Lecturer’s Guide – Corporate Financial Management, 6th Edition – Glen Arnold & Deborah Lewis – ISBN 9781292140445 (Full Chapters 1–22 Covered)

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Corporate Financial
Management, 6th Edition
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LECTURER’S
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GUIDE
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Glen Arnold, Deborah Lewis
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Comprehensive Lecturer’s Guide for Instructors
and Students
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9781292140445

© Glen Arnold & Deborah Lewis. All rights reserved.
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Reproduction or distribution without permission is prohibited.
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© MEDGEEK

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TABLE OF CONTENTS

Lecturer’s Guide – Corporate Financial Management (6th Edition)
Authors: Glen Arnold and Deborah Lewis
ISBN: 9781292140445
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PART I: INTRODUCTION AND PROJECT APPRAISAL
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Chapter 1: The financial world
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Chapter 2: Project appraisal: net present value and internal rate of return
Chapter 3: Project appraisal: cash flow and applications
Chapter 4: The decision-making process for investment appraisal
Chapter 5: Project appraisal: capital rationing, taxation and inflation
Chapter 6: Risk and project appraisal
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PART II: RISK AND RETURN

Chapter 7: Portfolio theory
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Chapter 8: The Capital Asset Pricing Model and multi-factor models

PART III: SOURCES OF FINANCE

Chapter 9: Stock markets
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Chapter 10: Raising equity capital
Chapter 11: Long-term debt finance
Chapter 12: Short- and medium-term finance, treasury and working capital management
Chapter 13: Stock market efficiency
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PART IV: CORPORATE VALUE AND COST OF CAPITAL

Chapter 14: Value-based management
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Chapter 15: Value-creation metrics
Chapter 16: The cost of capital
Chapter 17: Valuing shares

PART V: CAPITAL STRUCTURE AND DIVIDENDS
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Chapter 2: Project appraisal: net present value and internal rate of return
Chapter 18: Capital structure
Chapter 19: Dividend policy
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PART VI: MERGERS AND RISK MANAGEMENT

Chapter 20: Mergers
Chapter 21: Derivatives
Chapter 22: Managing exchange-rate risk
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CHAPTER 1


The financial world
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Learning outcomes
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At the end of this chapter, the reader will have a balanced perspective on the purpose and
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value of the finance function, at both the corporate and the national level. More specifically,
the reader should be able to:

• describe alternative views on the purpose of the business and show the importance to any
organisation of clarity on this point;
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• describe the impact of the divorce of corporate ownership from day-to-day managerial
control;

• explain the role of the financial manager;
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• detail the value of financial intermediaries;

• show an appreciation of the function of the major financial institutions and markets.

Key points and concepts
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• Firms should clearly define the objective of the enterprise to provide a focus for decision
making.

• Sound financial management is necessary for the achievement of all stakeholder goals.
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• Some stakeholders will have their returns satisficed – given just enough to make their
contribution. One (or more) group(s) will have their returns maximised – given any
surplus after all others have been satisfied.
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• The assumed objective of the firm for finance is to maximise shareholder wealth.
Reasons:
• practical, a single objective leads to clearer decisions;
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• the contractual theory;
• survival in a competitive world;
• it is better for society;
• counters the tendency of managers to pursue goals for their own benefit;
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• they own the firm.




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© Pearson Education Limited 2019

, Arnold & Lewis, Corporate Financial Management, 6e, Instructor’s Manual
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• Maximising shareholder wealth is maximising purchasing power or maximising the
flow of discounted cash flow to shareholders over a long time horizon.

• Profit maximisation is not the same as shareholder wealth maximisation. Some factors a
profit comparison does not allow for:
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• future prospects;
• risk;
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• accounting problems;
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• communication;
• additional capital.

• Corporate governance. Large corporations usually have a separation of ownership and
control. This may lead to managerialism where the agent (the managers) takes decisions
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primarily with their interests in mind rather than those of the principals (the shareholders).
This is a principal–agent problem. Some solutions:
• corporate governance regulation;
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• link managerial rewards to shareholder wealth improvement;
• sackings;
• selling shares and the takeover threat;
• improve information flow.
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• Financial institutions and markets encourage growth and progress by mobilising
savings and encouraging investment.

• Financial managers contribute to firms’ success primarily through investment and
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finance decisions. Their knowledge of financial markets, investment appraisal methods,
treasury, risk management and value analysis techniques is vital for company growth and
stability.

• Financial institutions encourage the flow of saving into investment by acting as brokers
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and asset transformers, thus alleviating the conflict of preferences between the primary
investors (households) and the ultimate borrowers (firms).

• Asset transformation is the creation of an intermediate security with characteristics
appealing to the primary investor to attract funds, which are then made available to the
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ultimate borrower in a form appropriate to them. Types of asset transformation:
• risk transformation;
• maturity transformation;
• volume transformation.
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© Pearson Education Limited 2019