home Depot

Chapter 2: The Objective
Overheads Download as pdf file
Illustrations
Answers to Concept Questions Concept checks
Data Sets Insider and Institutional Holdings by Industry Sector
Spreadsheets
Solutions to Problems Download as pdf file
Derivations, In-Practice Questions and Discussion
  1. What is the difference between stock price maximization, firm value maximization and stockholder wealth maximization?
  2. What is the objective function in corporate finance for a private firm?
  3. What is the objective function for a non-profit organization?
  4. Are markets short term?
  5. What is the German/Japanese alternative to stockholder wealth maximization and does it work?
Readings
  1. Stop whining about Wall Street
  2. Bull Market Charges Ahead, lead by Activist Investors
  3. The Civilized Hostile Takeover
Practical Examples Analyzing a Company's Corporate Governance Structure

Chapter 3: Present Value
Overheads Download as pdf file
Illustrations
Answers to Concept Questions Concept Checks
Data Sets
Spreadsheets
  1. Present Value Calculator
Solutions to Problems Download as pdf file
Derivations, In-Practice Questions and Discussion
  1. How can investors with different degrees of risk aversion agree on a discount rate?
Readings
Practical Examples

Chapter 4: Financial Statements
Overheads Download as pdf file
Illustrations
Answers to Concept Questions Concept Checks
Data Sets
Spreadsheets
Solutions to Problems Download as pdf file
Derivations, In-Practice Questions and Discussion
  1. Operating versus Capital Expenditures
Readings
Practical Examples Analyzing a Company's Financial Ratios

Chapter 5: The Basics of Risk
Overheads Download as pdf file
Illustrations
  1. Estimating Variance: GE and Home Depot
  2. Estimating Covariance: GE and Home Depot
  3. Estimating Variance of Portfolio: GE and Home Depot
Answers to Concept Questions Concept Checks
Data Sets Interest Coverage Ratios, Ratings and Default Spreads
Spreadsheets
Solutions to Problems Download as pdf file
Derivations, In-Practice Questions and Discussion
  1. A Derivation of the Capital Asset Pricing Model
  2. Variants of the Capital Asset Pricing Model
  3. Testing the CAPM: Issues and Discussion
  4. More on the Arbitrage Pricing Model
  5. Estimating the Macro Economic Factors in a Multi-Factor Model
  6. Building a Regression Model
  7. Why not use bond betas to arrive at the cost of debt?
  8. Credit Scores as Alternatives to Bond Ratings
Readings
  1. Operating Risk as a Measure of Risk
  2. Market Risk and Time Horizon
  3. Investors must recall risk
Live Case Study Analyzing a Firm's Stockholders

Chapter 6: Risk Measurement and Hurdle Rates
Overheads Download as pdf file
Illustrations
  1. Estimating Operating Leverage: The Gap
  2. Estimating Risk Parameters: Boeing and Home Depot
Answers to Concept Questions Concept Checks
Data Sets
  1. Historical Returns on Stocks, Bonds and Bills: United States
  2. Country Ratings, Country Spreads and Equity Premiums
  3. Implied Premiums for the United States: 1960 - Present
  4. Unlevered and Levered Betas by Industry Group: United States
  5. Historical Earnings Changes per Year: S&P 500
Spreadsheets
  1. Estimating Implied Equity Premium in a Market
  2. Estimating CAPM parameters for a firm
  3. Unlevering and Levering Betas
  4. Estimating Synthetic rating for a firm
  5. Cost of Capital Estimation
Solutions to Problems Download as pdf file
Derivations, In-Practice Questions and Discussion Riskfree Rate
  1. Estimating the riskfree rate when the government is not default free
  2. Real versus Nominal Riskfree Rates

Risk Premium

  1. Geometric versus Arithmetic Risk Premiums: Which is better?
  2. The Mechanics of Implied Equity Premiums
  3. Estimating equity risk premium for an emerging market or a market with limited history?

Beta

  1. Setting Regression Parameters for Beta Estimates: How far back? Daily, weekly or monthly data?
  2. Why do beta estimates vary across services?
  3. What is the right market index to use?
  4. Historical Betas versus Expected Betas: Reversion and Financial Fundamentals
  5. Betas and Leverage: Derivation and Extensions
  6. Accounting Betas
  7. Estimating Bottom-up Betas

Cost of Debt

  1. What is debt?
  2. Which is a better estimate of the cost of debt - the rating-based interest rate or the yield to maturity on an issued bond?
  3. Estimating Synthetic Ratings

Weights

  1. Gross Debt or Net Debt
  2. Estimating market value of debt when debt is not traded
  3. Dealing with Operating Leases
  4. Estimating market value of equity
  5. Dealing with Preferred Stock
Readings
  1. Risk Premium in Emerging Markets
  2. Classic Rule of Risk Premium under Attack
  3. Are risk premiums too low? (Greenspan testimony)
Live Case Study Developing a Firm's Risk Profile

Chapter 7:
Overheads Download as pdf file
Illustrations
  1. Boeing 777 Project Analysis
  2. Home Depot Store Analysis
Answers to Concept Questions Concept Checks
Data Sets
Spreadsheets
Solutions to Problems Download as pdf file
Derivations, In-Practice Questions and Discussion
  1. Earnings versus Cash Flows
  2. Reinvestment Rate assumptions in investment decision rules
  3. Net Present Value, IRR or Modified IRR
Readings
Live Case Study

Chapter 8:
Overheads Download as pdf file
Illustrations
  1. Boeing Executive Jet Analysis
  2. Home Depot Store: Working Capital Effect
  3. Cinnamon Bran Project Analysis
Answers to Concept Questions Concept Checks
Data Sets
  1. Operating Income and Cash Flows: By Sector
Spreadsheets
  1. Estimating Cash Flows to Firm and Return Diagnostics on Project
  2. Estimating Cash Flows to Equity and Return Diagnostics on Project
  3. Present Value Calculator
Solutions to Problems Download as pdf file
Derivations, In-Practice Questions and Discussion
  1. Working Capital, Net Working Capital and Non-Cash Working Capital
  2. Operating versus Capital Expenditures
  3. Depreciation, Amortization and Other Non-cash Charges
  4. Capital Expenditures and Depreciation
  5. ROC, Cost of Capital, NPV and EVA
  6. ROE, Cost of Equity and Equity EVA
  7. Equity Analysis versus Firm Analysis
Readings
Live Case Study

Chapter 9:
Overheads Download as pdf file
Illustrations
  1. The Harvest Decision
  2. Home Depot Synergy Example
Answers to Concept Questions Concept Checks
Data Sets
Spreadsheets
Solutions to Problems Download as pdf file
Derivations, In-Practice Questions and Discussion
  1. What is the cost of using excess capacity?
  2. How should we treat product cannibalization in capital budgeting?
Readings
Live Case Study

Chapter 10:
Overheads Download as pdf file
Illustrations
Answers to Concept Questions Concept Checks
Data Sets
Spreadsheets
Solutions to Problems Download as pdf file
Derivations, In-Practice Questions and Discussion
  1. Are we double counting risk when we do what-if analysis?
  2. What is the best way to use sensitivity analysis?
  3. Probability Distributions in Simulation: The Practical Questions
Readings
Live Case Study

Chapter 11:
Overheads Download as pdf file
Illustrations
Answers to Concept Questions Concept Checks
Data Sets
  1. Unlevered and Levered Betas by Industry Group: United States
Spreadsheets
  1. Unlevering and Levering Betas
Solutions to Problems Download as pdf file
Derivations, In-Practice Questions and Discussion
  1. Estimating bottom-up betas for projects
Readings
Live Case Study Estimating Divisional Betas

Chapter 12:
Overheads Download as pdf file
Illustrations
  1. Home Depot Post-Audit
  2. Divestiture of Food Division
Answers to Concept Questions Concept Checks
Data Sets
  1. EVA and Equity EVA: By Sector
Spreadsheets
Solutions to Problems Download as pdf file
Derivations, In-Practice Questions and Discussion
  1. Project failures, divestiture and project termination
  2. Economic Value Added as a Measure of Asset Quality
Readings
Live Case Study Evaluating a Firms' Existing Projects

Chapter 13:
Overheads Download as pdf file
Illustrations
  1. Home Depot Distribution Center: Lease vs Buy
  2. Home Depot Distribution Center: The Lessor's View
Answers to Concept Questions Concept Checks
Data Sets
Spreadsheets
Solutions to Problems Download as pdf file
Derivations, In-Practice Questions and Discussion
  1. Dealing with Operating Leases in Financial Analysis
Readings
Live Case Study Dealing with Operating Leases

Chapter 14:
Overheads Download as pdf file
Illustrations
  1. Firm Value and Working Capital Needs
  2. Aerospace Firms: Working Capital Regression
  3. Home Depot: Working Capital History
Answers to Concept Questions Concept Checks
Data Sets Working Capital Requirements by Industry Sector
Spreadsheets
Solutions to Problems Download as pdf file
Derivations, In-Practice Questions and Discussion
  1. Cash versus Non-Cash Working Capital
  2. The Working Capital Effect on Cash Flows
  3. The Discount Rate in Working Capital Decisions
Readings
Live Case Study Analyzing Working Capital Effects on Cash Flows and Value

Chapter 15: Capital Structure: An Overview of the Financing Decisions
Overheads Download as pdf file
Illustrations
Answers to Concept Questions Concept Checks
Data Sets
  1. Debt Ratios and Fundamentals
  2. Book and Market Debt Ratios By Industry
Spreadsheets
Solutions to Problems Download as pdf file
Derivations, In-Practice Questions and Discussion
  1. A Simple Test of Debt
  2. The Treatment of Hybrid Securities
  3. The Treatment of Warrants and Convertibles
  4. Valuing Flexibility
  5. Dilution as a Bogey
Readings
Live Case Study The Financing Choices

Chapter 16:
Overheads Download as pdf file
Illustrations
Answers to Concept Questions Concept Checks
Data Sets
Spreadsheets
Solutions to Problems Download as pdf file
Derivations, In-Practice Questions and Discussion
  1. Why does it matter whether markets are efficient?
  2. How do you test for market efficiency?
  3. Should firms take advantage of inefficient markets to issue overvalued securites?
Readings
Live Case Study

Chapter 17:
Overheads Download as pdf file
Illustrations
Answers to Concept Questions Concept Checks
Data Sets
  1. Debt Ratio Trade Off Variables by Industry
Spreadsheets
Solutions to Problems Download as pdf file
Derivations, In-Practice Questions and Discussion
  1. Estimating the Tax Benefit from Borrowing
  2. Estimating Expected Bankruptcy Costs
  3. Estimating Agency Costs
  4. Valuing Flexibility
Readings
Live Case Study Analyzing a Company's Debt/Equity Trade Off

Chapter 18: Capital Structure: Model and Applications
Overheads Download as pdf file
Illustrations
  1. Boeing: Minimize WACC Approach
  2. Boeing: Return Differential Approach
  3. Boeing: Adjusted Present Value
  4. Home Depot: Minimize WACC Approach
  5. Home Depot: Return Differential Approach
  6. Ben and Jerry's: Optimal Capital Structure
Answers to Concept Questions Concept Checks
Data Sets
  1. Cross Sectional Debt Ratio Regression for the US
Spreadsheets
  1. Optimal Capital Structure with WACC (Operating Income held constant)
  2. Optimal Capital Stucture with WACC (Operating Income allowed to vary)
  3. Optimal Capital Structure with APV
Solutions to Problems Download as pdf file
Derivations, In-Practice Questions and Discussion
  1. Extensions on the WACC Approach
  2. Building in Constraints
  3. Applying Cost of Capital Approach to Financial Service Firms
  4. Normalizing Earnings: Some Simple Approaches
  5. Getting Inputs for Present Value Approach
  6. Minimizing WACC versus Adjusted Present Value Approaches
  7. Building a Cross-Sectional Regression
Readings
Live Case Study Analyzing a Firm's Optimal Debt Ratio

Chapter 19: Capital Structure: The Financing Details
Overheads Download as pdf file
Illustrations
  1. Time Warner: Optimal Debt Ratio and Changing Financing Mix
  2. Home Depot: Changing Financing Mix
  3. Boeing: Debt Design Regressions
Answers to Concept Questions Concept Checks
Data Sets
  1. Macro Economic Data: Historical
  2. Sensitivity to Macro-economic Variables: By Industry
Spreadsheets
Solutions to Problems Download as pdf file
Derivations, In-Practice Questions and Discussion
  1. Determinants of whether a firm is a takeover target
  2. Determinants of whether a firm is under risk of bankruptcy
  3. Determinants of project quality
  4. Duration: Traditional Measure versus Regression
  5. Simple versus Multi-variate regression
Readings
  1. Stock Buybacks are not always good news
  2. Catastrophe Bonds
  3. Mismatching Financing: The Indonesian Experience
Live Case Study Developing a Firm's Financial Details

Chapter 20: The Determinants of Dividend Policy
Overheads Download as pdf file
Illustrations
Answers to Concept Questions Concept Checks
Data Sets
  1. Dividends and Earnings: S&P 500
  2. Dividend Yield and Payout Ratio: By Sector
Spreadsheets
Solutions to Problems Download as pdf file
Derivations, In-Practice Questions and Discussion
Readings
Live Case Study Analyzing a Firm's Dividend Trade Offs

Chapter 21: A Framework for Analyzing Dividend Policy
Overheads Download as pdf file
Illustrations
  1. Boeing: Analysis of Dividend Policy (with FCFE)
  2. Home Depot: Analysis of Dividend Policy (with FCFE)
  3. Boeing: Comparable firm analysis - Dividend Policy
Answers to Concept Questions Concept Checks
Data Sets
  1. Dividend Policy and Fundamentals: By Sector
  2. Dividend Payout and FCFE Payout: By Sector
  3. Firms with poor projects, low dividends
  4. Firms with good project, low dividends
  5. Firms with poor projects, high dividends
  6. Firms with good projects, high dividends
  7. Cross-Sectional Dividend Regression
Spreadsheets
  1. FCFE versus Dividends: Historical Analysis
  2. Assessing Project Quality
Solutions to Problems Download as pdf file
Derivations, In-Practice Questions and Discussion
  1. An Intuitive Explanation of FCFE
  2. Estimating FCFE for a financial service firm
  3. Analyzing Project Quality for a Firm
Readings
Live Case Study Analyzing Dividend Policy

Chapter 22:
Overheads Download as pdf file
Illustrations
Answers to Concept Questions Concept Checks
Data Sets
Spreadsheets
Solutions to Problems Download as pdf file
Derivations, In-Practice Questions and Discussion
  1. Dividends versus Stock Buybacks: The Determinants
  2. Spin-offs, Split-offs and Divestitures: The Determinants
  3. Stock Dividends and Stock Splits
Readings
Live Case Study Analyzing how to return cash to the stockholders

Chapter 23: Basics of Valuation
Overheads Download as pdf file
Illustrations
Answers to Concept Questions Concept Checks
Data Sets
  1. Fundamental Growth Rate in EPS: By Sector
  2. Fundamental Growth Rate in EBIT: By Sector
  3. Net Capital Expenditure Ratios: By Sector
  4. Working Capital: By Sector
  5. PE, PEG and Fundamentals: By Sector
  6. PBV, ROE and Fundamentals: By Sector
  7. PS, Net Margin and Fundamentals: By Sector
  8. Value/EBITDA: By Sector
Spreadsheets
  1. Model Chooser: Helps choose the right model for a firm
  2. Stable Growth DDM
  3. Two Stage DDM
  4. Three Stage DDM
  5. Stable Growth FCFE Model
  6. Two Stage FCFE
  7. Three Stage FCFE
  8. Stable Growth FCFF
  9. Two Stage FCFF
  10. Three Stage FCFF
  11. Capital Expenditure Estimator
  12. Estimating Equity Multiples
  13. Estimating Firm Value Multiples
Solutions to Problems Download as pdf file
Derivations, In-Practice Questions and Discussion
  1. How do you choose between firm and equity valuation?
  2. How do you estimate an expected growth rate?
  3. How do you estimate how long expected growth will last?
  4. What is terminal value and how is it estimated?
  5. What is a stable growth rate and why can it not be greater than the discount rate?
  6. What is an exit multiple andhow is it used in DCF valuation?
  7. What are the most common errors in dividend discount model valuation?
  8. What are the most common errors in FCFE/FCFF model valuation?
  9. How do you value a firm that is losing money?
  10. How do you value a financial service firm?
  11. How do you value a private firm?
Readings
Live Case Study Valuing a Firm

Chapter 24:
Overheads Download as pdf file
Illustrations
Answers to Concept Questions Concept Checks
Data Sets
  1. EVA and Equity EVA: By Sector
Spreadsheets
  1. Three-stage FCFF valuation model, also presented in terms of projected EVA.
Solutions to Problems Download as pdf file
Derivations, In-Practice Questions and Discussion
  1. A Framework for Value Creation
  2. Economic Value Added as a Value Enhancement Tool
Readings
Live Case Study Analyzing a Company's EVA

Chapter 25:
Overheads Download as pdf file
Illustrations
Answers to Concept Questions Concept Checks
Data Sets
Spreadsheets
  1. Estimate the value of synergy in a merger
Solutions to Problems Download as pdf file
Derivations, In-Practice Questions and Discussion
  1. Valuing Synergy
  2. Valuing Control
Readings
Live Case Study Analyzing a Merger

Chapter 26:
Overheads Download as pdf file
Illustrations
  1. Home Depot Mexico Store
Answers to Concept Questions Concept Checks
Data Sets
Spreadsheets
Solutions to Problems Download as pdf file
Derivations, In-Practice Questions and Discussion
  1. Should exchange rate risk be hedged?
  2. Should discount rates be adjusted for foreign projects?
Readings
Live Case Study

Chapter 27:
Overheads Download as pdf file
Illustrations
Answers to Concept Questions Concept Check
Data Sets
Spreadsheets
  1. Valuing a Short-term option, with dividend adjustment
  2. Valuing a Long-term option, with dividend adjustment
Solutions to Problems Download as pdf file
Derivations, In-Practice Questions and Discussion
  1. Option Pricing Models
  2. Dealing with Dilution in option pricing
Readings
Live Case Study

Chapter 28:
Overheads Download as pdf file
Illustrations
Answers to Concept Questions Concept Checks
Data Sets
  1. Variances in Firm Value: By Sector
Spreadsheets
  1. Valuing the Option to Delay
  2. Valuing the Option to Expand
  3. Valuing the Option to Abandon
Solutions to Problems Download as pdf file
Derivations, In-Practice Questions and Discussion
  1. When is the option to delay a project a valuable option?
  2. When is the option to expand a project a valuable option?
  3. The Right Option Pricing Model to Use in Valuing Real Options
  4. Are strategic considerations valuable options?
Readings
Live Case Study Analyzing the value of an expansion option
Analysing the value of a abandonment option

Chapter 29:
Overheads Download as pdf file
Illustrations
Answers to Concept Questions Concept Checks
Data Sets
Spreadsheets
Solutions to Problems Download as pdf file
Derivations, In-Practice Questions and Discussion
  1. Where is the value added from risk management?
  2. What types of firms will gain the most from risk management?
Readings
Live Case Study

Chapter 30:
Overheads Download as pdf file
Illustrations
Answers to Concept Questions Concept Checks
Data Sets
  1. Market Betas and Total Betas by Sector
Spreadsheets
Solutions to Problems Download as pdf file
Derivations, In-Practice Questions and Discussion
  1. What is the cost of equity and capital of a private firm?
  2. How do you value a private firm?
Readings
Live Case Study

Chapter 31:
Overheads Download as pdf file
Illustrations
Answers to Concept Questions  
Data Sets
Spreadsheets
Solutions to Problems Download as pdf file
Derivations, In-Practice Questions and Discussion
Readings
Live Case Study A Complete Financial Analysis

Spreadsheets
Risk Analysis
  1. Estimating Implied Equity Premium in a Market
  2. Estimating CAPM parameters for a firm
  3. Unlevering and Levering Betas
  4. Estimating Synthetic rating for a firm
  5. Cost of Capital Estimation
Return Estimation
  1. Estimating Cash Flows to Firm and Return Diagnostics on Project
  2. Estimating Cash Flows to Equity and Return Diagnostics on Project
  3. Present Value Calculator
  4. Valuing the Option to Delay
  5. Valuing the Option to Expand
  6. Valuing the Option to Abandon
Capital Structure
  1. Optimal Capital Structure with WACC (Operating Income held constant)
  2. Optimal Capital Stucture with WACC (Operating Income allowed to vary)
  3. Optimal Capital Structure with APV
Dividend Policy
  1. Analyzing Dividend Policy (looking at FCFE and Project Choice)
Valuation
  1. Model Chooser: Helps choose the right model for a firm
  2. Stable Growth DDM
  3. Two Stage DDM
  4. Three Stage DDM
  5. Stable Growth FCFE Model
  6. Two Stage FCFE
  7. Three Stage FCFE
  8. Stable Growth FCFF
  9. Two Stage FCFF
  10. Three Stage FCFF
  11. Capital Expenditure Estimator
  12. Estimating Equity Multiples
  13. Estimating Firm Value Multiples

Overheads
The Objective of the Firm Chapter 2
Present Value Principles Chapter 3
Measuring Risk in Investments Chapter 5,6
Measuring Returns on Investments Chapters 7-10, Chapter 26, Chapter 28
Capital Structure Chapter 15, Chapters 17-19
Dividend Policy Chapter 20-22
Valuation Chapter 23, 24
Mergers and Acquisitions Chapter 25

Derivations and Discussion

2 3 4 5 6
7 8 9 10 11 12
13 14 15 16 17 18
19 20 21 22 23 24
25 26 27 28 29 30